ENTR Practicum Final Exam Quiz Questions

What is equity?

A figure that describes someone's ownership interest in a company

According to Peter Thiel in Chapter 2 of his book, "Zero to One", to avoid developing dogmas around the so-called lesson learned from the dot-com boom and bubble crash of the late 1990's, it is better to adhere to certain principles, which he sets out as being:

(i)it is better to seek boldness than triviality; (ii) a bad plan is better than no plan; (iii) competitive markets destroy profits (iv) Sales are just as important as the product

For a four-year vesting schedule that includes a 1-year cliff, what percentage (%) of shares will be vested in 6 months vs. 2 years?

0% at 6 months, 50% at 2 years

Set out one of the main points made by Peter Thiel in Chapter 2 of "Zero to One" not referenced or contained in one of the previous quiz questions.

1. It's better to risk boldness than triviality. 2. A bad plan is better than no plan. 3. Competitive markets destroy profits. 4. Sales matter just as much as product.

After watching the following video, what does Eric Ries say are the four myths about startup ventures?

1. Lean means Cheap 2. Lean startup is only for the 2.0 internet consumer software companies. 3. Lean startups are small bootstrapped companies. 4. Replace vision with Data.

After reading Chapter 12, Man and Machine from Peter Thiel's Zero to One, it can be argued that Peter Thiel is making a case against Artificial Intelligence. How does he distinguish the functions of human beings from that of computers?

142-144; 150. According to Thiel, men and machines are good at fundamentally different things--people have intentionality--making difficult decisions and using judgment in complicated situations. Computers excel at efficient data processing. Gains from working with computers are much higher than gains from trade with other people. According to Thiel, computers won't replace humans for a long time and shouldn't because technology assists people in reducing the role of chance in our lives and increase our mastery over nature; we have let ourselves be overly impressed with technology and big data.

How much dilution is typical with each funding round.

25%-35%

What is a term sheet?

A high-level summary of the key terms for your funding round

What is a capitalization table?

A ledger that keeps track of the equity holders in your company

Why does Peter Thiel say that failure is massively overrated? Note the video may be slow in uploading.

Because the causes of failure are so complex and varied.

In the introduction to the book, "The Lean Startup," Eric Ries mentions five principles in the lean startup approach that are an integral part of his lean startup methodology. Pick out those five principles from the list below. Enter only the alphabetical letter matching the give correct answers.

Build-measure-learn feedback loop Entrepreneurs are everywhere Innovation Accounting Entr. is management Validated Learning

For a simple equity round of financing, how is an inventory's equity percentage (%) determined?

By dividing the amount of their investment by the post-money valuation

The two typical classes of shares for companies that have raised money are ______ and ______.

Common and preferred

Eric Ries in The Lean Startup book mentions leaps of faith as revolving around the value creation hypothesis and the growth hypothesis. Match each term in the left column to one of the definitions in the right column. Use a listed definition only once.

Customer Arch: A hypothesis not a fact Analogies: Obscure true leaps of faith

According to Chapter 12, Innovate in Eric Ries'The Lean Startup, is the practice of having employees follow the products they develop whether in startups or a large company, consistent with the theme of this chapter? Why or why not?

Even though it might be a common practice, it is inconsistent with the theme of the Innovate chapter. The inventor of a new product or feature should not always manage the subsequent resources, team or division that ultimately commercializes the new product or feature. This results in strong creative managers getting stuck working on the growth and optimization of products rather than creating new ones. Page 266, Chapter 12.

A stock option pool is a temporary escrow account used during an M & A (merger and acquisition) transaction.

False

According to Eric Ries in the introduction to his book, "The Lean Startup," startup success is about being at the right place at the right time and not about the right process.

False

According to Eric Ries, author of "The Lean Startup" the lean startup movement has gone global and the most important resources to support it are no longer local.

False

According to Eric Ries, author of The Lean Startup, as soon as a hypothesis can be formulated to test, the entrepreneur should use the smallest batch size that will get the job done and that means the entrepreneur should first plan to build the MVP not try to figure out what he or she needs to learn.

False

According to Eric Ries, entrepreneurship is not like driving a car with the engine of growth headed true north but more like having a detailed and precise business plan to launch a rocket ship.

