Topic 6 Quick Check: Funding with Equity

Which statement is true about angel investors? Angel investors are the single most important source for equity funding There are 300,000 to 400,000 active angel investors in the United States Angel investors typically invest $25,000 to $50,000 in each deal All of the above are true of angel investors

All of the above are true of angel investors

How do venture capitalists get paid? They charge a two to three percent annual management fee on the total amount of money they have invested They take interest on their investment, which escalates each year until the sale of the company They take a percentage of the total profit made on the company, which is usually 20 to 30 percent The first and third answers are both correct

The first and third answers are both correct

What is a private placement for funding a business? When you only take funding from people you know well and have prior experience with When the investors remain anonymous to both you and the public The placement of resources within a private hedge fund for the business The sale of stock in your company to a small group of institutional investors or wealthy individuals who are accredited investors under securities law

The sale of stock in your company to a small group of institutional investors or wealthy individuals who are accredited investors under securities law

When is equity financing a good strategy for funding a new business? When you are starting a service company that needs little capital When you have enough of your own resources to fund your company When you need large amounts of capital for expensive equipment None of the above

When you need large amounts of capital for expensive equipment

Which of the following is a major advantage of equity financing? You can gain great partners to join your board that know your industry and have important resources and a stake in your success You usually have one to three years before you have to start making payments When you sell your company, you only have to pay your investors interest on their investment The investors are generally silent and they leave you alone to run your own company

You can gain great partners to join your board that know your industry and have important resources and a stake in your success

Which statement about equity financing is true? You use your own money to fund the development and growth of your company You maintain full ownership of your company You gain new owners and partners in your company You have to pay the money back within three to five years

You gain new owners and partners in your company

What happens when a company "goes public"? You sell shares in your company on the open market to the general public You agree to sell your business to a foreign company in the same industry You sell stock in your company to a small group of institutional investors or wealthy individuals who are accredited investors under securities law You disclose and own up to mistakes the company has made

You sell shares in your company on the open market to the general public

What is the best reason to take a company public? a. You want to become a very popular and well-known entrepreneur b. You need a large amount of cash to scale the business rapidly c. You want an easy exit strategy for yourself, team members, and early investors d. Both B and C

d. Both B and C

Which statement is sound advice about using friends and family members as equity investors? a. Never use friends and family members as investors in your company b. Don't recruit friends and family members just because you know them, but also don't pass them up just because they are friends and family members c. If you use friends and family members, make sure you have a good match between your company needs and the interest, experience, and skills of any potential partner d. Both B and C

d. Both B and C