Funding Flashcards
1
Q
- Name the three forms of external financing mentioned in the lecture. For each of those, name the three outlined definitions according to Hahn (2014).
A
- Equity capital
▪ Having a share implies to co-own the companys
▪ Control rights, co-determination rights, information rights
▪ Direct participation in business success & failure - Mezzanine capital
▪ Repayment obligation, profit-linked interest
▪ Optional control rights, co-determination/information rights
▪ Potential participation in failure - Loans/Borrowed capital
▪ Repayment obligation, interest payment
▪ Investors do not hold any shares
▪ No participation in business success
2
Q
- Name all categories of internal financing for funding a start-up.
A
- Self-financing
- Boot-strapping
3
Q
- What is the definition of risk according to the Gabler Online Wirtschaftslexikon (2020)?
A
A risk is an indication of the possibility that with some probability a loss may occur in connection with a decision or an expected benefit may not materialize.
4
Q
- What is the legal definition of Bankruptcy? Name the main liability of the management,
according to the Insolvency code.
A
Bankruptcy (or insolvency) is a legal status of a firm that cannot repay the debts it owes to creditors.
The main liability of management is the duty to file for insolvency in a timely manner.
5
Q
- What are the three reasons for insolvency (InsO §17-19)?
A
- Illiquidity
- Imminent insolvency
- Over-indebtedness
6
Q
- Early-Stages: Why is it difficult for start-ups to obtain loans according to Hof (2017)? Name all
the mentioned aspects.
A
- Asymmetric information; skills of the founders, difficulty to evaluate the quality of the product/technology
- High uncertainty about market opportunities and development of the company
- Irreversibility of R&D costs
- Lack of securities
- No track record
- Risk of failure
7
Q
- What are the characteristics of the Idea phase according to the lecture?
A
- Idea generation, prototyping, feasibility studies, team
building etc. - No revenues, no profits/moderate losses
- Financing from own cash-flows is not possible
8
Q
- What are the characteristics of the start-up phase according to the lecture?
A
- Company foundation, product development reaches
production stage, first marketing concepts, partnerships - First revenues, first small profits/high losses
- Rising capital requirements
9
Q
- What are the top five motivations of Business Angels for Investing according to Brandenburger
et al. (2012)?
A
- Supporting young entrepreneurs
- Contribute own professional experience
- For fun
- Potentially fruitful investment
- To play a role in the entrepreneurial process
10
Q
- Name the five top factors in the category Entrepreneur & team according to Brandenburger et
al. (2012).
A
- Trustworthiness
- Enthusiasm
- Achievement motivation
- Ability to communicate the product
- Frustration tolerance
11
Q
- Name the six main phases of the funding process.
A
- Deal Origination
- Screening
- Evaluation
- Deal Closing
- Post-Investment Activities
- Exit
12
Q
- How do investors identify new companies according the lecture?
A
- Direct contact from the entrepreneur
- Through an active search for deals.
- Through a referral process.
13
Q
- Name and explain the several events an investor can make an exit through according to
Cumming & MacIntosh (2003).
A
- Acquisition; company is sold
- Buy back; the investor sells the shares on the stock market.
- Secondary sale; investor sells to another investor
- Write off; investor realises a capital loss.
14
Q
- How is a failure defined according to Gage (2012)?
A
If failure is defined as failing to see the projected return on investment - say, a specific revenue growth rate or date to break even on cash flow - then more than 95% of start-ups fail.
15
Q
- Name the 5 top reasons why Startups fail.
A
- No Market Need
- Run out of Cash
- Poor Marketing
- Got Outcompeted
- Pricing/Cost Issues
