95) A firm commitment underwriting agreement essentially guarantees that the small company
making the initial public offering will receive the funds it needs.
Topic: Public Stock Sale
AACSB: Analytic Skills
96) The reason Joe Falsetti couldn’t get investors interested in an IPO for his ROM Tech was his
unwillingness to disclose key financial information.
Topic: Public Stock Sale
AACSB: Reflective Thinking
97) A lock-up agreement prevents the sale of “insider” shares for a specific time period—often
12 to 36 months—after an initial public offering.
Topic: Public Stock Sale
AACSB: Analytic Skills
98) The purpose of the road show coordinated by the underwriter of an initial public offering
(IPO) is to promote interest in the IPO among potential syndicate members.
Topic: Public Stock Sale
AACSB: Analytic Skills
99) The single most important ingredient in making a successful IPO is the road show.
Topic: Public Stock Sale
AACSB: Analytic Skills
100) The IPO process requires maximum disclosure.
Topic: Public Stock Sale
AACSB: Analytic Skills
101) The IPO process requires costly compliance with federal regulations.
Topic: Public Stock Sale
AACSB: Analytic Skills
21
102) Typically, the entire process of going public takes about 21 days.
Topic: Public Stock Sale
AACSB: Analytic Skills
103) The single most important ingredient in making a successful IPO is selecting a capable
underwriter.
Topic: Public Stock Sale
AACSB: Analytic Skills
104) Taking a company public is a simple process.
Topic: Public Stock Sale
AACSB: Analytic Skills
105) In an IPO, the letter of intent outlines the details of the deal.
Topic: Public Stock Sale
AACSB: Analytic Skills
106) To begin an offering, the entrepreneur and the underwriter must negotiate a letter of intent.
Topic: Public Stock Sale
AACSB: Analytic Skills
107) In an IPO the purpose of the road show is to sell shares.
Topic: Public Stock Sale
AACSB: Analytic Skills
108) Most letters of intent include a lock-up agreement.
Topic: Public Stock Sale
AACSB: Analytic Skills
22
109) In a best efforts agreement, the underwriter agrees to purchase all of the shares in the
offering.
Topic: Public Stock Sale
AACSB: Analytic Skills
110) A firm commitment agreement guarantees that the company will receive the required funds.
Topic: Public Stock Sale
AACSB: Analytic Skills
111) A lock-up agreement prevents sale of insider shares for 12 to 36 months.
Topic: Public Stock Sale
AACSB: Analytic Skills
112) A firm commitment agreement outlines the details of the IPO deal.
Topic: Public Stock Sale
AACSB: Reflective Thinking
113) Once the letter of intent is signed, the next task is to prepare the registration statement.
Topic: Public Stock Sale
AACSB: Reflective Thinking
114) In a firm commitment agreement, the underwriter agrees to purchase all of the shares in the
offering and then resells them to investors.
Topic: Public Stock Sale
AACSB: Analytic Skills
115) Most small companies meet the criteria for making a successful public stock offering.
Topic: Public Stock Sale
AACSB: Analytic Skills
23
116) Most of the start-up businesses that attract venture capital are technology companies.
Topic: Venture Capital Companies
AACSB: Analytic Skills
117) Entrepreneurs bootstrap their companies.
Topic: Bootstrapping
AACSB: Analytic Skills
118) Angels provide some of the startup capital for small companies.
Topic: Angels
AACSB: Analytic Skills
119) The first place entrepreneurs should look for startup money is from their family and friends.
Topic: Personal Savings
AACSB: Analytic Skills
120) Growth capital, unlike working capital, is not related to the seasonal fluctuations of a small
business.
Topic: Planning for Capital Needs
AACSB: Analytic Skills
121) Angels often finance deals that venture capitalists would also consider.
Topic: Angels
AACSB: Analytic Skills
122) A typical venture capital company seeks to purchase 20 percent to 40 percent of a business.
Topic: Policies and Investment Strategies
AACSB: Analytic Skills
24
123) Most venture capitalists prefer to purchase ownership through common stock or convertible
preferred stock.
Topic: Ownership
AACSB: Analytic Skills
124) The primary disadvantage of equity capital is that the entrepreneur must give up some—
perhaps most—of the ownership in the business to outsiders.
Topic: Sources of Equity Financing
AACSB: Analytic Skills
125) Angels are an excellent source of “IPO money.”
Topic: Angels
AACSB: Analytic Skills
126) Venture capital companies 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.
Topic: Venture Capital Companies
AACSB: Analytic Skills
127) Venture capital companies are typically not-for-profit organizations.
Topic: Venture Capital Companies
AACSB: Analytic Skills
128) Although the three types of capital are interdependent, each has certain sources,
characteristics, and effects on the business.
Topic: Planning for Capital Needs
AACSB: Analytic Skills
25
129) Define and describe the importance of the following types of capital.
∙ fixed capital
∙ working capital
∙ growth capital
Topic: Planning for Capital Needs
AACSB: Analytic Skills
130) Outline and briefly describe the common sources of equity capital.
Topic: Sources of Equity Financing
AACSB: Analytic Skills
131) What is the cardinal rule that an entrepreneur should follow when borrowing venture money
from friends and relatives?
Topic: Sources of Equity Financing: Friends and Family Members
AACSB: Analytic Skills
26
132) Discuss the role of “angels” in financing small companies, and what and how they tend to
finance start-ups.
Topic: Sources of Equity Financing: Angels
AACSB: Analytic Skills
133) Do angels finance start-ups or established firms?
Topic: Sources of Equity Financing: Angels
AACSB: Reflective Thinking
27
134) Venture capital companies are an important source of equity funding for small businesses.
Discuss their policies, ownership, control, and investment preferences when it comes to funding
small businesses.
Topic: Venture Capital Companies
AACSB: Analytic Skills
135) Explain the advantages and disadvantages of a small company “going public.”
Topic: Going Public
AACSB: Analytic Skills
28
136) Briefly review the steps involved in the IPO process.
Topic: Public Stock Sale
AACSB: Analytic Skills
137) What is a “road show” and what is its purpose?
Topic: Public Stock Sale
AACSB: Reflective Thinking
29