Deck 13: Financing for Startups

Question 1

Sites such as ______ will help you find out how much businesses are worth in your industry.

A)Indeed.com
B)SBA.gov
C)Entrepreneur.com
D)BizBuySell

Answer 1

D

Question 2

Entrepreneurs must determine the firm's potential in the chosen ______.

A)field
B)market
C)industry
D)financial structure

Answer 2

B

Question 3

Which of the following is another term for convertible debt?

A)convertible bond
B)convertible stock
C)loan forgiveness
D)revolving debt

Answer 3

A

Question 4

A(n) ______ is an informal investor who provides an entrepreneur with funds even though they have no previous association with the entrepreneur.

A)seed investor
B)bridge investor
C)equity investor
D)angel investor

Question 5

How is a seed company valued?

A)on the anticipation of future growth
B)on the value that it has on hand
C)by the number of shareholders
D)on the basis of its financial history

Question 6

______ is a short-term loan that can be turned into equity when future financing is issued.

A)Convertible debt
B)Angel funding
C)Business load
D)Equity loan

Question 7

Which of the following would be most likely to fund $600,000 or more in early to late stage companies?

A)crowdfunding
B)angel investors
C)venture capitalists
D)friends

Question 8

______ is the company's value before it receives outside investment.

A)Post-money valuation
B)Seed money valuation
C)Pre-money valuation
D)Startup valuation

Question 9

______ consists of small amounts of capital given to help prove a concept.

A)Startup loans
B)Seed-stage financing
C)Startup financing
D)Early-stage financing

Question 10

______ is provided to help implement an entrepreneur's research and development.

A)Startup loans
B)Seed-stage financing
C)Startup financing
D)Early-stage financing

Question 11

Why would one consider waiting before seeking investment capital?

A)You maintain ownership of the company as long as possible.
B)You build value in the company, which allows you to get the best investment deal.
C)Investors will want to see that you invested your own money first.
D)Waiting gives you time to fully reflect on the company's potential.

Question 12

When seeking investors, the authors suggest which of the following?

A)Find investors early in the game so that you can focus on building the company.
B)Avoid seeking investors as long as possible.
C)Wait until the company is financially successful, then use the funds for growth.
D)Avoid investors altogether.

Question 13

When Google attained investors, what portion of the company did they retain?

A)90%
B)49%
C)51%
D)16%

Question 14

Even though you may not be profitable, investors will want to know how many customers you have because it will show potential ______.

A)customer satisfaction
B)to scale the business
C)marketability
D)revenue from that base

Question 15

One step in determining a startup company's potential is to ______.

A)see how similar companies in the same industry are being valued
B)determine the economic health in the market area
C)look at the track record of the cofounding team
D)analyze the company's financial forecast

Question 16

______ is the company's value after it receives a round of financing.

A)Post-money valuation
B)Seed money valuation
C)Pre-money valuation
D)Startup valuation

Question 17

______ is provided to build the team and test the product or service.

A)Startup loans
B)Seed-stage financing
C)Startup financing
D)Early-stage financing

Question 18

The cofounder of Contap, Jason Craparo, measures his company's success by ______ and ______.

A)the number of people downloading apps; financial success
B)the returned value to the shareholders; company equity
C)the returned value to the shareholders; number of users
D)financial success; shareholder value

Question 19

Equity financing defined as ______.

A)the value of the total company assets
B)the value a company earns and borrows against
C)the sale of shares of stock in exchange for cash
D)a debt incurred by a company

Question 20

The cofounders for Contap received $275,000 from venture capitalists.What did the investors receive in return?

A)5% royalties from future sales
B)15% equity in the business
C)50% equity in the business
D)10% royalties from future sales

Question 21

______ angels are likely to intervene if the business is not going well.

A)Entrepreneur
B)Professional
C)Enthusiast
D)Micromanagement

Question 22

How much return does a typical angel investor expect from his or her investment?

A)angel investors have no expectation of return
B)double the amount invested within 2 years
C)10 times the investment in 5 years
D)3 times the investment within 3 years

Question 23

______ angels can be former business executives who want to attain profit and play a large part in the company.

A)Corporate
B)Entrepreneur
C)Professional
D)Enthusiast

Question 24

What qualifies someone as an accredited investor?

A)only a willingness to invest
B)net worth of the equivalent being invested
C)net worth over $1 million or income over $200,000
D)net worth over $200,000

Question 25

______ angels are successful entrepreneurs who want active involvement in the companies they invest in.

A)Entrepreneur
B)Professional
C)Enthusiast
D)Micromanagement

Question 26

What type of investment vehicle do venture capitalists use?

A)bank loan
B)limited partnership
C)angel account
D)investment bonds

Question 27

______ angels often seek to be paid advisers.They general come from a profession such as lawyers or accountants.

A)Corporate
B)Entrepreneur
C)Professional
D)Enthusiast

Question 28

Which of the following is an online source for angel investors?

A)AngelList
B)LinkedIn
C)SBA.gov
D)Investorslist

Question 29

Convertible debt can turn to ______ when money is received from a venture capitalist.

