Venture Capital Self-Quiz








A fund is being formed by a group of individuals to make venture investments. The form of the VC fund is likely to be a(n):
Choice 1 corporation.
Choice 2 partnership.
Choice 3 LLP.
Choice 4 LLC.
Aggressive, Inc. is an LP in a VC fund. Aggressive has been very disappointed with management’s recent performance with regard to its investments. As such, Aggressive has been forcing the fund to sell various assets and has been working, on its own, with the various portfolio companies. Such activity is:
Choice 1 illegal, and likely to cause Aggressive to face liability for fund actions.
Choice 2 legal, and likely to cause Aggressive to face liability for fund actions.
Choice 3 illegal, and likely to cause Aggressive to be sued by the other LPs.
Choice 4 illegal, and likely to cause Aggressive to be sued by the portfolio firms.
NewInvestor is a venture fund being formed to invest in a variety of companies. It would not be uncommon for the fund to:
Choice 1 invest only in telecommunications companies.
Choice 2 invest only near its offices in the greater Chicago area.
Choice 3 invest only in firms who need less than $5 million in venture funding.
Choice 4 All of the above.
Marietta has worked for several different small companies that are just getting started out. As an entrepreneur, Marietta is probably:
Choice 1 highly risk-averse.
Choice 2 unmotivated by pecuniary and professional gain.
Choice 3 not risk-averse.
Choice 4 not easily inspired.
Sid and Matilda have decided to raise a venture capital fund. Their next step is probably to:
Choice 1 begin searching for investment opportunities and narrowing their investment focus.
Choice 2 begin the fund-raising process and preparing pitch materials.
Choice 3 seek out other funds with which to syndicate deals.
Choice 4 make the federal filings that are always required of starting a venture fund.
What factor below would be most helpful to investors if they were trying to determine whether or not they should invest in Sid and Matilda’s fund?
Choice 1 Whether Sid and Matilda have a background in venture investing and any proven investment history.
Choice 2 Where the fund will be headquartered, in order to determine the types of investments it will engage in.
Choice 3 Whether or not the fund will raise in excess of $100 million.
Choice 4 If the fund has already identified a tax-beneficial strategy for distributions it will make to investors.
The general partner’s share of a distribution upon the completion of an investment is known as:
Choice 1 return of profits.
Choice 2 fund proceeds.
Choice 3 carried interest.
Choice 4 percent return.
When making an investment, a venture capital fund will be most interested in the company’s:
Choice 1 management team.
Choice 2 operating history.
Choice 3 cash flow.
Choice 4 equipment and property.
Harold and Katherine are starting a new company. They have decided that to really get things rolling, they will need to get a fair amount of money together. They sit down to list possible sources of funds. What might that list include?
Choice 1 Credit cards and bank loans.
Choice 2 Friends and family.
Choice 3 Home equity loans.
Choice 4 All of the above.
After Harold and Katherine have exhausted their options, the next place they might look for funds is:
Choice 1 a loan from an investment bank.
Choice 2 money from an angel investor.
Choice 3 money from a venture capital fund.
Choice 4 money from an LBO fund.
NewCo is considering taking on an investment from a venture capital fund. Harry, NewCo’s founder, is a bit concerned with some of the terms of the deal. One item that he finds particularly worrisome is the fact that:
Choice 1 the VC fund will hold a majority of the board after the deal.
Choice 2 the VC fund will help him manage the business in the future.
Choice 3 the VC fund will immediately fire him after the transaction.
Choice 4 the VC fund will fire many of NewCos employees.
Gina owns UpandAtem, Inc. The company recently took on an investment from a venture capital fund. However, the full amount that the fund was willing to invest didn’t get paid to the company all at one time. Instead, the fund will be investing in:
Choice 1 milestones.
Choice 2 tranches.
Choice 3 rounds.
Choice 4 groups.
Tamar is the manager of a venture capital fund. Her fund owns shares in TechEdge, Inc. It is probably the case that the shares that the fund owns are:
Choice 1 common stock.
Choice 2 senior notes.
Choice 3 preferred stock with a voting preference.
Choice 4 preferred stock with a voting, liquidation, and dividend preference.

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