48. “ALOTACASH” Venture Capital Fund wants to average a 45% return on its investments. Of the 12
total investments 3 have failed (i.e a return of -100%), and 6 generated a zero return. Two other
projects yielded a return of 70% and 83%, respectively. What has to be the return on the last
outstanding investment in order for “ALOTACASH” to reach its investment goal?
a.
852%
b.
358%
c.
687%
d.
152%
49. “ALOTACASH” Venture Capital Fund wants to average a 45% return on its investments. Of the 12
total investments 3 have failed (i.e a return of -100%), and 6 generated a zero return. What has to be
the average return on the last three outstanding investment in order for “ALOTACASH” to reach its
investment goal?
a.
280%
b.
840%
c.
460%
d.
625%
50. “ALOTACASH” Venture Capital Fund currently has its money tied up in 12 investments. Of those
investments 3 are expected to fail (i.e a return of -100%), and 6 are expected to generate a zero return.
The three remaining projects are supposed to yield a return of 70%, 83% and 167%, respectively.
What is the average return on “ALOTACASH”s investments?
a.
12.68%
b.
-4.57%
c.
8.93%
d.
1.67%
51. What is considered the leading cause(s) of the death of young entrepreneurial firms?
a.
not enough customers
b.
too many customers
c.
too much cash
d.
both (a) and (b)
52. Which of the following is not a difference between entrepreneurial finance and “ordinary” finance?
a.
entrepreneurial companies generally have faster growth than ordinary companies
b.
most of the assets of entrepreneurial companies are often intangible assets
c.
entrepreneurial companies must attract, motivate, compensate, and retain highly skilled
technical and entrepreneurial talent with minimal cash flow
d.
none of the above
53. Which of the following is the most likely method of financing for a high technology entrepreneurial
firm?
a.
equity
b.
mortgage bonds
c.
debentures
d.
junk bonds
54. Modern venture capital is defined as
a.
a professionally managed pool of money raised for the sole purpose of making actively
managed direct equity investments in rapidly growing private companies.
b.
a professionally managed pool of money raised for the purpose of making equity
investments in slowly growing private companies.
c.
a professionally managed pool of money raised for the sole purpose of making actively
managed direct equity investments charitable ventures.
d.
none of the above.
55. The roots of the American venture capital industry can be traced to
a.
the American Research and Development Company.
b.
the American Reinvestment and Development Company.
c.
the Alternative Direct and Reinvestment Company.
d.
none of the above.
56. Most of the capital for early venture funds came from
a.
corporate backers.
b.
wealthy individuals.
c.
family trusts.
d.
all of the above.
57. Which of the following had a significant impact on the change that the venture capital industry went
through in the early 1970’s?
a.
the lowered top personal tax rate on capital gains from 35% to 28%
b.
the adoption of the “Prudent Man Rule”in 1979
c.
the restructuring of the economy in 1975
d.
a and b
58. During most years, which source has generally provided more total investment in entrepreneurial
companies?
a.
institutional venture capital funds
b.
angel funds
c.
a and b have provided approximately equal total investment
d.
none of the above
59. Which type of venture capital fund has the ability to borrow from the U.S. Treasury?
a.
financial venture capital funds
b.
corporate venture capital funds
c.
small business investment companies
d.
venture capital limited partnerships
60. Which type of venture capital firms dominate the industry?
a.
small business investment companies
b.
financial venture capital funds
c.
corporate venture capital funds
d.
venture capital limited partnerships
61. In recent history, the largest portion of venture capital investments have occurred
a.
in California.
b.
in New England.
c.
in the airline industry.
d.
in start up stage financing.
62. Venture Fund A focuses on start up technology companies while Venture Fund B focuses on
middle-stage technology companies. Which firm would require the highest returns on its investments?
a.
Venture Fund A
b.
Venture Fund B
c.
venture funds require the same return
d.
it is impossible to say which firm would require the highest return
63. A study by the National Venture Capital Association found that the sales of venture firms during the
1970 – 2005 period was
a.
half that of non-venture backed companies.
b.
equal to that of non-venture backed companies.
c.
twice that of non-venture backed companies.
d.
three times that of non-venture backed companies.
64. As a limited partner in a venture capital limited partnership, today you committed to investing $70
million dollars. What amount must you contribute immediately?
a.
