Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
Chapter 13: Financing for Startups
Test Bank
Multiple Choice
1. Equity financing is defined as ______.
a. the value of the total company assets
b. the value a company earns and borrows against
c. the sale of shares of stock in exchange for cash
d. a debt incurred by a company
2. The cofounders for Contap received $275,000 from venture capitalists. What did the
investors receive in return?
a. 5% royalties from future sales
b. 15% equity of the business
c. 50% equity of the business
d. 10% royalties from future sales
3. The general rule for a new startup is to
a. avoid seeking investment for as long as possible
b. try to get as much funding as possible as soon as possible
c. to immediately line up one committed investor with deep pockets
d. seek many small investments from a wide range of people right away
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
4. When Google attained investors, what portion of the company did they retain?
a. 90%
b. 49%
c. 51%
d. 16%
5. ______ consist(s) of small amounts of capital given to help prove a concept.
a. Startup loans
b. Seed-stage financing
c. Startup financing
d. Early-stage financing
6. ______ is/are provided to help implement an entrepreneur’s research and
development.
a. Startup loans
b. Seed-stage financing
c. Startup financing
d. Early-stage financing
7. __________ consists of larger amounts of funds provided for companies that have a
team in place and a product or service tested or piloted, but as yet show little or no
revenue.
a. Startup loans
b. Seed-stage financing
c. Startup financing
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
d. Early-stage financing
8. A(n) ______ is a type of investor who uses his or her own money to provide funds to
young startup private businesses run by entrepreneurs who are neither friends nor
family.
a. seed investor
b. bridge investor
c. equity investor
d. angel investor
9. Which of the following is a professional investor who generally invests in early-stage
and emerging companies because of perceived long-term growth potential?
a. crowdfunder
b. angel investor
c. venture capitalist
d. friend
10. How is a seed company valued?
a. on the anticipation of future growth
b. on the value that it has on hand
c. by the number of shareholders
d. on the basis of its financial history
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
11. The easiest way to determine a startup company’s potential is to ______.
a. see how similar companies in the same industry are being valued
b. determine the economic health in the market area
c. look at the track record of the cofounding team
d. analyze the company’s financial forecast
12. Sites such as ______ will help you find out how much businesses are worth in your
industry.
a. Indeed.com
b. SBA.gov
c. Entrepreneur.com
d. BizBuySell
13. Even though you may not be profitable, investors will want to know how many
customers you have because it will show potential ______.
a. customer satisfaction
b. to scale the business
c. marketability
d. revenue from that base
14. ______ is the company’s value before it receives outside investment.
a. Post-money valuation
b. Seed money valuation
c. Pre-money valuation
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
d. Startup valuation
15. ______ is the company’s value after it receives a round of financing.
a. Post-money valuation
b. Seed money valuation
c. Pre-money valuation
d. Startup valuation
16. ______ is a short-term loan that can be turned into equity when future financing is
issued.
a. Convertible debt
b. Angel funding
c. Business loan
d. Equity loan
17. Which of the following is another term for convertible debt?
a. convertible bond
b. convertible stock
c. loan forgiveness
d. revolving debt
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
18. Convertible debt can turn to ______ when money is received from a venture
capitalist.
a. equity
b. conventional debt
c. a convertible note
d. venture capital funds
19. One of the primary values of convertible debt is that it:
a. is money that doesn’t need to be paid back
b. removes the need for valuation
c. is less expensive than other types of loans
d. eliminates a need for venture capitalist funds
20. One of the primary values of convertible debt is that it is attractive to investors
because:
a. their risk of loss is minimized
b. they will be repaid for the loan when the company is successful
c. they may be entitled to discounts on the share price
d. they will be the first to own stock in your company
21. What qualifies someone as an accredited investor?
a. only a willingness to invest
b. net worth of the equivalent being invested
c. net worth over $1 million or income over $200,000
d. net worth over $200,000
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
22. What is a typical investment range for angel investors?
a. less than $5,000
b. Less than$20,000
c. between $25,000 and $100,000
d. between $75,000 and $150,000
23. How much return does a typical angel investor expect from his or her investment?
a. angel investors have no expectation of return
b. double the amount invested within 2 years
c. 10 times the investment in 5 years
d. 3 times the investment within 3 years
24. What is a typical investment range for the 3Fs?
a. less than $1,000
b. between $500 and $20,000
c. between $25,000 and $200,000
d. between $1,000 and $100,000
25. _________ angels are individuals who have already started and successfully
operated their own businesses.
a. Corporate
b. Entrepreneurial
c. Professional
d. Enthusiast
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
26. ______ angels can be former business executives who want to attain profit and play
a large part in the company.
a. Corporate
b. Entrepreneur
c. Professional
d. Enthusiast
27. Generally speaking, many corporate angels seek this within the venture:
a. a match to his or her own values
b. a higher rate of return than other investors
c. a paid position
d. global expansion
28. ______ angels sometimes seek to be paid advisers. They generally come from a
profession such as lawyers or accountants.
a. Corporate
b. Entrepreneur
c. Professional
d. Enthusiast
29. ______ angels, often independently wealthy, tend to invest for pleasure.
