Venture Capital

When is it a good idea to hire an outside professional to write the business plan?

It is NOT a good idea to hire an outside professional to write the business plan

The entrepreneurial methods for enterprising does NOT include which of the following characteristics: Systematically searching for and capturing new investment opportunities. Seeking new opportunities beyond the core business. Making significant changes in products, services, markets, and customers. Maintaining the existing business model by implementing incremental change.

Maintaining the existing business model by implementing incremental change.

A(n) ______ is when a founder can gain liquidity from a business by selling it to existing partners or to other key managers in the business. Initial Public Offering (IPO) Management Buyout (MBO) Capital Cow Merger

Management Buyout (MBO)

Extending _________ is a common example of leveraging resources to increase cash flow for startups and growing firms. board terms accounts receivable accounts payable notes receivable

accounts payable

T/F: The prospect of bankruptcy can provide a foundation for bargaining with creditors in a turnaround situation.

True

T/F: The rate of return (ROR) required by the investor can affect the investor's required share of the ownership.

True

T/F: The single most important criterion for selecting investors is what they can contribute to the value of the venture beyond just financing.

True

T/F: When speaking with a venture capitalist, the entrepreneurial team should be vague when describing other potential venture capitalists they are talking to about funding.

True

T/F: Whenever possible, effective entrepreneurs seek to control resources they need rather than own them.

True

For an entrepreneur to seize an opportunity, the _________ must be open and remain open long enough to achieve market-required returns. Investment Horizon Window of Opportunity EBITDA Intellectual Property Continuum

Window of Opportunity

What is the primary source for decreasing expenses in a troubled company for a turnaround plan? Auditing Reduction Workforce Reduction Trade Debt Reduction Advertising Reduction

Workforce Reduction

Which of the following is the most expensive source of receivables financing? Commercial Bank Commercial Finance Company Initial Public Offering (IPO) Factoring

Factoring

T/F: A venture should look for capital only when it has a serious cash shortage.

False

T/F: Business plans are not required because they are obsolete the minute they are finished.

False

T/F: Business plans become obsolete quickly, so they should only be prepared if you are NOT raising outside capital.

False

T/F: By staging their capital contributions, venture capitalists will lose the right to abandon a project -- even if the prospects look dim.

False

T/F: Corporations are legally required to have a Board of Advisors that is elected by the shareholders.

False

T/F: Enterprising families focus on maintaining their local advantage; safeguarding their brands, assets, and customers; and, honing their operational efficiencies.

False

T/F: Entrepreneurship does not occur in large companies.

False

T/F: Leasing provides the flexibility of returning equipment after the lease period if it is no longer needed, BUT NOT if that equipment has become technologically obsolete.

False

T/F: Most causes of company failure are external and not found within company management.

False

T/F: Short-term debt is most often used by a business to finance property and equipment for 2 to 3 years.

False

T/F: The originator of the idea should not receive any stock (or equity) in the new venture.

False

What is the most likely source of funding for a startup company looking to raise $50,000 for Research and Development? Venture Capital Founders IPO (Initial Public Offering) Strategic Acquirer

Founders

Regarding rewards and equity, which of the following is NOT a fundamental reality with nearly any new venture? -Founders should keep most of the company to themselves. -Cash is King. -You will be out of cash much sooner than you think. -Talent is the key to success.

Founders should keep most of the company to themselves.

Which of the following would NOT be considered a strong signal for predicting trouble for a company? Changes in behavior of the lead entrepreneur Change in management or advisors Increased Research and Development expenditures Inability to produce financial statements on time

Increased Research and Development expenditures

What is the most likely source for early-stage equity capital of $100,000? Informal Investors (Angels) Venture Capital Banks Public Equity Markets

Informal Investors (Angels)

An entrepreneur should calculate __________ to determine the external financing requirements of a new venture. revenue profitability earnings per share free cash flow

free cash flow

The entrepreneurial process starts with the ________. strategy networks team opportunity

opportunity

What are the three key driving forces of the Timmons Model? cash, opportunity, resources opportunity, resources, team strategy, cash, resources opportunity, market, network

opportunity, resources, team

The business plan is _____________. the start of a relationship with investors never obsolete typically outsourced only to be completed for raising Venture Capital

the start of a relationship with investors

A typical informal investor (Angel) will invest from ________ in any one deal. $5,000 to $10,000 $10,000 to $250,000 $100,000 to $500,000 $500,000 to $1 million

$10,000 to $250,000

Most venture capital investments are in the range of ________ . $50,000 to $500,000 $100,000 to $1 million $500,000 to $1.5 million $100 million to $200 million

