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Question 1

What economic theory is often used to explain the relationship between investors and founders?

Answer 1

The principal-agent theory.

Question 2

In the context of the principal-agent problem, who is typically the principal and who is the agent in the relationship between an investor and a founder?

Answer 2

The investor is typically the principal, and the founder is the agent.

Question 3

What is meant by “asymmetrical information” in the context of the principal-agent problem between founders and investors?

Answer 3

Asymmetrical information refers to the situation where one party (the founder) has more information about the project than the other party (the investor).

Question 4

What is the term used to describe the situation where the founder has more information about their abilities than the investor?

Answer 4

The term used is “hidden characteristics.”

Question 5

What can happen if the founder doesn’t present their abilities accurately to the investor?

Answer 5

Adverse selection can occur, where the investor makes a poor investment decision due to the founder’s inaccurate or opportunistic presentation of their abilities.

Question 6

What is the primary interest of the investor (principal) in a start-up investment?

Answer 6

The investor’s primary interest is to achieve the highest possible increase in value and receive the highest possible return on their investment at the time of exit.

Question 7

What might be the differing interest of the founder (agent) compared to the investor?

Answer 7

The founder may be more interested in achieving long-term success through slow, continuous growth.

Question 8

What are the key elements of a venture capital (VC) firm’s investment strategy?

Answer 8

The key elements are: investment size, diversification, industry focus, stage of company development, geography

Question 9

Why do VC companies typically diversify their investments?

Answer 9

VC companies diversify their investments to reduce the uncertainty inherent in start-ups and spread the risk

Question 10

What types of companies are VC companies primarily interested in investing in?

Answer 10

VC companies are primarily interested in complex and technically innovative companies with high growth potential

Question 11

How long does the decision process usually take for a VC company to decide on an investment in a start-up?

Answer 11

The decision process usually takes about six months

Question 12

What is the typical expected return on investment for VC companies?

Answer 12

The typical expected return on investment for VC companies is 20% or higher

Question 13

What factors do VC companies consider when making investment decisions, besides the business plan?

Answer 13

Besides the business plan, VC companies also consider factors like location, corporate culture, and personnel

Question 14

How do VC companies generate their returns on investment?

Answer 14

VC companies generate their returns from the subsequent sale of shares at the highest possible price

Question 15

What are corporate venture capital (CVC) firms, and who provides the capital they invest?

Answer 15

Corporate venture capital (CVC) firms are usually subsidiaries of corporations that provide the capital for investment, they invest in innovative start-ups with good growth opportunities

Question 16

What are the two main approaches that CVCs can take in their investments?

Answer 16

The two main approaches are: investing internally in company departments or projects, and investing externally in other companies

Question 17

How do the strategic objectives of CVC donors differ from those of VC companies?

Answer 17

CVC donors act as the innovation management of the company, seeking access to new technologies and competitive advantages, while also expanding their business areas or product range

Question 18

What are the advantages for start-ups in receiving investment from CVCs?

Answer 18

The advantages for start-ups are: preservation of capital, additional support services (management assistance, market expansion), benefiting from the CVC donor’s image

Question 19

What is a term sheet, and what is its purpose in the investment process?

Answer 19

A term sheet is a document that outlines the key points of the planned cooperation between the investor and the founder, it serves as a basis for negotiation and leads to the final contract

Question 20

What are the three central questions concerning the use of funds in negotiations between founders and investors?

Answer 20

The three central questions are: What is the source of money?, What are the entrepreneur’s reasons for issuing the shares?, What is the relationship with the other shareholders?