Entrepreneurship: Successfully Launching New Ventures, 6e (Barringer/Ireland)
Chapter 10 Getting Financing or Funding
1) Kinvolved, the company profiled in the opening feature of Chapter 10, is an EdTech startup
that involves an app to track student absences. The company was co-founded by Miriam Altman
and Alexandra Meis. Which of the following is true about Kinvolved’s founding story?
A) Both Altman and Meis were college professors before starting the venture.
B) The co-founders raised money via an Indiegogo crowdfunding campaign.
C) Altman and Meis went public via an IPO soon after launch.
D) Both Altman and Meis attended Stanford University.
E) Altman and Meis met while they were teaching at Harvard University.
2) Why do most firms need funding? Provide a brief explanation of each reason.
3) According to the textbook, many entrepreneurs go about the task of raising capital
haphazardly because they ________.
A) are uncomfortable talking about money and they haven’t written a business plan
B) lack experience in this area and because they don’t know much about their choices
C) are focused on the nuts and bolts of starting their business
D) haven’t completed a feasibility analysis or business plan
E) are intimidated by the process and they are unsure of how much money they need
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4) Courtney Young is the founder of a company in the semiconductor industry. Courtney’s firm
is still in the feasibility analysis stage and doesn’t have a product that is ready to sell. The
company is spending about $25,000 per month and expects to maintain that level of spending
until it reaches profitability. The $25,000 a month is Courtney’s ________ rate.
A) consumption
B) utilization
C) burn
D) usage
E) liquidity
5) The three primary reasons startups need funding are ________.
A) cash flow challenges, capital investments, and lengthy product development cycles
B) business research, cash flow challenges, and costs associated with building a brand
C) bonuses for members of the new venture team, attorney fees, and lengthy product
development cycles
D) attorney fees, capital investments, and marketing research
E) bonuses for members of the new venture team, marketing research, and personnel costs
6) In startup firms, inventory must be purchased, employees must be trained and paid, and
advertising must be paid for before cash is generated from sales. Which of the following reasons
that motivate firms to seek funding or financing is illustrated in this example?
A) Cash flow challenges
B) Marketing costs
C) Personnel costs
D) Capital investments
E) Lengthy product development cycles
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7) For startup firms, the cost of buying real estate, building facilities, and purchasing equipment
often exceeds the firm’s ability to provide funds for those needs on its own. Which of the
following reasons that motivate firms to seek funding or financing is illustrated in this example?
A) Lengthy product development cycles
B) Costs associated with building a brand
C) Cash flow challenges
D) Capital investments
E) Personnel costs
8) Peter Simmons owns a specialized computer software company. Although Peter’s software
designers and programmers are very good, it takes 2-3 years to develop a good software product.
This example illustrates the need for funding or financing referred to as ________.
A) personnel costs
B) marketing costs
C) costs associated with building a brand
D) lengthy product development cycles
E) cash flow challenges
9) For startup firms, some products are under development for years before they generate
earnings. The upfront costs often exceed a firm’s ability to fund these activities on its own.
Which of the following reasons that motivate firms to seek funding or financing is illustrated in
this example?
A) Cash flow challenges
B) Marketing costs
C) Capital investments
D) Personnel costs
E) Lengthy product development cycles
10) The Partnering for Success feature in Chapter 10 focuses on Startup Weekend. Startup
Weekend is a for-profit organization that ________.
A) creates a context in which small groups of people can start a business in 54 hours (usually
over a weekend)
B) sponsors “weekend” events that connect entrepreneurs with mentors, advisors and potential
investors
C) provides 54-hour weekend retreats for people to gather and learn as much as possible about
the startup process
D) sponsors pitch events, usually over a weekend, that allow entrepreneurs to pitch their business
ideas to angel investors
E) facilitates weekend business plan competitions across the United States
11) The three reasons that most firms need to raise money during their early life are cash flow
challenges, capital investments, and lengthy product development cycles.
12) According to our textbook, the seed money that gets a company off the ground typically
comes from ________.
A) angel investors
B) venture capitalists
C) commercial banks
D) governmental agencies
E) the founders of the firm
13) Katy Anderson’s startup, which is in the organic fruit and vegetables industry, was launched
on January 1, 2015. However, prior to its formal launch, Katy spent many hours working on her
business, particularly during the feasibility analysis stage. The time and effort that entrepreneurs
put into their venture, that can’t be easily measured from a financial point of view, is referred to
as ________ equity.
A) effort
B) intangible
C) sweat
D) worry
E) fret
14) According to the textbook, beyond their own funds, the second source of funds for many new
ventures is ________.