$500,000 to $1.5 million

Between ________ of all informal (or non- venture capital) funding comes from family. 5% -10% 10% - 20% 20% - 30% 30% - 80%

30% - 80%

The ultimate goal of any venture capital-backed company is to realize a harvest at a price _____ times the original investment. 1 to 2 3 to 5 5 to 10 20 to 25

5 to 10

How long is the typical expected holding period for a first stage venture capital investment? 3-5 years 4-7 years 5-10 years 20 years

5-10 years

The financial mindset for enterprising does NOT include which of the following characteristics: A commitment to generating next-generation entrepreneurship. A willingness to stick with the existing business model. A desire to grow by creating new revenue streams with higher returns. A willingness to sell and redeploy assets to seek higher returns.

A willingness to stick with the existing business model.

_______ strategies encourage a discipline of leanness, where everyone knows that every dollar counts. Cost Accounting Bootstrapping Cash Control Opportunity Awareness

Bootstrapping

________ is defined as a multistage commitment of resources with a minimum commitment at each stage or decision point. Secured Equity Angel Capital Mezzanine Funding Bootstrapping

Bootstrapping

________ of a company can be held personally liable for its actions and those of its officers. Directors Advisors Common Shareholders Customers

Directors

Which of the following does NOT accurately describe a business plan? Work in progress Easy to prepare Never truly finished Obsolete at the printer

Easy to prepare

Which of the following harvest options is viewed as a positive motivational device because it usually creates widespread ownership of stock among employees? Initial Public Offering (IPO) Employee Stock Ownership Plan (ESOP) Outright Sale Strategic Alliance

Employee Stock Ownership Plan (ESOP)

______ financing is used to fill the non-bankable cash gaps where money cannot be borrowed, preserve ownership, and lower the risk of loan defaults.

Equity

Which harvest option can have the negative attribute of forcing the leadership team to focus on short-term profits and performance results? Public Offering Management Buyout (MBO) Employee Stock Ownership Plan (ESOP) Capital Cow

Public Offering

When pushed by a potential investor to discuss what other firms or angels you are talking to, you should: Respectfully decline Reveal only the strongest other prospects Reveal only the weakest prospects Be up-front and tell them what they want to know

Respectfully decline

Which valuation method looks at different multiples (such as earnings, free cash flow, and revenue) of recent investments in similar firms? Venture Capital Method Fundamental Method First Chicago Method Rule-of-Thumb Methods

Rule-of-Thumb Methods

_______ is the ability to build a business beyond a sole proprietorship and to build one that can grow with the right resources and people while building equity for you and your investors. Equity Preservation Capital Management Synergy Capitalization Scale

Scale

Which of the following is NOT a worthwhile principle to guide the approach to rewards and equity sharing in creating a successful venture? -Share the wealth with the high performers who contribute to its creation. -Sweat equity does not matter much. -Treat other people as you would want to be treated. -Reward results, and especially those who create revenue, and attract and grow key talent.

Sweat equity does not matter much.

Which of the following is NOT a characteristic of a successful deal. They are simple They are based primarily on legalese rather than on trust They are robust They improve chances of success for the venture

They are based primarily on legalese rather than on trust

What is the advantage of dealing with a commercial finance company? Better interest rates than commercial banks No prepayment penalties They will make loans that commercial banks will not Personal guarantees are usually not required

They will make loans that commercial banks will not

Which of the following is the most probable source of debt capital for a new business? Commercial Banks Trade Credit Mezzanine Capital Initial Public Offering (IPO)

Trade Credit

Which group of creditors below has the lowest claim in a bankruptcy situation? Secured Lenders Commercial Banks Trade Debt Leasing Companies

Trade Debt

T/F: Commercial banks primarily focus on existing businesses with long and substantial financial track records.

True

T/F: It is in the high-growth stage that new ventures tend to exhibit a failure rate exceeding 60 percent.

True

T/F: Most advisors view outright sale as the ideal route to harvest because up-front cash is preferred over most stock.

True

T/F: Most often, family cash investments are given based on altruistic family sentiments rather than having more formal investment criteria.

True

T/F: One of the biggest mistakes aspiring entrepreneurs make is strategic in thinking too small.

True

T/F: Real business opportunities have robust market, growth, margin, and profitability characteristics that can be proven.

True

T/F: Shaping a harvest strategy is an enormously complicated and difficult task.

True

T/F: Strategies that maximize the amount of money raised can be counter-productive for new and emerging companies.

True