False

According to Peter Thiel in Chapter 1 of his book, "Zero to One," a positive definition of a startup is: the largest group of people you can convince of a plan to build a different future provided you do this in a large organization or company.

False

According to Peter Thiel in Zero to One, the perfect target market for a startup is a small group of particular people concentrated together and served by many competitors

False

According to Peter Thiel in Zero to One, the startup entrepreneur who understands the "power law", namely that a small handful of companies radically outperform all the others, should never hesitate in founding a new company because venture returns follow a normal distribution of return.

False

As a company grows, their implied valuation usually goes up in a straight line.

False

Eric Ries in The Lean Startup, mentions how the then newly created Consumer Federal Protection Bureau (CFPB), part of the Dodd-Frank Wall Street Reform & Consumer Protection Act, elicited suggestions for ways to cultivate a startup mentality in the new agency. The CFPB telephone hotline was developed as an MVP and two marketing questions were tested. One of those questions was: How much are you willing to pay for this service?

False

Eric Ries in The Lean Startup, proved that IMVU is an exception to Metcalfe's Law, in other words, the more people in a network, the less valuable the network.

False

If an employee departs and doesn't exercise their vested shares, those shares are distributed to the original company founders as bonus compensation.

False

Peter Thiel in his book, Zero to One considers the lean startup approach a methodology useful for the indefinite short term and a necessary intelligent design required for the long term planning of definite optimism.

Fasle

Pick the one statement from the list below that is consistent with the ideology set out by Peter Thiel, in Zero to One.

Founders of a startup should keep secret the details of how ownership in the startup is distributed

Fill in the blanks below the labeled arrows for Friends & Family, Seed and Series A for the range of the typical amount of money raised.

Friends & Family--$50 to $150 K Seed--$250K to $ 1M Series A--$3 to $6M Seed--0 50 15 months Series A--15 to 24 months

Eric Ries in The Lean Startup book mentions Groupon, Dropbox and Food on the Table (ForT) as three companies that used three different techniques to develop their respective MVP technique. Match each company to one of the listed MVP techniques. Use a listed MVP technique only once.

GROUPON: Wordpress Blog Tech DROPBOX: VIdeo Technique FotT: Concierge Technique

Especially during the early phases of a company's evolution, when deciding how much to raise they should optimize for _______.

Growth

Why does Peter Thiel believe that getting a clerkship with a Justice of the U.S. Supreme Court after he graduated from Stanford Law School would have changed his life for the worst? (Select one correct answer.)

He would not have created anything new; in hindsight, he now knows his future opportunities turned out better.

From the list below, select all the statements that represent the principles that Peter Thiel in Zero to One submits support his belief that all happy companies are different. (Note: there may be more than one correct answer.)

In the real world, outside economic theory, every successful business shares the characteristic of being a monopoly. Monopolies drive progress because the promise of years of monopoly profits provides a powerful incentive to innovate. Monopolies deserve their bad reputation in a static world, but in a dynamic world, monopolies can be creative and invent new and better things .Capitalism and competition are opposites.

According to Peter Thiel, Zero to One, there are four social trends that make it difficult if not impossible for entrepreneurs to believe in "secrets." Pick out the four trends from the list below.

Incrementalism (one step at a time) Risk aversion Flatness (highly competitive) Complacency (social elites have most freedom)

How do companies benefit from having a vesting schedule on the stock options they issue?

It creates a retention incentive for employees

According to philosopher Nick Bostrom cited by Peter Thiel in his book "Zero to One," there are four possible patterns for the future of humanity. Choose from the list below the one pattern that is most likely to be the case that all entrepreneurs should be prepared to face.

None of the named sections

According to Peter Thiel in his book, "Zero to One," for a startup to be successful it is better to be called a cult or a mafia because the secrets of success are not usually available from or known by the conventional consultants. Pick out the one statement from the list below that does NOT support Thiel's view that the company is the culture.

Not every new hire in a startup needs to be equally obsessed about the mission or team

Set out one of the main points made by Eric Ries in Chapter 2 of Eric Ries' "The Lean Startup" not referenced or contained in one of the previous quiz questions.

