Entrepreneurial Finance: New Venture Financing

Question 1

What are the four life cycle stages of venture financing?

Answer 1

1. Development stage
2. Startup stage
3. Survival stage
4. Rapid-growth stage

Question 2

What is the type of financing available to ventures in the development stage?

Answer 2

Seed financing

Question 3

What is the type of financing available to ventures in the startup stage?

Answer 3

Startup financing

Question 4

What is the type of financing available to ventures in the survival stage?

Answer 4

First-round financing

Question 5

What are the types of financing available to ventures in the rapid-growth stage?

Answer 5

1. Second-round financing
2. Mezzanine financing
3. Liquidity-stage financing

Question 6

Describe the development stage

Answer 6

This is when your company is moving from an idea to a business by prototyping and making trials of your product. Some people may have tried it, but that number is mostly limited to family/friends who haven’t paid for the product. the main goal is to test the market to see if there is interest

Question 7

Describe the startup stage

Answer 7

This is when your company starts to generate revenue; it begins at time “zero” on the graph. Your company starts to sell products and make revenues: people are starting to pay for your product

Question 8

Describe the survival stage

Answer 8

This is when your company’s revenues start to pay for some (but not all) of your expenses. At this point, you will also have to start borrowing money or giving up equity in exchange for money in order to keep moving forward with the business

Question 9

Describe the rapid-growth stage

Answer 9

This is when your cash inflows are consistently greater than your outflows, you are cash flow positive, and your business’s value starts to increase. At this point, people are starting to realize why they need this product

Question 10

What is the life cycle stage of seasoned financing?

Answer 10

Early-maturity stage

Question 11

Describe the early-maturity stage

Answer 11

This is when your business’s growth slows and most of your value is realized; you should consider exiting the industry. There is some saturation/competition, and other factors are influencing your growth. Investors will start to cash out and move on

Question 12

What are the major financial sources/players during the development stage?

Answer 12

1. Entrepreneur’s assets

2. Family and friends

Question 13

What are the major financial sources/players during the startup stage?

Answer 13

1. Entrepreneur’s assets
2. Family and friends
3. Business angels
4. Venture capitalists

Question 14

What are the major financial sources/players during the survival stage?

Answer 14

1. Business operations
2. Venture capitalists
3. Suppliers and customers
4. Government assistance programs
5. Commercial banks

Question 15

What are the major financial sources/players during the rapid-growth stage?

Answer 15

1. Business operations
2. Suppliers and customers
3. Commercial banks
4. Investment bankers

Question 16

What are the major financial sources/players during the early-maturity stage?

Answer 16

1. Business operations
2. Commercial banks
3. Investment bankers

Question 17

What are the types of financing available to seasoned firms in the early-maturity stage?

Answer 17

1. Obtaining bank loans
2. Issuing bonds
3. Issuing stock

Question 18

Describe the financing of the survival stage

Answer 18

You start to have some revenues come in, so the easiest scenario is to use that revenue to pay off as many of your own expenses as you can. You should also start to negotiate with your suppliers to extend your payment terms, and to make your payables as steady as you can. You can start looking for government assistance programs because you can prove that you make revenue, but it is unlikely that you will get a loan from a commercial bank (it is unlikely that you will have consistently made enough profits over the past few years to show that you can pay back the loan payments and the interest)

Question 19

Describe the financing of the rapid-growth stage

Answer 19

You have a much better shot at talking to the commercial banks. Very few companies will be able to go to investment bankers, but it is possible that some businesses at this stage may be able to