Question

1.What are the three significant risks that angel investors are focused on. Please use the risks outlined by Prof Dunn in lecture.

2.What are the two reasons Angel and Venture Capital Investors very interested in the size of the market for the venture’s products.

3.Please define liquidation preference and why a liquidation preference of 3x is disadvantageous to the company.

Answer 1

1. Three risks angel investors look for are

A. Financing Risk - It is risk associated with financing of capital to entity.

B. Technical Risk - It is risk associated with operation of entity.

C. Market Risk - It is risk associated with overall market in which the entity operates.

2. Two reasons for which angel investors and venture capitalists look for size of business are-

A. Size of a business gives an idea about growth prospects of a business

B. Size of business also helps in acquiring a large part of ownership of a company.

3. Liquidity preference is the preference of investors to hold liquid stock instead of long term illiquid assets.

Liquidity preference of 3 X is bad as it will risk the overall exposure upto three times in highly risky liquid assets which are risk prone to any adverse movement.