ENT3003 Chapter 13
due dilligence
A rigorous process which involves evaluating an investment opportunity prior to the contract being signed
Convertible debt
A short-term loan that can be turned into equity when future financing is issued
early-stage financing
A stage of financing which involves larger funds provided for companies that have a team in place and a product or service tested or piloted, but has little or no revenue
Angel investor
A type of investor who uses his or her own money to provide funds to young startup private businesses run by entrepreneurs who are neither friends nor family
unicorn
a tech startup company that has received a $1 billion valuation, as determined by private or public investment
When do the majority of VCs invest in businesses?
when significant market exists for product and service
Professional Angels
- Professionals from other fields (doctors, lawyers, etc.) - commonly silent investors - may want to become paid advisors
Cofounders Larry Page and Sergey Brin gave up how much ownership in Google?
84%
How do investors calculate pre-money valuation?
post-money valuation less investment
Typically entrepreneurs value their companies based upon ______.
potential in chosen market
Angel investors receive lots of unsolicited ideas every day, so it is a good idea to have a ______ vouch for the entrepreneur.
professional
Venture capitalists tend to be ______.
professional money managers
What is the stage of financing in which small or modest amounts of capital are provided to entrepreneurs to prove a concept?
seed-stage
What amount do venture capitalists tend to invest?
starting around $1 million
What is the stage of financing in which the money is provided to entrepreneurs to enable them to implement the idea by funding product research and development?
startup
initial public offering
the first time a company issues stock that may be bought by the general public
equity financing
the sale of shares of stock in exchange for cash
Why is it essential for an entrepreneur to know the value of a company prior to seeing investors?
to know how much equity to give up
seed-stage financing
a stage of financing in which small or modest amounts of capital are provided to entrepreneurs to prove a concept
startup financing
a stage of financing in which the money is provided to entrepreneurs to enable them to implement the idea by funding product research and development
venture capitalist
a type of professional investor who generally invests in early-stage and emerging companies because of perceived long-term growth potential
Debt financing
borrowing money to start a business that is expected to be paid back with interest at a designated point in the future
The financing funds provided to cover expenses associated with the initial public offering are ______.
bridge
Before making a loan to a startup, banks look at ______.
capital assets that exist
This ______ angel investor is often from big multinational and typically wants a paid position in the venture.
corporate
Investors do not expect the entrepreneurs to have a distribution channel set up.
False
Most entrepreneurs manage to make money and maintain full control of their businesses.
False
Who is considered the father of venture capital?
George F. Doriot
One of the most successful VC seed investment returns was $78 million for $250,000 investment to ______.
Why do Shark Tank investors talk about pre-money valuation?
It helps them decide how much ownership to take with their offer.
An important factor in thinking about seeking investment dollars is to find investors who are suitable for the stage of the company.
True
T or F: Most of the active venture capital firms operate very similarly.
True
T or F: One reason an angel may reject a pitch is for geographical reasons.
True
What is a rigorous process that involves evaluating an investment opportunity prior to the contract being signed?
due diligence
One of the important factors to an investor is knowing the ______.
entrepreneur's experience and team's successes
Micromanagement Angels
entrepreneurs who have achieved success through their own companies and want to be involved in the ventures they invest in
Once a company starts growing and showing potential, entrepreneurs look for ______ financing.
equity
What is the sale of shares of stock in exchange for cash?
equity financing
A venture capitalist invests his or her own money into startups.
false
What is valuation based upon in the seed-stage, startup, or early-stage company?
future growth
Enthusiast angels invest their personal capital in startups as a ______.
hobby
A(n) ______ is a company's first opportunity to sell stocks on the stock market.
initial public offering
By taking the companies public, venture capitalists exited Uber and Lyft through what exit strategy?
initial public offering
Accredited investors
investors who earn an annual income of more than $200,000 or have a net worth of more than $1 million
What is an advantage of convertible debt?
majority ownership remains with the funders
What population continues to be underrepresented by angel groups?
minorities
Bank financing is a good option when ______.
no other financing is available