One of the main points Eric Ries make is that being an entrepreneur requires a proper team structure, good personnel, a strong vision for the future, and an appetite for risk-taking. A second main point is that entrepreneurs are everywhere and are of all types, from all backgrounds, and from companies of different sizes, sectors, and stages of development. Another main point is that sustainable innovation involves incremental improvements of existing products.

Grockit, the online testing service used by thousands of students to prepare for standardized tests such as the GMAT, SAT, ACT and GRE, used two techniques of actionable metrics measurement for innovation accounting that consisted of cohort based metrics and split testing to test their hypothesis (leap of faith) that customers would be willing to adopt the Grockit new way of learning only if they could see proof that it was working early on. Eric Ries in The Lean Startup book reports that as the result of this measurement experiment, Grockit learned the following: (Pick the one true statement from the following list).

One of the major online service features called "lazy registration" was a design best practice that was not worth the extra effort.

Select the one statement from those listed below that is consistent with Peter Thiel's approach in Chapter 11 of his book, Zero to One.

Poor sales rather than bad product/service is the most common cause of failure

Investors write checks for ______, not _______.

Outcomes, not activities

Match the names in the left hand side column with the thoughts (quotes) paraphrased on the right hand column that most closely are associated with the named persons. The correct answers are taken from Eric Ries, "The Lean Startup." Use the quotes in the right hand side column only once. Some of the paraphrased quotes are incorrect and do not match any of the names.

Peter Drucker: Nothing quite Useless Eric Ries: Assumptions are tested Frederick Winslow Taylor: Work can be studied W. Edwards Deming: What matters is not setting qualitative goals Clayton Christensen: Disruptive innovation happens

How is the post-money valuation typically calculated for a simple funding activity?

Pre-money valuation + new funding amount raised

What is the key difference between preferred shares and common shares?

Preferred shares typically have extra beneficial rights associated with them

Which of the following activities causes dilution to existing shareholders? (mark all that apply)

Raising money via an equity round of financing and creating new shares to accommodate Creating shares for a new employee stock option pool Creating new shares to make room for a co-founder

Peter Thiel in his book, "Zero to One" describes the Founder's Paradox as being a seemingly contradictory situation that explains why it's more powerful and at the same time more dangerous for a startup company to be led by a unique leader rather than an interchangeable manager. Select from the list below illustrations of this paradox from the Thiel book.

Steve Jobs created an innovative technology company known as Apple that was led by him and run more like a feudal monarchy than as the inclusive and diverse company that it pretended to be. Today Bill Gates is better known as a global philanthropist wanting to solve health issues in third world counties than as the hard driving technologist-founder of Microsoft looking at market dominance and bottom line profits.

According to Eric Ries, in The Lean Startup, there are three engines of growth: the paid engine of growth, the viral engine of growth and the ______ engine of growth. Choose the one word correct term.

Sticky

How does Peter Thiel in Chapter 1 of his book, "Zero to One," define technology?

Technology according to Thiel is the single word for vertical, 0 to 1 progress, which is vertical or intensive progress in doing new things. See pages 6 & 7, Thiel book.

Pick the one statement from the list below that is consistent with the methodology set out by Eric Ries in The Lean Startup.

The "zoom-in pivot" refocuses a product non what previously had been considered just one feature of a larger whole.

What two factors most determine the dilution from a funding round

The amount raised in comparison to the valuation

There were several validated learning lessons at IMVU that resulted in the CTO, Eric Ries writing The Lean Startup. From the list below select those validated learning lessons.

The audacity of zero with validated learning meant that there was a whole new way of measuring the progress of startups. The quantitative targets created the motivation to engage in qualitative inquiry that guided IMVU in questions it asked. IMVU learned it was an incorrect perception that its potential customers would find it challenging to learn new software and move their friends over to a new buddy list. The grueling 6-month launch schedule paid off because delay prevents many startups from getting the feedback they need.

Intuit's founder entrepreneur Scott Cook and Intuit CEO Brad Smith discussed new management and accountability in Chapter 2 of Eric Ries' book. From the list below pick the two things they measured to hold themselves accountable for their innovation efforts. Enter the alphabetical letter preceding the correct entries.

The number of customers that are using the products that didn't exist three years before The percentage of revenue coming from products that didn't exist three years before

What is dilution?

