41) One of the reasons for the significant drop in the number of public offerings since 2001 is:
A) the dot-com crash of 2000.
B) the U.S. economic crisis.
C) the global economic meltdown.
D) lack of available float.
Topic: Public Stock Sale
AACSB: Analytic Skills
42) One of the reasons for the significant drop in the number of public offerings since 2001 is:
A) the U.S. economic crisis.
B) the global economic meltdown.
C) the Quattrone Act, 2002.
D) the Sarbanes-Oxley Act, 2002.
Topic: Public Stock Sale
AACSB: Analytic Skills
43) Since 2001 there has been a ________ in the number of public offerings.
A) significant drop
B) significant increase
C) slight drop
D) slight increase
Topic: Public Stock Sale
AACSB: Analytic Skills
44) In a(n) ________, a company raises capital by selling shares of its stock to the general public
for the first time.
A) angel offering
B) secondary offering
C) venture capital sale
D) IPO
Topic: Public Stock Sale
AACSB: Analytic Skills
11
45) Since 2001, the average IPO has raised ________ for the issuing company.
A) $310 million
B) $218 million
C) $478 million
D) $118 million
Topic: Public Stock Sale
AACSB: Analytic Skills
46) Typically, ________ is needed to purchase the business’s permanent or fixed assets.
A) working capital
B) growth capital
C) fixed capital
D) None of the above
Topic: Fixed Capital
AACSB: Analytic Skills
47) Working capital can be calculated by:
A) Current Asset – Current Liabilities.
B) Total Asset – Current Liabilities.
C) Total Liabilities – Total Asset.
D) Total Asset – Total Liabilities.
Topic: Working Capital
AACSB: Analytic Skills
48) Equity capital is also called:
A) equity money.
B) stock money.
C) risk capital.
D) None of the above
Topic: Sources of Financing
AACSB: Analytic Skills
12
49) A highly possible source of funding for a start-up and early business is:
A) venture capital and private placement.
B) personal savings and retained earnings.
C) personal savings and partners.
D) IPO and Regulation A.
Topic: Sources of Equity Financing
AACSB: Analytic Skills
50) ________ are typically wealthy individuals or entrepreneurs themselves.
A) Venture capitalists
B) Seed funders
C) Venture funders
D) Angels
Topic: Sources of Equity Financing
AACSB: Analytic Skills
51) Angels fill a significant gap in the ________ capital market.
A) working
B) fixed
C) seed
D) later stage
Topic: Sources of Equity Financing
AACSB: Analytic Skills
52) The angel market is:
A) fragmented.
B) concentrated.
C) formalized.
D) centralized.
Topic: Sources of Equity Financing
AACSB: Analytic Skills
13
53) These ________ are wealthy individuals, often entrepreneurs themselves, who invest in
business start-ups in exchange for equity stakes in the companies.
A) venture capitalists
B) rich family members
C) angels
D) public investors
Topic: Angels
AACSB: Analytic Skills
54) Some suggestions for maintaining family relationships and friendships when borrowing for a
business are:
A) keep the arrangement strictly family.
B) borrow as much as you can.
C) an oral contract is as good as a written contract.
D) treat the money as “bridge financing.”
Topic: Suggestions for Structuring Family and Friendship Financing Deals
AACSB: Reflective Thinking
55) ________ are private, for-profit organizations that purchase equity positions in young
businesses they believe have high-growth and high-profit potential, producing annual returns of
300 to 500 percent over five to seven years.
A) Angel investors
B) Venture capital companies
C) Government bonding investors
D) Corporate venture investors
Topic: Venture Capital Companies
AACSB: Analytic Skills
56) Most venture capitalists look for:
A) competent management.
B) competitive edge.
C) companies in growth industries.
D) All of the above
Topic: Venture Capital Companies
AACSB: Analytic Skills
14
57) ________ is a key criteria that most venture capitalists look for.
A) Intangible factor
B) High working capital
C) Fair ROI
D) None of the above
Topic: Venture Capital Companies
AACSB: Analytic Skills
58) ________ is when a company raises capital by selling shares of its stock to the general public
for the first time.
A) Preferred stock selling
B) Rule 157 Offerings
C) IPO
D) All of the above
Topic: Public Stock Sale
AACSB: Analytic Skills
59) For an IPO, most investment bankers look for:
A) consistently high growth rates & strong record of earnings.
B) three to five years of audited financial statements & a solid position in rapidly growing
markets.
C) a sound management team and a strong board of directors.
D) All of the above
Topic: Public Stock Sale
AACSB: Analytic Skills
60) Choosing the right source of capital is as important as choosing the right form of ownership
for the small business owner.
Topic: Introduction
AACSB: Analytic Skills
61) The problem with the lack of funding for start-ups is that the seed capital and funding
sources just aren’t there.
Topic: Planning for Capital Needs
AACSB: Analytic Skills
15
62) Layered financing is the process of piecing start-up capital together from a variety of sources
rather than relying on a single source of funds.