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
a. Corporate
b. Entrepreneur
c. Professional
d. Enthusiast
30. ______ angels are successful entrepreneurs who want active involvement in the
companies they invest in.
a. Entrepreneur
b. Professional
c. Enthusiast
d. Micromanagement
31. What type of angel is most likely to intervene if the business is not going well?
a. entrepreneur
b. professional
c. enthusiast
d. micromanagement
32. Which of the following describes an angel group?
a. a group formed from entrepreneur and professional angels
b. a group of investors who listen to your pitch as a group
c. a group of angels who share knowledge and collaborate in their investments
d. an angel who invests on behalf of others
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
33. Minority business angels account for what percentage of the total angel population?
a. 4.5%
b. 10%
c. 15%
d. 25%
34. What type of investment vehicle do venture capitalists use?
a. bank loan
b. limited partnership
c. angel account
d. investment bonds
35. In order to invest, angel investors must be “_________ investors”, meaning they
have met certain income or net worth thresholds.
a. venture
b. qualified
c. eligible
d. accredited
36. In 1979, the venture capital industry benefited from what action?
a. an economic boom
b. the ability of a pension fund to invest in venture capital
c. federal fund availability to entrepreneurs
d. the ability of small businesses to offer stock
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
37. Which of the following spawned the growth of a whole new generation of venture
capitalist companies?
a. general business growth
b. the improving economy of second- and third-world countries
c. the rise of smartphones and tablets
d. the 10-year cycle of venture capitalists
38. Entrepreneurial angels ____________________.
a. have already successfully started and operated their own businesses
b. are usually former business executives looking to use their savings or current income
to invest
c. are independently wealthy and retired or semiretired, looking to invest their personal
capital in startups as a hobby
d. have achieved success through their own companies and want to be involved in the
ventures they invest in
39. In short, VCs look for ______, big markets, and innovative ideas.
a. early seed funding
b. midsize companies
c. great teams
d. local companies
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
40. How often will additional funding be awarded by a VC, assuming the company is
growing?
a. every 8 years
b. every 10 years
c. every year or two
d. every 3 years
41. Venture capitalists often reject plans and proposals for which of the following
reason(s)?
a. the business is not a good fit with the fund’s criteria
b. the VC only invests in companies with a referral
c. the VC does not operate in your geographical area
d. all of these
42. ______ is a rigorous process that evaluates an investment opportunity.
a. Investment investigation
b. Valuation
c. Due diligence
d. Investor assessment
43. Who is involved in the due diligence process?
a. only angel investors
b. only venture capitalists
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
c. angel investors and venture capitalists
d. banks
44. What will be the first opportunity for the investor to sell stocks on the stock market?
a. at any time after the initial investment
b. when the company is profitable, usually after 5 years
c. with the company’s initial public offering (IPO)
d. whenever there is a buyer
45. What signals the end of the due diligence period?
a. within 30 days of the initial offer
b. within 6 months of the initial offer
c. when the investor has resolved all questions and issues
d. when all the issues of both parties have been resolved
46. What is the ultimate reason for trading equity for financial support?
a. it is more likely that the entrepreneur will build a more valuable company
b. it is usually a deal/no deal option
c. there will be more people interested in the company’s success
d. preparing for the questions asked in pitching and due diligence will ultimately improve
the company
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
47. What two sources of investors are available for a private company?
a. accredited investors and family/friends
b. family/friends and shareholders
c. investors and family/friends
d. investors and banks
48. What feature of registering a company allows you to set aside a portion of your
stock for future employees?
a. reserve funds
b. option pools
c. stock reserves
d. employee stock option plans
49. This action allows the stock to be purchased on the open market and gives
investors a chance to get a return of cash.
a. liquidation
b. IPO
c. exit plans and clauses
d. company registration
50. When valuing a seed-stage, startup, or early-stage company, which of the following
is most likely to be considered?
a. the company’s history of sales
b. how much time it will take for the business to become profitable