Chapter 13

Question 1

Equity Financing

Answer 1

Sale of shares of stock in exchange for cash/capital to start/grow business

Question 2

General Rule of Thumb with Equity Raising

Answer 2

Avoid seeking investment for as long as possible to receive better deal and allow venture to grow

Question 3

Stages of Equity Financing

Answer 3

Seed Stage, Start Up, Early Stage

Question 4

Seed Stage

Answer 4

small or modest amounts of capital are provided

Question 5

start up stage

Answer 5

money is provided to enable entrepreneur to implement idea by funding R&D

Question 6

Early Stage

Answer 6

larger funds provided for companies that have team in place and product or service tested/piloted but little to no revenue

Question 7

Trade of Entrepreneurs make 2 measurement scales

Answer 7

control of company and financial gain

Question 8

Control of Company scale

Answer 8

complete and little

Question 9

financial gain scale

Answer 9

well below or close to potential

Question 10

Failure

Answer 10

little control and well below potential financial gain

Question 11

Rich

Answer 11

little control and close to potential financial gain

Question 12

King/Queen

Answer 12

Complete control and well below potential financial gain

Question 13

Exception

Answer 13

complete control and close to potential financial gain

Question 14

Purpose of Valuation for Entrepreneurs

Answer 14

Entrepreneurs need to know value of business when seeking equity investors to know what they need to sell and for what price

Question 15

how entrepreneurs value business (2)

Answer 15

based on firms potential in chosen market, benchmarking and other indicators

Question 16

2 sites for valuation

Answer 16

BizBuysell and BizQuest

Question 17

Pre Money Valuation

Answer 17

Company’s value before receiving outside investment

Question 18

Post-Money Valuation

Answer 18

company’s value after receiving round of financing

Question 19

Angel Investor

Answer 19

investor who uses their own money to provide funds to start up

Question 20

Accredited Investor

Answer 20

investor who earns annual income of more than 200,000 or have net worth > 1million

Question 21

What stage do Angel Investors invest in and how much is deal

Answer 21

invest in seed and start up, deal from capital association is 150,000 to 500000

Question 22

Where to find Angel investors (2)

Answer 22

angel list, angel groups (>350)

Question 23

Non affiliated angels

Answer 23

golf clubs, charity events, entrepreneurship networking event

Question 24

Angel investors help hurdle of valley of death, what is it?

Answer 24

No steady stream of revenue and company burning cash

Question 25

Venture capitalist

Answer 25

investor who generally invests in early and later stages because of perceived long term growth potential

Question 26

General partner

Answer 26

manage investment fund

Question 27

Limited partner

Answer 27

from whom Venture Capitalist raise money, pension, insurance, family, endowment

Question 28

LPA

Answer 28

Limited Partnership Agreement

Question 29

VC Firm Structure

Answer 29

Venture Capital Firm General Partner -> Venture Capital Fund (Limited Partnership) -> Investment Portfolio

Question 30

3 things that venture capital firms look for

Answer 30

experience and talent in team market potential for start up time to exit event, liquidity, acquisition

Question 31

Debt Financing

Answer 31

borrowing money to start a business that is expected to be paid back with interest in future

Question 32

Sources of Debt Financing

Answer 32

Institutional Leaders, Private Parties

Question 33

Institutional Lender Requirements (2) with description

Answer 33

- Equivalent amount of collateral: property owned by borrow / personal property - Personal guarantee: venture has few assets to use as capital, entrepreneur has personal assets that will suffice

Question 34

Loan Interest Rate

Answer 34

charge to start-ups is > large established companies (prime rate)