(F) Chapter 8: Equity Financing (2nd set) Flashcards
who provide capital for start-up, early stage, or expansion of different business ventures?
professional investors
Another source of financing where these professionals provide a full range of financial services for new or growing ventures.
Venture Capital Markets
T or F. As partial owners of the companies they invest in, Angel Investors are most concerned with return on investment.
F (venture capital markets)
Debunk
Myth 1: Venture capital firms want to own control of your company and tell you how to run your business
→ konti lang ganon
→ VCs have no desire to run the business. They do not want to tell entrep how to make a day-to-day decisions and have the owner report to them daily
→ they want the entrep and management team to run the company profitably.
→ they do want to be consulted on any major decision, but they want no say on daily business operations.
T or F. Venture capitalists are satisfied with a reasonable return on investments
F
→ VCs expect very high, exorbitant, unreasonable returns
→ can obtain unreasonable returns from hundreds of publicly traded companies
→ can obtain reasonable returns from many types of investments that do not have the degree of risk involved
→ high degree of risk = high return on investment
T or F. Venture compared to Angel Investors are quick to invest.
F
→ takes a long time to raise a venture capital because the funneling process of selecting 1 out of a 100 takes a great deal of time.
→ see 50-100 proposals a month ⇒ 10 will be of some interest ⇒ 2 or 3 will receive a fair amount of analysis ⇒ only 1 will get funded (very discriminating)
→ Once the VC has found that one, he/she will be spending a significant amount of time investigating possible outcomes before funding it
T or F
Venture capitalists are more interested in the management team —new ideas or high-tech inventions consideration
T
→ a good idea is important but a good management team is even more important
→ the VC will have a hard time believing an entrep (w poor managerial bg and no experience) in that industry can follow thru on a business plan
DEBUNK MO POKI
Venture capitalists need only basic summary information before they make an investment
→ detailed and well-organized business plan is the only way to gain a venture capital investor’s attention and obtain funding
→ VC want the entire business plan and to have written in down in detail
Angel investors AKA
business angels or informal risk capitalists or social investors
They are typically entrepreneurs, retired corporate executives, or professionals who have a net-worth of more than $1M and an income of more than $100,000 a year.
Angel investors
T or F. Angel investors are more concerned with return on investment than non-financial returns.
F (DI SILA MUKHANG PERA)
They seek other non-financial returns such as:
creation of jobs in areas of high unemployment
development of technology for social needs (e.g., medical or energy),
urban revitalization,
minority or disadvantaged assistance,
and personal satisfaction from assisting entrepreneurs.
T or F. Total angel capital size is 5x more than the total VCs
T
T or F. Companies invested on is 3x as VCs
F (30x)
T or F. Nearly 300,000 active angel investors (in the U.S.)
T
T or F. Created 290,020 jobs in 2013; 4.1 jobs per angel investment
T
Pro or Cons?
Angels engage in smaller financial deals.
Pro (Entrepreneurs who need only a small amount of money have more guarantee in getting deals)
Pro or Con
Angels prefer seed stage or start-up stage.
Pro
Pro or Con
Angels cannot offer any national image because they do not have a professional network.
Con
Pro or Con
Angels are located in local geographic areas.
Pro
Pro or Con
Angels may want some decision making with the entrepreneur.
Con
Pro or Con
Angels have limited contacts for future leverage.
Con
Pro or Con
Angels invest in various industry sectors.
Pro
Pro or Con
Poki mo
Type of Screening Criteria used by Venture Capitalists
The investor wants to know if the business is declining, sustainable, or maturing industry
Economic environment of proposed industry
Type of Screening Criteria used by Venture Capitalists
The investor needs statistical data or evidence in investigating your business.
Financial information of the proposed business
Type of Screening Criteria used by Venture Capitalists
expressed adequately and professionally presented; content: SWOT, key points, and graphics
Proposal Characteristics
T or F. One of the financial services provided by Venture Capitalists are Management-consulting functions and management audit and evaluation.
T
T or F. One of the financial services provided by Angel Investor is help in establishing management and accounting controls
F (VC)
T or F. One of the financial services provided by VC is market research (to outcompete, for connections) and strategy for businesses that do not have their own marketing departments
T
T or F. Financial Services provided by Venture Capitalists help in risk management and the establishment of an effective insurance program.
T
T or F. Counseling and guidance in complying with a myriad of government regulations are not one of the financial responsibilities provided by Venture Capitalist as they are more concerned with making big decisions.
F (they want to be part of the decisions and it’s also one of their financial services)
Type of Angel Investor:
→ very serious investors.
→ they attempt to impose the tactics that worked for them on their portfolio companies.
→ they demand a seat on the board of directors.
→ If business is not doing well, they will try to bring in new managers
Micromanagement
Type of Angel Investor:
→ pertains to the occupation of the investors
→ not fully well-versed in the industry they are investing in.
→ rarely seek a board seat and invest in several companies at one time
professional
Type of Angel Investor:
→ people who have been laid off with generous severances or have taken early retirement
→ some entrepreneurs persuade them to occupy a senior management position
Corporate
Types of Angel Investor:
→ most of these investors own and operate highly successful businesses.
→ they take bigger risks and invest more capital
→ seldom look at ventures outside their expertise and will only participate in a handful of investments
→ these investors normally take a seat in the board of directors but rarely assume management duties.
→ Typical investments: $200,000 to $500,000, and more as the venture progresses.
Entrepreneurial
Type of Angel Investors:
→ less calculating than entrepreneur angels, simply like to be involved in deals.
→ investing is a hobby, their investment is less discriminating.
→ play no role in management or a place in the board
→ size of investments are relatively smaller since these investors spread themselves across numerous companies
Enthusiast
