Chapter 10

Question 1

Progression of raising money

Answer 1

You start out borrowing money from family and friends and then more money from angel investors one your buisness grows. When your buisness grows even more you start to borrow money from venture capitalist firms and then the public and is then purchased by another company.

Question 2

Basic ways of evaluating the value of a buisness

Answer 2

1. Market value: comparing it to other companies
2. Future cash flow: how much money the company is predicted to get
3. Asset value
4. Net income: capitalization value

Question 3

Income based evaluation methods

Answer 3

Company value:
-Net income/(captialization rate: rate at which it’s income and asset value grows)
Present Value of Future: How much money a firm is expected to make in the future
-Present value of free cash flow (how much net income a firm is expected to make in the future)- Final Value of Firm (Terminal revenue)
-Market Comparable Valuation: This can be calculated by calculating the total equity valuation of firm which is equal to the net income multiplied by the ratio of market value by net income (P/E).

Question 4

Asset based evaluation methods

Answer 4

There are many different types of assets can be valued based on
Liquidated assets
Adjusted book value
Replacement

Question 5

External Financing

Answer 5

1. Borrow money from friends and family
2. Live on cheaper land
3. Rent things you don’t need to buy
4. Take advantage of start up discounts
5. Contensts gor govermental entrepreneurship rewards

Question 6

Finding Buisness Angles

Answer 6

Formal Buisness angels are easier to find but can be costly. Individual buisness angles are plentiful but difficult to find, approach and require a lot of convincing to invest.

Question 7

Types of buisness Angles

Answer 7

1. Entrepreneurial
2. Corporate
3. Micromanaging
4. Professional
5. Enthusiast

Question 8

How to assess a VC

Answer 8

1. Are they attenting board meetings
2. Are they patient
3. Do they have deep pockets
4. Accessible
5. Are they adding value by bringing in new contacts

Question 9

Harvesting Existing Investments:

Answer 9

This when investors realize the value of their stock by gaining money from their investments. This can be achieved by selling stocks to the public, aquiring the company or buying back stocks from investors.

Question 10

IPO’s Pros & Cons:

Answer 10

Pros:

• Gain money that doesn’t have to be repaid
• Purchase more stocks to gain more
• Prestige and visibility
• compensation employees

Cons:

• Expensive
• Mangament is divided
• Short term profits become main goal
• Private info goes public

Question 11

Aquisition Pros & Cons:

Answer 11

Pros:
1. Company gains a lot of money
2. Managment can focus on mangment
3. Investors are easily paid off
4. Costs are less than IPO
Cons:
1. Clash of cultures
2. Employees have to sign noncompete agreements with a new firm
3.