Old Final Flashcards
A group of high-income investors plans to form Newco. They expect Newco to generate losses for four years before turning a profit in year five. Why might the investors choose to form Newco as an LLC or S-corporation rather than as a separately taxable corporation
To use the losses on their individual tax return.
Name one reason a loan may be better for the company as the one raising the money
Less dilution
Name one reason equity may be a better choice for your uncle as the investor
Higher expected return
Name one reason equity may be better for the company as the one raising the money
No covenants or bankruptcy risk
In which state are there more VC firms
California
Which type of fund is most likely to make an equity investment in a late-stage private company
A. Angel Fund
B. Private Equity Fund
C. Credit Opportunities Hedge Fund
D. S&P Index Fund
B. Private Equity Fund
What is a term sheet in the context of fundraising?
A nonbinding proposal made by an investor in the form of a list of key investment terms
When granting a compensatory stock option it is advisable for tax purposes to set the strike price:
At or above the value of the underlying shares
Do high-growth start-up companies usually pay dividends?
No
Describe how Net Lifetime Value of a Customer is calculated
Average monthly revenue x 1 / churn rate – acquisition cost
One category of technology company is the “Internet of Things.” What does this term mean.
Connecting everyday objects to the internet
What does the term B2B mean in the context of online commerce?
Business to Business
What does the term “unicorn” refer to in the context of start-up companies?
A start-up with a $1 billion valuation
Briefly describe the concept of Minimum Viable Product as introduced in the book Lean Startup by Eric Ries:
A start-up creates a basic version of a new product to allow them to start gathering customer feedback for rapid improvement
In discussing the VC fundraising process, we talked about the idea that investors invest in “lines, not dots.” What does this mean?
It is based on relationships of trust and confidence in execution ability built over time.
