Week 7 (Chapter 10)

Question 1

Three reasons Start-ups need funding

Answer 1

1. Cash Flow Challenges
2. Capital Investments
3. Lengthy Product Development Cycles

Question 2

Valley of death

Answer 2

New ventures have a lot of costs to build up their firm, but they don’t make enough revenue (yet)

Question 3

Burn rate

Answer 3

The rate is at which it is spending its capital until it reaches profitability

Question 4

Sources of Personal Financing

Answer 4

1. Personal funds
2. Friends and Family
3. Bootstrapping

Question 5

Promisory note

Answer 5

Details the terms of a loan agreement

Question 6

Bootstrapping

Answer 6

Finding ways to avoid the need for external financing or funding through creativity, ingenuity, thriftiness, cost-cutting, or any means necessary.

= Getting as much as possible done using the least amount of cash

> > Not just about finance, but also about the mindset of being independent and learning how todo things yourself

Question 7

Disadvantages bootstrapping

Answer 7

e.g. Grow slower, taken fewer people, spend less on marketing

Question 8

Equity financing/funding

Answer 8

Exchanging partial ownership of a firm, usually in the form of stocking for funding.

1. Equity investors for the long haul
2. Equity investors with a three-to-five-year investment horizon

Question 9

Debt financing

Answer 9

Getting loan

Question 10

When to use personal financing?

Answer 10

The business has high risk with an uncertain return.

Question 11

When to use equity financing/funding?

Answer 11

The business offers a high return.

Question 12

When to use debt financing?

Answer 12

The business has low risk with a more predictable return.

Question 13

Business Angels

Answer 13

Individuals who invest their personal capital directly in start-ups. Are high net worth individuals, often successful entrepreneurs who have exited a successful business and like to invest in start-ups.

Question 14

Yiels rate

Answer 14

The percentage of investment opportunities that are brought to the attention of angel investors that resulting an investment.

Question 15

Venture capital

Answer 15

Money that is invested by venture capital firms in start-ups and small businesses with exceptional growth potential.

• Limited partners
• General partners

Question 16

Corporate venture capital

Answer 16

Money comes here from corporations that invest in start-ups related to their areas of interest. Corporate venture capital. firms provide an estimated 10.5 percent of the. venture capital invested by all. venture groups.

Question 17

Crowdfunding

Answer 17

The practice of funding a project or new venture by raising monetary contributions from large number of people, typically via the internet

Question 18

Rewards-based crowdfunding

Answer 18

Allows entrepreneurs to raise money. In exchange for some type of amenity or reward.

Question 19

Equity-based crowdfunding

Answer 19

Helps businesses raise money by tapping individuals and professional investors who provide funding in exchange for equity in the business

Question 20

Goals of the founders by rewards-based crowdfunding

Answer 20

1. Raise capital
2. Test the market/demonstrating demand
3. Marketing purposes

Question 21

Investment bank

Answer 21

An institution that acts as un underwriter and walks it through the process of going public.

Question 22

Peer-to-peer lenders

Answer 22

Underwrite borrowers but don’t fund the loans directly

Question 23

Lease

Answer 23

A written agreement in which the owner of a piece of property allows an individual business house the property for a specified period of timing exchange for payments.

Major advantage: enables a company to acquire the use of assets with very little or no down payment.