MGMT 310 Exam 2 (10)

Historically, commercial banks have been viewed as an excellent source of financing for startup firms.

.False

In startup firms, inventory must be purchased, employees must be trained and paid, and advertising must be paid for before cash is generated from sales. Which of the following reasons that motivate firms to seek funding or financing is illustrated in this example?

A) Cash flow challenges

Which of the following statements is incorrect about grant programs?

A) Granting agencies are very visible and well-known, so it's normally not hard to find one.

_______ are limited partnerships of money managers who raise money in "funds" to invest in startups and growing firms.

A) Venture capital firms

The three primary reasons startups need funding are ________.

A) cash flow challenges, capital investments, and lengthy product development cycles

Equity financing (or funding) means ________.

A) exchanging partial ownership in a firm, usually in the form of stock, for funding

Steven and Emily Campbell are planning to open a casual dining restaurant in downtown Akron, Ohio, and need $125,000 to get started. They have $50,000 of their own money, which leaves $75,000. After getting turned down by a couple of banks, they decided to turn to their relatives and acquaintances for help. Fortunately, they were able to raise the money through a gift from Steven's grandfather, a loan from Emily's parents, and a small investment by Steven's best friend in college, Doug. The money that an entrepreneur raises in this manner is referred to as ________.

A) friends and family

Venture capital firms are ________ of money managers who raise money in "funds" to invest in startups and growing firms.

A) limited partnerships

The two types of crowdfunding sites are ________-based and ________-based.

A) rewards; equity

In regard to the stages (or rounds) of venture capital funding, the stage of funding that occurs when an investment is made very early in a venture's life to fund the development of a prototype and feasibility analysis is referred to as ________ funding.

A) seed

_______ are individuals who invest their personal capital directly in start-ups.

B) Business angels

Which of the following statements is not correct regarding business angels?

B) The number of angel investors has decreased dramatically over the past decade.

According to the textbook, the unique value provided by business angels is they ________.

B) are willing to make relatively small investments

The major advantage of leasing is that ________.

B) it enables a company to acquire the use of assets with little or no down payment

A liquidity event accomplishes which of the following purposes?

C) Converts some or all of a company's stock to cash.

An important part of obtaining venture capital funding is going through ________ diligence, which refers to the process of investigating the merits of a potential venture and verifying the key claims made by the business plan.

C) due

According to the textbook, beyond their own funds, the second source of funds for many new ventures is ________.

C) friends and family

The three most common forms of equity funding are ________.

C) initial public offerings, business angels, venture capitalists

Katy Anderson's startup, which is in the organic fruit and vegetables industry, was launched on January 1, 2015. However, prior to its formal launch, Katy spent many hours working on her business, particularly during the feasibility analysis stage. The time and effort that entrepreneurs put into their venture, that can't be easily measured from a financial point of view, is referred to as ________ equity.

C) sweat

For startup firms, the cost of buying real estate, building facilities, and purchasing equipment often exceeds the firm's ability to provide funds for those needs on its own. Which of the following reasons that motivate firms to seek funding or financing is illustrated in this example?

D) Capital investments

FundersClub and Crowdfunder.com are examples of ________-based crowdfunding sites.

D) equity

Debt financing involves ________.

D) getting a loan or raising venture capital

A(n) ________ bank is an institution, such as Credit Suisse First Boston, that acts as an underwriter or agent for a firm engaged in an initial public offering.

D) investment

The to major advantages of getting a loan versus investment capital are ________.

D) no ownership in the firm is surrendered and interest payments are tax deductible

Which of the following statements is incorrect regarding equity funding?

E) Equity investors fund the majority of the plans they consider.

Which of the following is not a source of equity funding?

E) Government grants

Which of the following set of characteristics places a startup in the strongest position to apply for equity funding?

E) Unique business idea, high growth, niche market, proven management

Amy Clark just opened a soup and salad restaurant near Golden Gate Park in San Francisco, CA. Rather than borrow money or raise funds from investors, Amy used her creativity and ingenuity and figured out how to get her business up and running without the need for external funding. Amy is utilizing a technique referred to as ________.

E) bootstrapping

A brief, carefully constructed statement that outlines the merits of a business opportunity is called a(n) ________ speech.

E) elevator

Historically, commercial banks ________.

E) have not been a good source of funds for startup firms

The first sale of stock by a firm to the public is referred to as a(n) ________.

E) initial public offering

A(n) ________ is a written agreement in which the owner of a piece of property allows an individual or business to use the property for a specified period of time in exchange for payments.

E) lease

Kickstarter and Indiegogo are examples of ________ crowdfunding sites

E) reward-based

According to our textbook, the seed money that gets a company off the ground typically omes from ________.

E) the founders of the firm

Bootstrapping is the process of combining personal funds, equity investments, and bank financing to launch a business.

False

Debt financing means exchanging partial ownership in a firm in exchange for cash.

False

Kickstarter, Indiegogo and RocketHub are examples of equity-based crowdfunding sites.

False

The ideal candidate for a bank loan is a firm with weak cash flow, high leverage, low to moderate growth and unproven management.

False

The number of angel investors in the United States has decreased dramatically over the past decade.

False

Typically, the seed money that gets a company off the ground comes from a commercial bank.

False

Venture capital involves getting a loan or selling corporate bonds.

False

Venture capitalists are individuals who invest their personal capital directly in startups.

False

A lease is a written agreement in which the owner of a piece of property allows an individual or business to use the property for a specified period of time in exchange for payments.

True

Angel investors, private placement, venture capital, and initial public offerings are the most common sources of equity funding.

True

Most business angels remain fairly anonymous and are matched up with entrepreneurs through referrals.

True

The percentage of the profits the venture capitalist gets is called the "carry."

True

The three common sources of "personal" financing for a startup firm are personal funds, friends and family, and bootstrapping.

True

The vast majority of founders contribute personal funds along with sweat equity to their ventures.

True

Venture capital is money that is invested by venture capital firms in startups and small businesses with exceptional growth potential.

True