$70 million
b.
$80 million
c.
$90 million
d.
probably less than $70 million
65. Venture capital funds typically use stage financing in order to
a.
ensure that the entrepreneur is disciplined in goal achievement.
b.
to minimize risk.
c.
to retain an option for funding future developmental stages of the firm.
d.
all of the above.
66. In order to protect the rights and the investment of the venture capital firm, the entrepreneur is usually
subject to
a.
a covenant spelling out what the entrepreneur must do.
b.
a covenant spelling out what the entrepreneur cannot do.
c.
a gentleman’s agreement.
d.
both (a) and (b)
67. Most venture capital firms invest capital in order to purchase
a.
equity of the entrepreneurial firm.
b.
debt of the entrepreneurial firm.
c.
an investment that is convertible into common stock of the entrepreneurial firm.
d.
none of the above.
68. You are a venture capitalist that is going to invest $10 million dollars today in a firm that is projected
to be worth $100 million four years from today when it is expected to have an initial public offering. If
you require a 40% annual return on investments with this kind of risk, then what portion of the equity
of the firm should you own after the investment?
a.
10.00%
b.
38.42%
c.
40.00%
d.
none of the above
69. You are a venture capitalist that is going to invest $7 million dollars today in a firm that is projected to
be worth $200 million six years from today when it is expected to have an initial public offering. If
you require a 35% annual return on investments with this kind of risk, then what portion of the equity
of the firm should you own after the investment?
a.
3.50%
b.
21.12%
c.
35.00%
d.
none of the above
70. You are a venture capitalist who is approached by a firm that is willing to sell you 30% of the firms
common stock. You believe the firm will be worth $800 million dollars when it IPOs in 5 years. If you
require a 50% return on investments with this firm’s risk characteristics, what amount will you have to
invest today in order to purchase 30% of the firm’s common shares?
a.
$240.000 million
b.
$105.350 million
c.
$31.605 million
d.
none of the above
71. You are a venture capitalist who can invest only $10 million dollars in a firm today. The firm is
expected to be worth $100 million five years from now when it has its IPO. If you require to be a 50%
owner of the firm’s common stock at the time of the IPO, then what is your annualized rate of return
on this investment?
a.
158.49%
b.
100.00%
c.
37.97%
d.
none of the above
72. Which type of public market is good for the future of entrepreneurial firms as they mature into
potential IPOs?
a.
a healthy capital market for small stocks
b.
a healthy capital market for large stocks
c.
a weak small capital market
d.
neither as these firms are not publicly traded yet
73. Which of the following is the most popular exit strategy that VCs use?
a.
IPO
b.
through sale of the portfolio company directly to another company
c.
by selling the portfolio company back to the entrepreneur
d.
none of the above
74. Which European country is noted for having the largest amount of venture capital invested in its
firms?
a.
Germany
b.
France
c.
Italy
d.
Britain
75. Which country has been the largest recipient of VC financing as a percentage of GDP?
a.
China
b.
Australia
c.
South Africa
d.
Israel
76. Once starting a new business an entrepreneur should concentrate on:
a.
becoming wealthy
b.
generating positive cash flow
c.
immediately seeking out venture capitalists
d.
generating as much sales as possible
77. Which group is the largest source of external seed and start-up capital for American businesses?
a.
venture capital limited partnerships
b.
institutional venture capital funds
c.
angel capitalists
d.
small business investment companies
78. One principle of venture capital funding is:
a.
the bulk of venture capitalists invest in a firm in the early stage of the company’s
development.
b.
professional venture capitalists typically require lower returns on companies in the earlier
stages of their development.
c.
most venture capital funds that invest in a company during its early years do not remain
committed to the firm as it develops.
d.
the earlier the development stage of the company, the higher must be the expected return
on the venture capitalist’s investment.
79. Which of the following statements is (are) true?
a.
Companies that were financed with venture capital tend to generate more sales, exports
and investment in R&D than non-venture capital-backed companies.
b.
About 95% of European venture-backed companies said they would either not exist or
would not have developed as quickly without venture capital investment.
c.
Companies that were financed with venture capital tend to generate the same level of
sales, exports and investment in R&D as non-venture capital-backed companies.
d.
Both (a) and (b) are true.
