Ch 01 Key Terms

Question 1

Bridge financing

Answer 1

temporary financing needed to keep the venture afloat until the next offering

Question 2

Business angels

Answer 2

wealthy individuals operating as informal or private investors who provide venture financing for small businesses

Question 3

Commercial banks

Answer 3

financial intermediaries that take deposits and make business and personal loans

Question 4

Development stage

Answer 4

period involving the progression from an idea to a promising business opportunity

Question 5

Disruptive innovation

Answer 5

an innovation that creates a new market or network that disrupts and displaces an existing market or network

Question 6

e-commerce

Answer 6

the use of electronic means to conduct business online

Question 7

Early-maurity stage

Answer 7

period when the growth of revenue and cash flow continues but at a much slower rate than in the rapid-growth stage

Question 8

Early-stage ventures

Answer 8

firms in their development stage, startup stage, survival stage, or just entering their rapid-growth stage

Question 9

Entrepreneur

Answer 9

individual who thinks, reasons, and acts to convert ideas into commercial opportunities and to create value

Question 10

Entrepreneurial finance

Answer 10

application and adaptation of financial tools and techniques to the planning, funding, operations, and valuation of an entrepreneurial venture

Question 11

Entrepreneurial opportunities

Answer 11

ideas with potential to create value through different or new, repackaged, or repositioned products, markets, processes, or services

Question 12

Entrepreneurial process

Answer 12

developing opportunities, gathering resources, and managing and building operations with the goal of creating value

Question 13

Entrepreneurship

Answer 13

process of changing ideas into commercial opportunities and creating value

Question 14

Financial distress

Answer 14

when cash flow is insufficient to meet current debt obligations

Question 15

First-round financing

Answer 15

equity funds provided during the survival stage to cover the cash shortfall when expenses and investments exceed revenues

Question 16

free cash

Answer 16

cash exceeding that which is needed to operate,
pay creditors, and invest in assets

Question 17

Free cash flow

Answer 17

change in free cash over time

Question 18

Gig economy

Answer 18

where individuals accept short-term job assignments or “gigs” instead of having fulltime employment

Question 19

Government assistance programs

Answer 19

financial support, such as low-interest-rate loans and tax incentives, provided by state and local governments to help small businesses

Question 20

Initial public offering (IPO)

Answer 20

a corporation’s first sale of common stock to the investing public

Question 21

Innovation

Answer 21

introduction of a new idea, product, or process

Question 22

Investment banker

Answer 22

individual working for an investment banking firm who advises and assists corporations in their security financing decisions and regarding mergers and acquisitions

Question 23

Investment banking firms

Answer 23

firms that advise and assist corporations regarding the type, timing, and costs of issuing new securities

Question 24

Mezzanine financing

Answer 24

funds for plant expansion, marketing expenditures, working capital, and product or service
improvements

Question 25

Owner-debt holder conflict

Answer 25

divergence of the owners’ and lenders’ self-interests as the firm gets close to bankruptcy

Question 26

Owner-manager (agency) conflicts

Answer 26

differences between manager’s self-interest and that of the owners who hired him

Question 27

Private financial markets

Answer 27

where customized contracts or securities are negotiated, created, and held with restrictions on how they can be transferred

Question 28

Public financial markets

Answer 28

where standardized contracts or securities are traded on organized securities exchanges

Question 29

Rapid-growth stage

Answer 29

period of very rapid revenue and cash flow

Question 30

Seasoned firms

Answer 30

firms with successful operating histories and operating in their rapid-growth or maturity life cycle stages

Question 31

Seasoned securities offering

Answer 31

the offering of securities by a firm that has previously offered the same or substantially similar securities

Question 32

Second-round financing

Answer 32

financing for ventures in their rapid-growth stage to support investments in working capital

Question 33

Secondary stock offering

Answer 33

founder and venture investor shares sold to the public

Question 34

Seed financing

Answer 34

funds needed to determine whether an idea can be converted into a viable business opportunity

Question 35

Sharing economy

Answer 35

where individuals share their assets, such as homes, vehicles, and personal time, with others to provide a new way for distributing goods and services

Question 36

Startup financing

Answer 36

funds needed to take a venture from having established a viable business opportunity to initial production and sales

Question 37

Startup stage

Answer 37

period when the venture is organized and developed and an initial revenue model is put in place

Question 38

Survival stage

Answer 38

period when revenues start to grow and help pay some, but typically not all, of the expenses

Question 39

Trade credit

Answer 39

financing provided by suppliers in the form of delayed payments due on purchases made by the venture

Question 40

Venture capital

Answer 40

early-stage financial capital often involving substantial risk of total loss

Question 41

Venture capital firms

Answer 41

firms formed to raise and distribute venture capital to new and fast-growing ventures

Question 42

Venture Capitalists (VCs)

Answer 42

individuals who join in formal, organized firms to raise and distribute venture capital to new and fast-growing ventures

Question 43

Venture law firms

Answer 43

law firms specializing in providing legal services to young, fast-growing entrepreneurial firms

Question 44

Venture life cycle

Answer 44

stages of a successful venture’s life from development through various stages of revenue growth

Question 45

Warrants

Answer 45

call options issued by a company granting the holder the right to buy common stock at a specific price for a specific period of time