A) government grants
B) business angels
C) friends and family
D) banks
E) venture capital
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15) Steven and Emily Campbell are planning to open a casual dining restaurant in downtown
Akron, Ohio, and need $125,000 to get started. They have $50,000 of their own money, which
leaves $75,000. After getting turned down by a couple of banks, they decided to turn to their
relatives and acquaintances for help. Fortunately, they were able to raise the money through a
gift from Steven’s grandfather, a loan from Emily’s parents, and a small investment by Steven’s
best friend in college, Doug. The money that an entrepreneur raises in this manner is referred to
as ________.
A) friends and family
B) bootstrapping
C) networking money
D) compassion money
E) legacy money
16) Amy Clark just opened a soup and salad restaurant near Golden Gate Park in San Francisco,
CA. Rather than borrow money or raise funds from investors, Amy used her creativity and
ingenuity and figured out how to get her business up and running without the need for external
funding. Amy is utilizing a technique referred to as ________.
A) networking
B) reaching
C) scrounging
D) prospecting
E) bootstrapping
17) Typically, the seed money that gets a company off the ground comes from a commercial
bank.
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18) The vast majority of founders contribute personal funds along with sweat equity to their
ventures.
19) The three common sources of “personal” financing for a startup firm are personal funds,
friends and family, and bootstrapping.
20) Bootstrapping is the process of combining personal funds, equity investments, and bank
financing to launch a business.
21) What is meant by the term “bootstrapping”? Provide several examples of the ways that
entrepreneurs bootstrap to raise money or cut costs?
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22) Equity financing (or funding) means ________.
A) exchanging partial ownership in a firm, usually in the form of stock, for funding
B) getting a grant or outright gift
C) getting a loan
D) getting a lease
E) getting a loan guarantee
23) Which of the following is NOT a source of equity funding?
A) Initial public offering
B) Angel investors
C) Private placement
D) Venture capital
E) Government grants
24) Equity investors typically have a ________ year investment horizon.
A) 1 to 3
B) 2 to 4
C) 3 to 5
D) 4 to 6
E) 5 to 7
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25) A liquidity event accomplishes which of the following purposes?
A) Provides a business sufficient funding to operate for up to a year without raising additional
funding
B) Provides the founders of a firm a salary
C) Converts some or all of a company’s stock to cash
D) Allows the founders of a firm to sell stock to the public
E) Allows a business to liquidate in an ethical and cost-effective manner
26) Which of the following statements is incorrect regarding equity funding?
A) Equity investors expect to get their money back, along with a substantial capital gain, through
the sale of their stock.
B) Angel investors are a common source of equity funding.
C) Equity funding is not a loan.
D) Equity investors are very demanding.
E) Equity investors fund the majority of the plans they consider.
27) Which of the following sets of characteristics places a startup in the strongest position to
apply for equity funding?
A) Weak cash flow, high leverage, low-to-moderate growth, unproven management
B) Strong cash flow, low leverage, audited financials, good management, healthy balance sheet
C) Unique business idea, strong cash flow, low-to-moderate growth, broad market
D) Strong cash flow, high leverage, low-to-moderate growth, unproven management
E) Unique business idea, high growth, niche market, proven management
28) A brief, carefully constructed statement that outlines the merits of a business opportunity is
called a(n) ________ speech.
A) subway
B) sway
C) bootstrap
D) teaser
E) elevator
29) Debt financing means exchanging partial ownership in a firm in exchange for cash.
30) The ideal candidate for a bank loan is a firm with weak cash flow, high leverage, low to
moderate growth and unproven management.
31) What is an elevator speech? How did it get its name?
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32) What is the difference between equity funding and debt financing? What are the most
common sources of equity funding and debt financing?
33) The three most common forms of equity funding are ________.
A) friends and family, venture capital, bank loans
B) SBIR grants, SBA guaranteed loans, bank loans
C) initial public offerings, business angels, venture capitalists
D) friends and family, business angels, bootstrapping
E) SBIR grants, venture capital, initial public offerings
34) ________ are individuals who invest their personal capital directly in start-ups.
A) Venture capitals
B) Business angels
C) Institutional investors
D) Investment bankers
E) Business capitalists
35) Which of the following statements is NOT correct regarding business angels?
A) Business angels invest in more startups on a yearly basis than venture capitalists.
B) The number of angel investors has decreased dramatically over the past decade.
C) Business angels usually take a seat on the board of directors of the firms in which they invest.
D) Business angels are valuable because of their willingness to make relatively small
investments.
E) Business angels are difficult to find.
36) According to the textbook, the unique value provided by business angels is they ________.
A) are willing to make relatively large investments
B) are willing to make relatively small investments
C) require a fairly low rate of return on their money
D) invest money but typically don’t take a seat on a company’s board of directors
E) are easy to find
37) ________ are limited partnerships of money managers who raise money in “funds” to invest
in startups and growing firms.
A) Venture capital firms
B) Business angels
C) Institutional investors
D) Investment bankers
E) Business capitalists