Topic: Introduction
AACSB: Analytic Skills
63) Seed capital for the entrepreneur is risk capital for investors.
Topic: Planning for Capital
AACSB: Analytic Skills
64) The money needed to launch a new business is known as growth capital.
Topic: Planning for Capital Needs
AACSB: Analytic Skills
65) The owner of a small retail shoe store and the owner of a small furniture manufacturer would
likely have very different capital requirements.
Topic: Working Capital
AACSB: Analytic Skills
66) Lenders of fixed capital expect the assets purchased to increase the borrowing firm’s
efficiency, profitability, and cash flows.
Topic: Fixed Capital
AACSB: Analytic Skills
67) A small company needs fixed capital to expand and grow the business.
Topic: Fixed Capital
AACSB: Analytic Skills
68) The need for growth capital is created by the uneven flow of cash into and out of the business
due to normal seasonal fluctuations.
Topic: Planning for Capital Needs
AACSB: Analytic Skills
16
69) The primary advantage of equity capital is that it does not have to be repaid with interest.
Topic: Sources of Equity Financing
AACSB: Analytic Skills
70) The most common source of equity funds used to start a small business is an SBA loan.
Topic: Sources of Equity Financing
AACSB: Analytic Skills
71) If an entrepreneur is not willing to risk funds in a business venture, other potential investors
and lenders are not likely to provide capital either.
Topic: Sources of Equity Financing
AACSB: Analytic Skills
72) An entrepreneur should not take advantage of offers from family and friends to lend or invest
money for the business venture.
Topic: Friends and Family Members
AACSB: Analytic Skills
73) Entrepreneurs forgoing their paychecks during the start-up phase is known as sweat equity.
Topic: Personal Savings
AACSB: Analytic Skills
74) “Angels” typically invest in businesses in the start-up phase, providing the seed capital
needed to get the business going.
Topic: Angels
AACSB: Analytic Skills
75) “Angels” control a larger pool of venture capital than venture capitalists.
Topic: Angels
AACSB: Analytic Skills
17
76) “Angels” usually prefer to invest in businesses they know something about.
Topic: Angels
AACSB: Analytic Skills
77) Private investors, or “angels,” seek 60-75% annual return-on-investment and tend to take a
51%+ share of the business.
Topic: Angels
AACSB: Analytic Skills
78) Most venture capitalists make investments in promising business ventures in return for a
share of the ownership.
Topic: Corporate Venture Capital
AACSB: Analytic Skills
79) Locating “angels” to finance a business is essentially a matter of networking—finding the
right contacts.
Topic: Angels
AACSB: Analytic Skills
80) In exchange for the financing they receive from venture capitalists, entrepreneurs must give
up a portion of their businesses, sometimes surrendering a majority interest and control of its
operations.
Topic: Venture Capital Companies
AACSB: Analytic Skills
81) Foreign corporations invest in U.S. small businesses through strategic partnerships in order
to gain access to new technology, new products, and U.S. markets.
Topic: Corporate Venture Capital
AACSB: Analytic Skills
18
82) To justify the cost of investigating the offers they receive, venture capitalists typically seek
investments in the $200,000 to $500,000 range.
Topic: Venture Capital Companies
AACSB: Analytic Skills
83) Venture capital companies reject 90% of the proposals they receive because they don’t meet
the firms’ standards.
Topic: Venture Capital Companies
AACSB: Analytic Skills
84) The majority of venture capital firms that provide capital to small businesses strive to not be
involved in running the business.
Topic: Venture Capital Companies
AACSB: Analytic Skills
85) Most venture capitalist companies prefer to finance start-up companies to maximize their
return.
Topic: Intangible Factors
AACSB: Analytic Skills
86) The most important ingredient that venture capitalists look for in judging the potential
success of a small business is a competent management team.
Topic: Competent Management
AACSB: Analytic Skills
87) In an initial public offering, a company raises capital by selling shares of its stock to the
general public for the first time.
Topic: Public Stock Sale
AACSB: Analytic Skills
19
88) One of the characteristics that investment bankers who underwrite public stock offerings
typically look for is consistently high growth rates.
Topic: Public Stock Sale
AACSB: Analytic Skills
89) The biggest benefit of going public is the capital infusion the company receives.
Topic: Public Stock Sale
AACSB: Analytic Skills
90) In an IPO candidate, investment bankers look for scalability.
Topic: Public Stock Sale
AACSB: Analytic Skills
91) Once a small business goes for a public stock offering, information that the owner used to
keep private is now public information.
Topic: Public Stock Sale
AACSB: Analytic Skills
92) The number of IPOs have dropped significantly since 2001.
Topic: Public Stock Sale
AACSB: Analytic Skills
93) In a public stock offering, the underwriter’s primary role is in selling stock through an
underwriting syndicate it assembles.
Topic: Public Stock Sale
AACSB: Analytic Skills
94) The typical letter of intent prevents an underwriter from withdrawing a company’s stock
offering before it is executed.
Topic: Public Stock Sale
AACSB: Analytic Skills
20