Question

Part I. Each multiple choice problem is worth 3 points. 1. Which of the following statements is false? a. It is difficult for startups to qualify for bank loans. b. Corporate VC arms are structured similar to independent venture capital funds c. While sometimes an entrepreneur may be able to get funding from customers, they ma demand custom features or exclusivity. d. Entrepreneurs pitch should be tailored to type of investor they are seeking funds from. 2. Which of the following statements is false? a. The required return for different rounds of financing declines as the start-up moves from seed stage to early stage to expansion b. Each round of financing has a certain objective C. Because mezzanine financing is obtained quickly with little due diligence on part of lender, required returns are lower than bank loans. d. As a general rule, after all financing rounds, founders' ownership is not taken below 10- 20% 3. Which of the following statements is false? a. Usually, the option pool set aside for future employees is between 5-10% of total shares b. The costs of venture capital to founders include dilution of ownership, liquidation preference and sharing control. c. Important factors that VCs consider when screening include the market opportunity, uniqueness of solution, durability of competitive edge, and management. d. Many VCs limit how often they raise funds and the size of the funds that they raise.

Answer 1

1]

(b) - false. Corporate VC arms are usually structure different from independent VC funds because corporate VC arms have different objectives and governance structures.

(a) is true - It is difficult due to low profitability, low cash flows and lack of long operating history.

(c) is true - Customer funding is usually conditional.

(d) is true - Pitch must be tailored and cannot be generic.

2]

(c) is false - Because mezzanine financing is risky for the lender, the required return is higher.

(a) is true - The required return decreases because the risk decreases.

(b) is true - Each round has a specified objective.

(d) is true - This is done to ensure founder's commitment and personal stake.

3]

(a) is false - the option pool is usually higher, in the range of 10 to 15%.

(b) is true - these are the costs to the founders of opting for venture capital.

(c) is true - These are important factors considered by VCs.

(d) is true - This is the usual practice among VCs.