A)partnership
B)conventional debt
C)stock
D)venture capital funds

Question 30

This angel group invests in women-led startups.

A)Golden Seeds
B)Houston Angel Network
C)Launchpad Venture Group
D)Desert Angels

Question 31

What is a typical investment range for angel investors?

A)less than $5,000
B)Less than$20,000
C)between $25,000 and $100,000
D)between $75,000 and $150,000

Question 32

______ angels, often independently wealthy, tend to invest for pleasure.

A)Corporate
B)Entrepreneur
C)Professional
D)Enthusiast

Question 33

This angel group funds up to $1million per deal.

A)Houston Angel Network
B)Central Texas Angels
C)Desert Angels
D)New York Angels

Question 34

Which of the following describes an angel group?

A)a group formed from entrepreneur and professional angels
B)a group of investors who listen to your pitch as a group
C)a group of angels who share knowledge and collaborate in their investments
D)an angel who invests on behalf of others

Question 35

One of the primary values of convertible debt is that it:

A)is money that doesn't need to be paid back
B)it removes the need for valuation
C)it is less expensive than other forms of loans
D)it avoids a need for venture capitalist funds

Question 36

______angels are entrepreneurs who have already started and successfully operated their own businesses.

A)Corporate
B)Entrepreneur
C)Professional
D)Enthusiast

Question 37

After friends and family, what percentage of equity is provided by Angel investors?

A)20%
B)40%
C)50%
D)90%

Question 38

Generally speaking, a corporate angel often seeks this within the venture:

A)a match to his or her own values
B)a higher rate of return than other investors
C)a paid position
D)global expansion

Question 39

This group is located in Arizona and has invested in more than 65 companies since 2000.

A)Golden Seeds
B)Houston Angel Network
C)Launchpad Venture Group
D)Desert Angels

Question 40

One of the primary values of convertible debt is that it is attractive to investors because:

A)their risk of loss is minimized
B)they will be repaid for the loan when the company is successful
C)they may be entitled to discounts on the share price
D)they will be the first to own stock in your company

Question 41

In relation to the industry, your company will be assessed for ______ fit.

A)founder team
B)venture capitalist
C)industry-market
D)global market

Question 42

What two sources of investors are available for a private company?

A)accredited investors and family/friends
B)family/friends and shareholders
C)investors and family/friends
D)investors and banks

Question 43

What will be the first opportunity for the investor to sell stocks on the stock market?

A)at any time after the initial investment
B)when the company is profitable, usually after 5 years
C)with the company's initial public offering (IPO)
D)whenever there is a buyer

Question 44

What signals the end of the due diligence period?

A)within 30 days of the initial offer
B)within 6 months of the initial offer
C)when the investor has resolved all questions and issues
D)when all the issues of both parties have been resolved

Question 45

A company's pre-money valuation is $500,000 and the post-money valuation is $600,000.How much did the angel invest?

A)$5,000
B)$50,000
C)$100,000
D)it cannot be determined

Question 46

Who is involved in the due diligence process?

A)angel investors
B)venture capitalists
C)angel investors and venture capitalists
D)banks

Question 47

What feature of registering a company allows you to set aside a portion of your stock for future employees?

A)reserve funds
B)option pools
C)stock reserves
D)employee stock option plans

Question 48

Pre-money valuation is the post-money valuation minus the ______.

A)the value of the company at the end of 1 year
B)the value of the company at the end of 5 years
C)investment
D)cost of the obtaining the investment

Question 49

What is the ultimate reason for trading equity for financial support?

A)it is more likely that the entrepreneur will build a more valuable company
B)it is usually a deal/no deal option
C)there will be more people interested in the company's success
D)preparing for the questions asked in pitching and due diligence will ultimately improve the company

Question 50

How often will additional funding be awarded by a VC, assuming the company is growing?

A)every 8 years
B)every 10 years
C)every year or two
D)every 3 years

Question 51

______ is a rigorous process that evaluates an investment opportunity.

A)Investment investigation
B)Valuation
C)Due diligence
D)Investor assessment

Question 52

Which of the following is a reason why analysts predict another rise in capital investments?

A)general business growth
B)the improving economy of second- and third-world countries
C)the rise of smartphones and tablets
D)the 10-year cycle of venture capitalists

Question 53

In short, VCs look for ______, big markets, and innovative ideas.

A)early seed funding
B)midsize companies
C)great teams
D)local companies

Question 54

When valuing a seed-stage, startup, or early-stage company, which of the following is most likely to be considered?

A)the company's history of sales
B)how much time it will take for the business to become profitable
C)the length of time invested in developing the product or service
D)the amount of capital already raised by the founders

Question 55

Which of the following would be useful when valuing your company?

A)advice from family and friends
B)success of a similar company in another part of the country
C)advice from an accountant who has clients in a similar market and industry
D)industry experts from another part of the country

Question 56

An entrepreneur is asking for $1 million dollars for 30% of his company.What is the entrepreneur's post-money valuation?