The result of an activity that causes a shareholder's equity to be reduced

According to Peter Thiel in his book, "Zero to One" what is the formula for knowing if you have effective distribution? Note: Gordon Daugherty, of Founders' Academy explained this formula during is presentation at Capital Factory. In your answer use the metrics of CLV and CAC, explaining what those terms mean).

The total net profit that an entrepreneur earns on average over the course of the venture's relationship with a customer (Customer Lifetime Value) must exceed the amount the venture spends on average to acquire a new customer (Customer Acquisition Cost). See Chapter 11, page 130.

Eric Ries in The Lean Startup, tells the story of IMVU, an instant messaging company with an avatar technology that initially wasted time and resources by not focusing on what creates value for customers. IMVU finally succeeded by validated learning. From the list below select the takeaway from the IMVU story that can be adapted by other entrepreneurs:

The true productivity in the lean startup approach is found by systematically finding the right things to build such as by breaking down a business plan into component parts and testing each part empirically.

How does a shareholder's issued and outstanding equity percentage (%) compare to their fully diluted equity?

Their Issued & Outstanding equity % is usually higher than their Fully Diluted equity

According to Peter Thiel in Zero to One, bio-technology has not met the expectation of investors unlike software technology. Software startups have several characteristics that are distinct advantages over biotech startups. Pick two of those characteristics from the list below.

There is a committed team of Entr. Hackers Available funding is cheap

According to Eric Ries in The Lean Startup, there are only two ways for a company to increase its rate of growth, either increase the revenue from each customer or drive down the cost of acquiring a new customer. According to Peter Thiel in Zero to One, everyone has a product to sell, whether you're a founder, employee, or investor--if you can't find a salesperson, then you're the salesperson! (Select "true") if both statements are true. Select "false" if only one statement is true.

True

According to Eric Ries in his book, "The Lean Startup," Chapter 1, the goal of a new venture is to figure out the right thing to build—the thing customers want and are willing to pay for—as quickly as possible.

True

According to Eric Ries, The Lean Startup, a pivot is a special kind of structured change designed to test a new fundamental hypothesis that will require a new minimum viable product (MVP) to test the product, business model and engine of growth.

True

According to Peter Thiel, in Zero to One, a great startup company is defined by its ability to generate cash flows in the future; a characteristic of such a company is to own proprietary technology that is at least 10 times (10x) better than its closest substitute in some dimension with the potential for great scale built into its first design.

True

According to Peter Thiel, in Zero to One, the lesson learned from the example of Cleantech is that no matter how much the world needs energy, only a firm that offers a superior solution for a specific energy problem can make money.

True

Every great business is built around a secret that is hidden from the outside. It's no secret that early employees and founders of a company usually get the most equity because they take more risk. According to Peter Thiel since it's impossible to achieve perfect fairness when distributing ownership, entrepreneurs would do well to keep the details a secret. (All of these statements are either true or false based on Thiel's theory)

True

For a simple fundraising activity, the post-money valuation is calculated by adding the amount raised to the pre-money valuation.

True

To prove his point that entrepreneurs must recognize competition (rivalry) as a destructive force that overemphasizes old opportunities to slavishly copy what has worked in the past, Peter Thiel in Zero to One uses the Shakespearean model that all combatants look more or less alike. He cites the example of Larry Ellison, founder CEO of Oracle and Tom Siebel, founder CEO of Siebel Systems. If you can't beat your rival,it's better to merge, much like Peter Thiel and Elon Musk merged Confinity and X. com into PayPal. (Note: if all these statements are true, the select "True." If one or more of these statements is false, select "False.")

True

Why do investors who negotiate convertible notes for their investment usually insist on a valuation cap and receive a discount?

Valuation Cap: to compensate for the risk of investing early in the startup

The three A's in the lean startup metrics from the Grockit example in Chapter 7—Measure in Eric Ries The Lean Startup are for actionable, accessible and affordable.

false, Auditable

What is the definition of a "convertible note" and a "s.a.f.e.?"

s.a.f.e. - simple agreement for future equity; a convertible security with no maturity date

According to "The Lean Startup," by Eric Ries, there are four primary ways past customers drive sustainable growth. Set out four examples from that support the Ries' view of this engine of growth.

through repeat purchase or use; through funded advertising; through word of mouth; as a side effect of product usage