Venture Capital Final Exam

Commercial finance companies lend against the _______ of assets.

Liquidation value

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.

Management Buyout (MBO)

Families who intend to act entrepreneurially must be focused on _______.

Opportunity

What leads and drives the financial strategy framework?

Opportunity

Which harvest option can have the negative attribute of forcing the leadership team to focus on short-term profits and performance results?

Public Offering

When pushed by a promising investor to discuss what other firms/angels you are talking to, you should:

Respectfully decline

Which valuation method looks at different multiples (such as earnings, free cash flow, and revenue) of recent investments in similar firms?

Rule-of-Thumb Methods

By ______ their capital contributions, venture capitalists preserve the right to abandon a project whose prospects look dim.

Staging

A typical informal investor (Angel) will invest ________ in any one deal.

$10,000 to $250,000

Most venture capital funds prefer to invest ________ or more.

$2 million to $5 million

Between ________ of all informal (or non- venture capital) funding comes from family.

30% - 80%

How long is the typical expected holding period for a second stage venture capital investment?

4-7 years

The financial mindset for enterprising does NOT include which of the following characteristics:

A willingness to stick with the existing business model.

What is the primary source of DEBT capital for existing (not new) businesses?

Commercial banks

Which of the following harvest options is viewed as a positive motivational device because it usually creates widespread ownership of stock among employees?

Employee Stock Ownership Plan (ESOP)

Which of the following is the most expensive source of DEBT financing?

Factors

The goal of valuation techniques for a start-up company is to be able to arrive at a single number.

False

Unlike equity investors, banks place very little weight on the quality of the management team.

False

An entrepreneur should calculate __________ to determine the external financing requirements of a new venture.

Free cash flow

What is the most likely source for early-stage equity capital of $100,000.

Informal investors (angels)

Families comprise the dominant form of business organization worldwide, and provide more resources for the entrepreneurial economy than any other source.

True

Investors stage their capital commitments as a way to incentivize the entrepreneurial team.

True

Leasing enables a young company to conserve cash and can reduce its requirements for equity capital.

True

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

True

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

True

One of the toughest trade-offs for any young company is to balance the need for start-up and growth capital with preservation of equity.

True

Shaping a harvest strategy is an enormously complicated and difficult task.

True

Short-term debt is most often used by a business for working capital and is repaid out of the proceeds of its sales.

True

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

True

When raising equity investment capital it is important for an entrepreneur to remember that owning a smaller percentage of a larger pie is preferred to a larger percentage of a smaller pie.

True