Entrepreneurship Midterm

Question 1

What is the most common source of start up financing for ventures?

Answer 1

Personal savings

Question 2

Three most common sources of startup financing for ventures

Answer 2

Personal savings, credit cards, and loans from friends and family

Question 3

Two least common sources of startup financing for ventures

Answer 3

Bank loans against personal property, equity investments

Question 4

Financing may be provided by ________

Answer 4

Strategic investors

Question 5

What is a strategic investor?

Answer 5

Corporations that invest in startups, generally to support a strategic goal

Question 6

External financing

Answer 6

Money invested from outside of the business. Not retained earnings

Question 7

Asset intensity

Answer 7

Quantity of assets invested compared to sales/revenue/profit

Question 8

Net working capital (NWC)

Answer 8

Current assets - Current liabilities. “Liquidity”

Question 9

Net fixed assets

Answer 9

Long-term capital investments in the business operations such as machines, vehicles, land, buildings

Question 10

Payment cycle

Answer 10

Terms and timings of making payments for purchases

Question 11

Entrepreneurs willing to grow their business will slowly find it easier to finance growth out of the venture’s ________ __________

Answer 11

Retained earnings

Question 12

Debt investors are primarily concerned about ___________ __________

Answer 12

Downside protection

Question 13

What is downside protection?

Answer 13

Safety in the event of the business failing or not making required payments by having collateral that can be possessed and sold

Question 14

A _________ is typically needed for a loan. Someone with assets that can be used to guarantee it

Answer 14

Co-signer

Question 15

What is the typical interest rate for debt investments?

Answer 15

10-15%

Question 16

Angel investors and venture capitalists seek a return of ______

Answer 16

50-75%

Question 17

Future Value Formula

Answer 17

FV = PV * (1+AR)^YEARS

Question 18

FV = 10, AR = 25%, Y = 4

Answer 18

10 = (1+0.25)^4

Question 19

3 types of crowdfunding

Answer 19

Reward-based, donation-based, peer-to-peer lending

Question 20

40% of investments are in ________ _________

Answer 20

Silicon valley

Question 21

VCs replace company founder CEOs about _____ of the time

Answer 21

50%

Question 22

Raised money usually sustains ________ months

Answer 22

8-12

Question 23

First time VC investments in a company average _____

Answer 23

$3.8M

Question 24

VCs typically invest ________ in exchange for ________ equity

Answer 24

$1-10M, 15-30%

Question 25

3 things VCs are looking for

Answer 25

Market, technology, team

Question 26

Syndicate

Answer 26

A temporary alliance formed by professionals to handle a large transaction that would be impossible to execute individually

Question 27

No shop clause

Answer 27

Disable an entrepreneur from soliciting other lead investors after signing with one

Question 28

3 main ideas in the term sheet

Answer 28

No shop/confidentiality clauses, claims on financial gains, control & decisions

Question 29

Protective provisions

Answer 29

Decisions that require approval from VCs, not just the board of directors

Question 30

_______ _______ ______ allow for preference to common stock and participation with the common shares in distributing remaining assets

Answer 30

Participating preferred shares