finance 300 final
A call option is the obligation to purchase a specific asset at a pre-determined price.
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A warrant is a call option issued by a company granting the holder the right to buy common stock at a specific price at a specific time.
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An American-style option is an option that can be exercised only at the expiration date
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"Carried interest" is the portion of profits paid to the professional venture capitalist as incentive compensation.
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"Due diligence," in venture investing context, is the process of ascertaining the viability of a business plan.
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. For the 504 loan, the SBA approves and guarantees the development company's portion of the debt but does not guaranteed the debt of the participating commercial bank.
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15. In the venture investing context, due diligence describes the process of investigating a potentially worthy concept or plan.
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A "term sheet" is a summary of the investment terms and conditions accompanying an investment by venture capitalists.
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A European-Style Option may only be exercised on a specific date.
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A preemptive right is a right for existing owners to buy sufficient shares to preserve their ownership share.
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A warrant is a type of call option.
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Among start-ups, it is widely understood that bank debt (outside of Small Business Administration loans), is not a very realistic source of financing for ventures with less than two years operating results.
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An option granting the right to sell a stock at $10 when that stock currently has a market price $8 is "in the money."
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An option is a right to buy or sell additional shares of stock.
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An option not currently worth exercising is said to be an out of the money option.
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Because of loan restrictions, obtaining funding from commercial lenders is prohibitive for entrepreneurs.
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By an act of Congress, the Small Business Administration (SBA) was created for the purpose of fostering the initiation and growth of small businesses.
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By issuing preferred stock, and thus forfeiting bankruptcy rights from the use of debt, the venture and its investors can benefit by committing to an internal reorganization as opposed to bankruptcy reorganization.
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Created by the Small Business Administration, Small Business Investment Companies possess important tax advantages and were eligible to borrow amounts up to four times their equity base from the government.
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Endowments and foundations are more important suppliers of venture capital relative to individuals and families.
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Entity valuation allows us to answer the question of how much debt a venture needs to issue to achieve a target capital structure (D/V).
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Factoring is the selling of receivables to a third party at a discount from their face value.
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For American and Bermudan embedded options, the exercise price can change over time as specified in the security agreement.
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Harvesting is the process of exiting the privately held business venture to unlock the owners' investment value.
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If a call option can be bought for $12 and the stock's market value is $12, it's said to be "at the money".
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If a share of preferred stock has a $10 par value, and the stock has a 2:1 conversion ratio, then the conversion price would be $5.
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In 1958 the Small Business Administration created Small Business Investment Companies.
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In a factoring arrangement, the third party makes its money by purchasing the receivables at a discount from the total amount due on the receivables.
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In addition to having personal financial stakes in their portfolio of investments, professional venture capitalists have raised funds from other investors to invest in the portfolio.
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Internet financing led the record level of venture investing in the 1999-2000 time period.
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Microloans in the SBA credit program are intended for very small businesses with a maximum amount of $35,000 to be used for general purposes
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Microloans in the SBA credit program are made by not-for-profit or government-affiliated Community Development Financial Institutions (CDFIs).
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Most venture investing came from wealthy individuals and families prior to World War II.
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Once the venture capital firm has received exit proceeds from a venture in the form of cash or securities, some method of returning the proceeds (less the carried interest) must be determined.
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One method of harvesting a venture is through systematic distribution of assets directly to the owners.
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Pension funds are the dominant source of funds for venture investing.
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Professional venture capital, as we know it today, did not exist before World War II.
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SLOR stands for "standard letter of rejection."
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Term sheets may contain demands regarding the voting rights of shares issued to venture investors.
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The 7(a) loan traditionally has been the SBA's primary loan program
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The American Research and Development (ARD) company was formed in 1946.
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The SBA approves the standard 7(a) loan and guarantees up to 85% of the loan value.
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The concept of an enterprise value is that it is the combined value of all of venture's financing, typically equity plus all of the debt.
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The deal flow reflects the flow of business plans and term sheets involved in the venture capital investing process.
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The enterprise method of valuation can be executed with either an after-tax or before-tax weighted cost of capital as long as the rate is applied to the appropriate enterprise cash flows.
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The enterprise value includes the value of the debt, equity, and warrant pieces of a venture.
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The establishment of the Small Business Administration was the first major government foray into venture investing.
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The process of exiting the privately held business venture to unlock the owners' investment value is known as harvesting.
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The value of a warrant can be directly derived from the value of a call option.
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Two typical issues addressed in a term sheet are valuation and the size and staging of financing.
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Unlike traditional commercial banks, venture banks typically provide debt to start-ups that have already received equity financing from professional venture capital firms.
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Warrants allow lenders to buy equity at a specified price.