80. Venture capitalists have many opportunities to expropriate the limited partners’ wealth. This can be
controlled by:
a.
having a positive reputation.
b.
having contractual covenants.
c.
requiring that the general partner have limited liability.
d.
All of the above
e.
Both (a) and (b)
81. Examples of contractual covenants used to help control agency problems between venture capitalists
(VC) and investors include:
a.
limiting the VCs ability to establish new funds without granting existing investors equal
access.
b.
mandating that existing investors be included in any equity sale contracts the VC
negotiates.
c.
restricting the VCs freedom to invest in foreign and in publicly traded securities.
d.
All of the above
e.
(a) and (c) only.
82. The key difference between valuing VC investment and other kinds of investments is that:
a.
the expected returns do not need to be as high because the risk of most VC investments is
not as high as most other types of investments.
b.
the expected return must be quite high because the risk of most VC investments is much
higher than most other types of investments.
c.
the expected returns must be about the same because the risk of most VC investments is
about the same as most other types of investments.
d.
none of the above
83. Which of the following statements is false concerning the profitability of venture capital investments?
a.
The average compound annual return during the mid 1990s was around 30%.
b.
A weak correlation exists between venture returns and returns on small stock mutual
funds.
c.
Venture returns are quite volatile, ranging from negative returns to 150% in 1999.
d.
A strong positive correlation exists between venture returns and returns on small stock
mutual funds.
84. The chief difference(s) between European and American venture capital lies in:
a.
the principal sources of funds for venture capital investing.
b.
the organization of the venture funds.
c.
the development stage of the portfolio companies able to attract venture financing.
d.
the principal method of harvesting venture capital investments.
e.
All of the above
85. Which of the following statements is true concerning the term “venture capital?”
a.
In the United States the term refers to all professionally managed, equity-based
investments in private, entrepreneurial growth companies while in Europe the term refers
to early-and expansion-stage financing.
b.
In the United States the term refers to all professionally managed, equity-based
investments in private, entrepreneurial growth companies while in Europe the term refers
to later-stage financing.
c.
In Europe the term refers to all professionally managed, equity-based investments in
private, entrepreneurial growth companies while in the United States the term refers to
early-and expansion-stage financing.
d.
The terms refer to the same thing in both Europe and the United States.
86. Which of the following statements is false?
a.
Since 2000, annual venture capital returns in Europe have averaged 30%.
b.
One problem concerning exit strategies for European venture capitalists is, until recently,
the lack of a large liquid market for the stock of entrepreneurial growth firms.
c.
Since 2000, annual venture capital returns in Europe have averaged 6 to 9%.
d.
Returns for European private-equity investors was poor during the mid 1980s through the
mid 1990s.
87. Agreements between venture capital investors and portfolio-company management allocating
ownership stakes and voting rights to venture capitalists.
a.
Ownership right agreements
b.
Ratchet provisions
c.
Demand registration rights
d.
Participation rights
88. Contract terms that adjust downward the par value of stock venture capitalists if the firm sells new
stock
a.
Repurchase rights
b.
Ratchet provisions
c.
Demand registration rights
d.
Participation rights
89. Agreements fiving the venture capitalists the right to demand that a portfolio company’s managers
arrange a public offering of shares in the company
a.
Repurchase rights
b.
Stock option plans
c.
Demand registration rights
d.
Participation rights
90. Agreements giving the venture capitalists the right to participate in any sale of stock that company’s
manager might arrange for themselves
a.
Repurchase rights
b.
Stock option plans
c.
Demand registration rights
d.
Participation rights
91. Give the venture capitalists the right to force the company to buy back the shares held by the venture
capitalists.
a.
Repurchase rights
b.
Stock option plans
c.
Demand registration rights
d.
Participation rights
92. Formal business entities with full-time professional’s dedication to seeking out and funding promising
ventures
a.
Institutional venture capital funds
b.
Angel capitalists
c.
Small business investment companies
d.
Financial capital funds
93. Federally chartered corporations established as a result of the Small Business Administration Act of
1958
a.
Institutional venture capital funds
b.
Corporate venture capital funds
c.
Small business investment companies
d.
Financial capital funds
94. Subsidiaries or stand-alone firms established by non-financial corporations to gain access to emerging
technologies
a.
Institutional venture capital funds
b.
Corporate venture capital funds
c.
Small business investment companies
d.
Financial capital funds