E08 - Venture Capital & High Growth Funding 101 – Part 1
Q.1
The speaker stated that Venture Capital is not same type of financing as say a restaurant or normal startup business might have whereby it might grow from reinvesting its own profits. Rather he said that Venture Capital financing is for what kind of business?
Agricultural ventures.
High risk, high reward type ventures – typically for a breakthrough idea or technology.
Businesses that develop natural resources.
Banks and financial institutions.
Q.2
When a venture capital investment is made in a start up company, what frequently, if not typically happens to the management of the company?
The founder of the startup typically continues on as the President of the newly venture capital funded company.
A new management team is brought in to actually run and grow the company which probably does not include the founder of the original start up.
The person or persons actually making the venture capital investment usually becomes the President of the company.
None of the above.
Q.3
Which of the following are some of the good things the speaker said often comes with venture capital funding?
Provides financing for growing your idea that likely isn’t available elsewhere.
Let’s the founder of the start-up participate in the potential high growth success of the company.
It provides connections to industry experts and people “who have done it before”.
All of the above.
Q.4
Which of the following downsides did the speaker cite as a typical consequence of venture capital funding?
The Founders of the startup give up a significant portion of their company to the venture capital investors.
The expectation for performance is very high; Venture capitalists expect that your lofty goals will be met.
Personality conflicts among investors are a difficult thing to deal with.
Both The Founders of the startup give up a significant portion of their company to the venture capital investors and The expectation for performance is very high; Venture capitalists expect that your lofty goals will be met.
Q.5
The speaker said that venture capital investments typically include a liquidation preference (often with interest) for the investors and gave the example of a 1x liquidation preference. Which of the following outlines what he described for a 1x liquidation preference?
If the venture capitalist invests $1 million dollars, upon eventual sale of the company, they expect to receive 1 times their $1 million investment back before other owners receive anything back for their investments.
If the company should fail, the other investors guarantee that the venture capitalist will at least get their investment back, no matter what.
For each $1 million dollars that a venture capitalist invests, all the earlier stage investors must also invest $1 million dollars additional funding in the business.
The venture capitalist always invests in multiple of $1 million dollar investments.