A)$3.33 million
B)$300,000
C)$2 million
D)it cannot be determined

Question 57

In spite of media hype, what is the likely rate of failure for companies backed by venture capitalists?

A)1 out of 10
B)50%
C)1 out of 4
D)3 out of 4

Question 58

In 1979, the venture capital industry benefited from what action?

A)an economic boom
B)the ability of a pension fund to invest in venture capital
C)federal fund availability to entrepreneurs
D)the ability of small businesses to offer stock

Question 59

Venture capitalists often reject plans and proposals for which of the following reason(s)?

A)the business is not a good fit with the fund's criteria
B)the VC only invests in companies with a referral
C)the VC does not operate in your geographical area
D)all of these

Question 60

This action allows the stock to be purchased on the open market and gives investors a chance to get a return of cash.

A)liquidation
B)IPO
C)exit plans and clauses
D)company registration

Question 61

This practice allows larger companies to purchase smaller companies to increase profitability or eliminate competition.

A)acquisitions
B)mergers
C)IPOs
D)buybacks

Question 62

In early-stage financing, small amounts are given so that entrepreneurs can prove a business concept

Question 63

An entrepreneur has conducted crowdfunding to raise enough money for patents and building the founding team.He is now looking for funds to form a prototype and pitch the product to new investors.Which of the following is the most likely source of funds?

A)angel investor
B)venture capitalist
C)family and friends
D)venture capitalist groups

Question 64

Even if the venture capital does not come through, what can be gained from the relationship?

A)the relationship can lead to future funding or additional funding contacts
B)you will discover the skeletons in your closet
C)you will gain valuable experience
D)you will learn how to prepare a better portrait of your company

Question 65

A company has a value of $400,000 and is looking for $500,000 in order to move into other markets and build the production capability to do so.What is the most likely source of funding?

A)family and friends
B)IPO
C)angel investor
D)venture capitalist

Question 66

The degree to which the product or service meets a market need within the industry, thus how it adds value in the industry and promises growth, is referred to as which of the following?

A)SWOTT analysis
B)competitive assessment
C)industry-market
D)global market

Question 67

This exit strategy allows the entrepreneur an opportunity to buy back venture capital stock at cost and an additional premium.

A)IPO
B)exit clause
C)buyback
D)retract clause

Question 68

As a general theme for this chapter, what sequence should an investor take when seeking financial support for his or her startup?

A)family and friends, angel investor, venture capitalists, IPO
B)angel investors, family and friends, venture capitalists
C)family and friends, angel investors, IPO
D)angel investors, venture capitalists, IPO

Question 69

An entrepreneur is looking for funds to form a prototype and pitch the product.Which of the following should NOT be considered at this stage?

A)crowdfunding
B)family and friends
C)personal loans
D)venture capitalists

Question 70

Which of the following is an important distinction between angels and VCs?

A)angels will make decisions with committees
B)angels carry out informal due diligence
C)angels will form a fund of limited partnerships
D)angels will fund up to $500,000 in personal funds

Question 71

Venture capitalists work with investment portfolios.What does this mean?

A)the capitalists invest in more than one company at a time
B)details are kept for ready access about all company information
C)they have a defined type of business(es) they would like to invest in
D)they have a list of investors on behalf of whom they invest

Question 72

What is a market comparable?

A)how much your company is worth
B)the average price of your product, based on global competition
C)the price of your product compared with other products in the market
D)how much stock would be worth in an IPO

Question 73

An investor is offered $150,000 for 20% of the company.The company has a pre-money valuation of $350,000.Should the entrepreneur consider the offer?

A)No, the investor is asking too great a percentage.
B)Yes, the investor is asking for less than the value of the investment.
C)No, the investor is not offering enough for the value of the company.
D)it cannot be determined

Question 74

How far back can we track the history of venture capital?

A)to the dot com investments of the early 90s
B)to venture capital startups in the 1980s
C)to the 1958 Small Business Investment Act
D)to the 20th century investors such as the Rockefellers and the Bessemers

Question 75

When valuation considers value add, what is being talked about?

A)the value of the financial investment
B)the post-money valuation
C)the value of the investor's advice and guidance
D)the value from other sources of investment

Question 76

Which of the following is an important distinction between angels and VCs?

A)VC decisions are made with committees
B)VCs are responsible for their own decisions
C)VCs provide investments to seed companies
D)VCs invest personal funds

Question 77

An investor offers $150,000 for 30% of the company.What is the post-money valuation of the company?

A)$350,000
B)$500,000
C)$50,000
D)it cannot be determined

Question 78

Karen has formulated a line of green cleaning products, which she has tested with local commercial entities with great results.She is now ready to seek money to place the product in stores.What stage of financing is Karen interested in?

A)seed stage financing
B)startup financing
C)early-stage financing
D)continuity financing

Question 79

Venture capitalists interview competitors as a way of assessing the competitive environment and verifying the entrepreneur's claims of competitive uniqueness.This would be considered what aspect of due diligence?

A)founders
B)market
C)legal
D)ethics

Question 80

The following is used to test the product within the target market.

A)seed money
B)prototype
C)pitch
D)surveys