part 2 Flashcards
What is a SAFE?
Simple Agreement for Future Equity: a financial contract where an investor exchanges money for rights to purchase shares in future equity capital raising.
SAFE is commonly used in startup financing.
What are the differences in assets composition between hard and soft companies?
Differences in both assets composition and assets size between hard (manufacturing) and soft (services) companies.
Hard companies typically have more tangible assets.
What is the average planned lifespan for a VC investment vehicle?
6 to 7 years.
This is the typical duration for which VC funds aim to remain invested in companies.
True or False: VC investors prefer to invest in the startup stage.
False.
VC investors tend to enter after the initial months/years of activity.
What is the capital gap?
The capital gap occurs after the startup stage and before the development stage, where neither governments nor informal investors can provide sufficient funding.
This gap arises due to constraints on funding sources.
What are the main sources of finance during the pre-competitive and startup stages?
- Government/Local Authorities grants
- Bootstrapping finance
- Business angels
- Corporate/social VC
- Equity crowdfunding platforms
- Incubators and accelerators
- Contracts from industry
- ICO
These sources help startups before they attract traditional investors.
What is the average size of each VC investment?
Around 2 to 3 million.
This size is feasible in relation to the capital under management.
What is the role of Seed Corn Funds (SCF)?
SCF are established by VC firms to invest in the pre-competitive and startup stages, feeding their deal flow for future investments.
SCF allows VCs to engage early with promising ventures.
What legal entity is most suitable for hosting an outside investor?
LLP (Srl in Italy).
LLP structures are often preferred for their flexibility and limited liability.
Fill in the blank: The so-called ‘life style company’ refers to a company that _______.
[has little demand for its product].
This term highlights companies that prioritize personal lifestyle over growth.
What is the equity gap?
The equity gap refers to the funding gap that exists after the startup stage and before the development stage when traditional financing becomes available.
It indicates a lack of sufficient funding sources for growing ventures.
What is the primary reason VC investors avoid early investment?
Business risk; they prefer to avoid uncertainty even if they bear a high level of risk.
This strategy helps mitigate potential losses.
What factors do venture features include?
- Industry
- Tech stage
- Business stage
- Management team
These factors influence the kind of finance and target source for a venture.
What is the risk-return profile issue for technology-based ventures?
The specific risk-return profile of technology-based ventures doesn’t match banks’ risk appetite and compensation scheme.
This misalignment makes it difficult for such ventures to secure traditional bank financing.
Who qualifies as an accredited/sophisticated investor?
Any professional investor or any person who exceeds 1 million USD in net worth and has an annual income greater than 200k USD in the last two years.
This classification is important for regulatory purposes.
What are the SEC regulations relevant to securities?
- SA = Securities Act (1933)
- SEA = Securities and Exchange Act (1934)
- SEC Reg. D = SEC Regulation D on securities registration (1982)
- ICA = Investment Company Act (1940)
- SOA = Sarbanes-Oxley Act (2002)
- JOBAS = Jumpstart Our Business Start-ups Act (2012)
- CR = Crowdfunding Regulation (2016)
These regulations govern the issuance and trading of securities in the U.S.