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When a syndicate of VCs invests in a venture, the investor in charge of organizing the due diligence process is known as the "lead investor."
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When an initial business plan is prepared, attention must be paid to the investors' and founders' desire for eventual liquidity by providing a harvest for the venture investors.
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When harvesting a venture, the methodical distribution of assets directly to the owners is known as a systematic liquidation.
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With venture leasing, one component of the return to the lessor is the opportunity to take an equity interest in the venture.
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a business incubator is an organization that helps startup companies develop by providing management, operating, and financial services
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a seed accelerator is an organization that usually provides both an equity investment and a mentoring and educational fixed term, cohort program to help startup companies succeed.
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business crowd sourcing is the process of obtaining business ideas, development support, and operating services from a large network of non-employees
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convertible notes are debt allowing for conversion into stock at a price set by a future financing round
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which of the following is an example of a call option which is in the money?
the option to buy at $11, the stock is worth $12
An advantage of an exit strategy that pays out the venture's investment value over several years can make it more difficult for entrepreneurs to start a new venture because adequate capital has not been released from the existing venture.
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As the underlying stock price increases in value, a put option to sell it becomes more valuable.
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Because investors and commercial lenders both seek returns on the funds given to start-up firms, entrepreneurs can obtain financing as easily from either source.
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Collateral plays an important role in determining the willingness to lend and the amount and terms of the loan, making it the most important factor in the lending process.
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Commercial banks receive a portion of their returns from warrants in addition to the receipt of interest and the repayment of the principal that was lent.
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Commercial loan officers have the expertise to project new venture's business successes, and thus are as willing to make funds available to entrepreneurs on the same basis as other businesses.
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Compensation received by commercial loan officers makes them more likely to finance early-stage ventures.
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Convertible debt is debt that converts into preferred stock.
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Convertible preferred stockholders have the right to convert a preferred share into a specified number of common shares at any time after the expiration date.
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Credit cards issued to start-ups have proven to be an alternative source of start-up financing.
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Direct public offerings have recently become a serious challenge to traditional venture capital firms.
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Due diligence (in venture investing context) is the process of ascertaining the visibility of a business plan
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Factoring is the sale of payables to a third party at a discount to their face value.
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For preferred noncumulative stock, all previously unpaid preferred dividends must be paid before any common stock dividend is paid.
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In determining a harvest value, non-monetary items such as culture, managerial succession, and employee retention are not factored in.
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Individuals and families are more important suppliers of venture capital relative to finance and insurance firms.
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Initially, Small business Investment Companies access to borrowed funds appeared attractive. This was because venture investing and debt service commitments are an ideal mixture of financing for start-ups.
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Options generally have no effect on the value of a venture capital investment.
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Other than when the venture is operating in a declining industry, it is difficult to think of cases where the disadvantages of liquidation outweigh the advantages.
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Preferred stock is the equity claim senior to common stock providing preference on dividends but not liquidation proceeds.
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Receivables lending is the use of receivables as collateral for an equity issue.
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SBA 7(a) loans are made usually for 1 to 3 years in amounts up to $5,000,000, require collateral, and can be used for most business purposes.
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SLOR stands for "standard letter of recognition."
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Term sheets consist of the terms and conditions accompanying an investment, as stipulated by the founders of the venture.
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The SBA's role in its microloan credit program is to approve the loans and guarantee up to 85% of the loan value.
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The SBA's venture capital credit program works through Community Development Financial Institutions (CDFIs).
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The beginning of professional venture capitalists began with the formation of American Research and Development in 1966.
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The first major government foray into venture investing came with the formation of the Small Business Administration (SBA) in 1947.
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The phrase "two and twenty shops" refers to investment management firms having a contract that gives them two percent carried interest and 20 percent of assets annual management fee.
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The returns to venture bank lenders are generated solely from interest payments made by borrowers plus the return of the loan principal.
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The summary of the investment terms and conditions accompanying an investment proposed by the venture capitalist is known as the statement of strengths and weaknesses.
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The term "capital call" refers to the flow of business plans and term sheets involved in the venture capital investing process.
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Warrants are a debt instrument frequently used by commercial banks when financing entrepreneurial ventures.
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When an industry is in decline, systematic liquidation is typically the most attractive harvest strategy.
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When harvesting a venture, the outright purchase of the going concern by managers, employees, or external buyers is known as going public.
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When harvesting a venture, the two-step public equity registration and sale is known as an outright sale.
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When the venture fund calls upon the investors to deliver their investment funds, it reflects the deal flow.
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convertible debt is debt with the option to exchange it into non convertible or straight debt
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there are two types of crowd funding: rewards - based and debt - based
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