Chapter 3

Question 1

Focuses on the special challenges and problems associated with the investment and financing of risky businesses typically startups

Answer 1

Entrepreneurial finance

Question 2

Typically high-risk startups that are commonly funded by venture capitalists

Answer 2

Entrepreneurial growth companies

Question 3

Distinctive features of entrepreneurial finance

Answer 3

EGCs rely heavily on equity financing
financial contracting between them and their financiers is fraught with information problems

Question 4

EGCs rely on this to fund investment which vastly exceed the amount of internal funding the companies can generate

Answer 4

External equity financing

Question 5

Financing provided either through capital investments by current owners or through funding by professional venture capitalist

Answer 5

Private equity

Question 6

Refer to buy out funds organizations that manage companies acquired through leveraged buyouts

Answer 6

Private equity

Question 7

A professionally managed pool of money raised for the purpose of making actively manage direct equity investment and rapidly growing private companies

Answer 7

Venture capital

Question 8

Types of venture capital funds

Answer 8

1. Institutional venture capital funds
2. Angel capitalist

Question 9

Formal business entities with full time professionals dedicated to seeking out and funding promising ventures

Answer 9

Institutional venture capital funds

Question 10

Wealthy individuals who make private equity investments on a more ad hoc basis

Answer 10

Angel capitalist

Question 11

Four categories of institutional venture capital funds

Answer 11

Small business investment companies
financial venture capital funds
corporate venture capital funds
venture capital limited partnerships

Question 12

Federally chartered corporations established as a result of the small business administration act of 1958

Answer 12

Small business investment companies

Question 13

Subsidiaries of financial institutions particularly commercial banks

Answer 13

Financial venture capital funds

Question 14

Subsidiaries or standalone firm established by non-financial corporations to pin access to emerging technologies

Answer 14

Corporate venture capital funds

Question 15

Fancy stablish by professional venture capital firms and organized as limited partnerships

Answer 15

Venture capital limited partnerships

Question 16

This dominate the venture capital industry because they make their investment decisions free from outside influences

Answer 16

Limited partnerships

Question 17

Method of investing venture capital in a portfolio company in stages over time

Answer 17

Staged financing

Question 18

Option held by the venture capitalist to deny or delay additional funding for a portfolio company

Answer 18

Cancellation option

Question 19

An investment proposal detail in all of the economic, control, and ownership terms - including covenants - that is prepared and presented to an intrapreneur the a venture capitalist

Answer 19

Term sheet

Question 20

Agreement between venture capital investors and portfolio company managers allocating ownership stakes and voting rights to venture capitalist

Answer 20

Ownership rights agreements

Question 21

Contract terms that adjust downward the par value of the stock venture capitalists have purchased and accompanied in case the firm muscle new stock at a lower price than the venture capital originally paid

Answer 21

Ratchet provisions

Question 22

Agreement giving the venture capitalist the right to demand that a portfolio companies managers are range from public offering of shares in the company

Answer 22

Demand registration rights

Question 23

Agreements giving the venture capitalist the right to participate in any sale of stock that a portfolio companies managers might arrange for themselves

Answer 23

Participation rights

Question 24

Give the venture capitalist the right to force the company to buyback the shares held by the venture capital

Answer 24

Repurchase rights

Question 25

Plants set up to provide stock options to newly hired managers of portfolio companies in order to give them incentives to manage the company to create value

Answer 25

Stock option plan

Question 26

Option for venture capitalist to sell accompany back to its entrepreneur or founders

Answer 26

Redemption option