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CHAPTER 12
PROFESSIONAL VENTURE CAPITAL
True–False Questions
investments, professional venture capitalists have raised funds from other
investors to invest in the portfolio.
government foray into venture investing.
Companies possess important tax advantages and were eligible to borrow
amounts up to four times their equity base from the government.
appeared attractive. This was because venture investing and debt service
commitments are an ideal mixture of financing for start-ups.
World War II.
World War II.
of American Research and Development in 1966.
Investment Companies.
formation of the Small Business Administration (SBA) in 1947.
1946.
2000 time period.
firms having a contract that gives them two percent carried interest and 20
percent of assets annual management fee.
funds, it reflects the deal flow.
in the venture capital investing process.
investigating a potentially worthy concept or plan.
F. 16. The summary of the investment terms and conditions accompanying an
investment proposed by the venture capitalist is known as the statement of
strengths and weaknesses.
capitalist as incentive compensation.
involved in the venture capital investing process.
relative to finance and insurance firms.
capital relative to individuals and families.
ascertaining the viability of a business plan.
organizing the due diligence process is known as the “lead investor.”
accompanying an investment by venture capitalists.
investment, as stipulated by the founders of the venture.
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staging of financing.
issued to venture investors.
the form of cash or securities, some method of returning the proceeds (less the
carried interest) must be determined.
high in the year 2000.
supplier of venture capital in 2009.
Multiple-Choice Questions
occurred:
a. prior to World War II
b. 1946
c. 1956
d. 1966
e. after the Vietnam War
begun with the establishment or formation of:
a. Small Business Administration
b. Small Business Investment Companies
c. American Research and Development organization
d. Professional Venture Capitalists organization
2009 (as reported in Figure 12.4)?
a. pension funds and corporations
b. individuals and families
c. endowments and foundations
d. finance and insurance
because of the potential for value-added investing by venture capitalists.
Which is not one of these niches?
a. industry type
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b. venture stage
c. size of investment
d. management style
e. geographic area
Important issues that must be put in place with the establishment of the fund
include all of the following except:
a. determine the general partners
b. establishing a fee structure
c. a profit sharing arrangement
d. establish its governance
e. the management team assigned to each borrower
compensation and incentive structure except:
a. some percent annual fee on invested capital
b. a percent share of any profits to the managing general partner
c. carried interest
d. salary for the general partners
consider which of the following?
a. characteristics of the proposal
b. characteristics of the entrepreneur/team
c. nature of the proposed industry
d. both b and c
e. all of the above
their own funds’ requirements. Which of the following is not one of the
venture firm’s requirements relating to its own funds?
a. investor control
b. rate of return
c. size of investment
d. probable stock listing exchange for the mature venture
e. financial provisions for investors
consider the characteristics of the entrepreneur and its team. Which of the
following is not part of the review of the entrepreneur/team?
a. its background and experience
b. its managerial capabilities
c. management’s stake in the firm
d. the VC firms’ ability to cash out
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e. the capability to sustain an effort
consider the nature of the proposed industry. Which of the following is not
part of the screening of the proposed industry?
a. market attractiveness
b. managerial references
c. potential size
d. technology
e. threat resistance
firm as a:
a. proprietorship
b. corporation
c. partnership
d. S corporation
managers:
a. conduct due diligence and actively invest
b. solicit investments and obtain commitments
c. arrange harvest or liquidation
d. identify prospective venture investments and then solicit
investments
b. 13. After determining the next fund’s objectives and policies, the
“professional venture investing cycle’s” next step is:
a. solicit investments in new fund
b. organize the new fund
c. obtain commitments for a series of capital calls
d. conduct due diligence and actively invest
e. arrange harvest or liquidation
a. interest not currently paid but which must be paid in the future by a
professional venture capitalist
b. interest transported directly to a bank
c. interest owed on a loan in default
d. the portion of profits paid to the professional venture capitalist as
incentive compensation
shop”, this implies that the firm:
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83
a. receives an annual 2% fee on invested capital, and a 20% carried
interest
b. receives an annual 20% fee on invested capital, and a 2% carried
interest
c. receives an annual 2% fee on gross operating profits, and a 20%
carried interest
d. receives an annual 20% fee on gross operating profits, and a 2%
carried interest
This is known as:
a. due diligence
b. deal flow
c. a capital call
d. carried interest
e. a SLOR
a. valuation
b. board structure
c. registration rights
d. management fees
e. employment contracts
a. the mangers of the venture seeking VC funding
b. the VC fund seeking to fund the venture
c. management and founders
d. it is usually done by an third party, in order to
ensure the fair treatment of both parties
governing the process of due diligence is:
a. the primary investor
b. the lead investor
c. a small group of secondary investors
d. the investor in charge of issuing SLORs for the syndicate
e. it is a democratic process that is shared by all investors in the group
investment is referred to as a:
a. term sheet
b. business plan
c. fund created by professional venture capitalists
d. due diligence in venture investing
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e. capital call
an SLOR which stands for:
a. standard letter of rejection
b. standing letter of reconciliation
c. standard letter of reassessment
d. senior letter of reference
venture firm’s screening process?
a. seek the lead investor position
b. seek a non-lead investor position
c. close the capital fund
d. refer the venture to more appropriate financial market participants
e. issue a standard letter of rejection
Note: The following MC qQuestions relate to Figure 12.3 Elements of a Venture
Capital Fund Placement MemorandumRelating to Web Extension for Chapter
12
following is not a front matter declaration?
a. description of limited manner of the offering
b. targeted fund size
c. imposition of confidentiality
d. notice of lack of SEC registration
e. declaration of the highly risky nature of investment
following is not part of the offering summary?
a. objective of formation
b. declaration of general partner
c. management fee
d. minimum capital restrictions
e. targeted fund size
following is not part of the fund overview?
a. fund size
b. investment focus
c. fund management
d. portfolio size
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e. general partners’ capital contributions
are part of the executive summary except?
a. special limited partners
b. general partners’ capital contributions
c. limitation of liability
d. allocation of gains and losses
e. imposition of confidentiality
are included in the summary of terms except?
a. indemnification
b. objective
c. liquidation
d. valuation
e. expenses