Venture capital lesson 2-3

Question 1

a critical aspect of investment management, determining how funds are organized, operated, and managed

Answer 1

Fund structure

Question 2

type of investment fund that invests in early-stage startup companies that offer a high return potential but also come with a high degree of risk.

Answer 2

venture capital fund

Question 3

The fund is managed by a venture capital firm, and the investors are usually institutions orhigh net worth individuals.

Answer 3

venture capital fund

Question 4

performs a dual role in the fund, serving as both an investor and a fund manager.

Answer 4

venture capital firm

Question 5

As an investor, they usually put in 1%-2% of their own money, which demonstrates to other investors that they are committed to the success of the fund.

Answer 5

venture capital firm

Question 6

they are responsible for identifying investment opportunities, innovative business models, or technologies, and those with the potential to generate highreturns on investmentfor the fund.

Answer 6

venture capital firm

Question 7

manage the fund and make the investment decisions

Answer 7

general partner

Question 8

The investors who provide the capital for the fund. They are not involved in the day-to-day operations of the fund. They have the right to receive regular reports on the fund’s performance and to provide input on investment strategy.

Answer 8

limited partner

Question 9

Institutional investors such as pension funds, endowments, and family offices, as well as high-net-worth individuals.

Answer 9

limited partner

Question 10

Invest in VC funds to diversify their portfolios and potentially earn high returns from successful start-up investments.

Answer 10

limited partner

Question 11

The LPs’ capital is committed to the fund for a specific period of time, usually around 10 years, during which the GPs make investments and manage the portfolio companies.

Answer 11

limited partner

Question 12

Experienced professionals with a background in finance, entrepreneurship, or technology.

Answer 12

General Partner

Question 13

Responsible for identifying potential investments, conducting due diligence, negotiating deals, and providing operational support to the portfolio companies

Answer 13

General Partner

Question 14

Earn management fees and carried interest (or “carry”) on the fund’s returns

Answer 14

General Partner

Question 15

ROLES IN A VENTURE CAPITAL FIRM
Responsible for all fund investment decisions and normally invest their capital in the fund.

Answer 15

General Partners

Question 16

ROLES IN A VENTURE CAPITAL FIRM
Source investment opportunities and are paid based on deals they close

Answer 16

Venture Partners

Question 17

ROLES IN A VENTURE CAPITAL FIRM
Mid-level, investment-focused position. With experience in investment banking or other experience relative to the fund’s investment strategy

Answer 17

Principals

Question 18

ROLES IN A VENTURE CAPITAL FIRM
Junior staff with some experience in investment banking or management consulting

Answer 18

Associates

Question 19

ROLES IN A VENTURE CAPITAL FIRM
Industry experts who are hired as advisors or consultants to the venture capital firm temporarily, often to assist with due diligence or pitching new startup ideas.

Answer 19

Entrepreneur-in-Residence

Question 20

VENTURE CAPITAL FIRM COMPENSATION
Venture capital firms get paid through two revenue streams

Answer 20

management fees and carried interest.

Question 21

VENTURE CAPITAL FIRM COMPENSATION
are an annual payment made by investors to the venture capital firm to cover its operational expenses. The fee is usually around 2%.

Answer 21

Management fees

Question 22

VENTURE CAPITAL FIRM COMPENSATION
is a performance incentive paid to the venture capital firm whenever the fund realizes a profit, and typically is around 20% of the total profit distribution. The amount then gets distributed among the employees of the venture capital firm, with the majority going to the general partners.

Answer 22

Carried interest

Question 23

STAGES OF A FUND LIFECYCLE
establish the legal and operating foundation of the fund

Answer 23

fund formation

Question 24

STAGES OF A FUND LIFECYCLE
calling for capital from investors

Answer 24

Raising capital

Question 25

STAGES OF A FUND LIFECYCLE managing the capital and monitoring of the fund's performance

Answer 25

investment period

Question 26

STAGES OF A FUND LIFECYCLE selling of assets to maximize the fund portfolio

Answer 26

divestment

Question 27

STAGES OF A FUND LIFECYCLE distribution of returns to investors

Answer 27

liquidation

Question 28

THE LIFE CYCLE OF A VENTURE CAPITAL FUND Returns on venture capital investments can only be generated when a position is exited.

Answer 28

Return Generation and Exit Strategies

Question 29

The three most common ways to exit are:

Answer 29

Direct share sale Acquisition Initial Public Offering (IPO)

Question 30

The fund sells its stake in the investment company to another investor or sells its shares back to the investment company itself.

Answer 30

Direct share sale

Question 31

another company, usually a large one, purchases the investment company and, in doing so, buys out the venture capital fund.

Answer 31

Acquisition

Question 32

the investment company goes public, and the venture capital fund sells its shares in the process.

Answer 32

Initial Public Offering (IPO)

Question 33

buy companies and overhaul them to earn a profit when the business is sold again.

Answer 33

Private equity firms

Question 34

comes from outside investors in the private equity funds the firms establish and manage, usually supplemented by debt.

Answer 34

Capital for the acquisitions

Question 35

industry has grown rapidly; it tends to be most popular when stock prices are high and interest rates low.

Answer 35

private equity

Question 36

by private equity can make a company more competitive or saddle it with unsustainable debt, depending on the private equity firm's skills and objectives. 

Answer 36

acquisition

Question 37

Most private equity firms and funds invest in _________ rather than ----------

Answer 37

mature companies  startups

Question 38

They manage their portfolio companies to increase their worth or to extract value before ------ the investment years later.

Answer 38

exiting

Question 39

Private equity funds have a finite term of-----------------

Answer 39

7 to 10 years

Question 40

struggling companies

Answer 40

Distressed investing

Question 41

funding expanding companies beyond their startup phase

Answer 41

Growth equity

Question 42

focusing solely on technology or energy deals

Answer 42

Sector specialists

Question 43

sale of a company owned by one private-equity firm

Answer 43

Secondary buyouts

Question 44

purchase of corporate subsidiaries or units.

Answer 44

Carve-outs

Question 45

refers to the practice of established corporations investing in startups and early-stage companies in exchange for equity ownership. These corporations create CVC arms or subsidiaries to manage their investments in innovative companies outside their core business operations.

Answer 45

Corporate Venture Capital (CVC)

Question 46

Objectives of Corporate Venture Capital: Corporations use CVC to gain access to cutting-edge technologies, products, or services that can complement or enhance their existing business operations.

Answer 46

Innovation and Technology Access

Question 47

Objectives of Corporate Venture Capital: CVC enables corporations to explore new markets, business models, or customer segments by investing in startups that operate in those areas.

Answer 47

Market Expansion

Question 48

Objectives of Corporate Venture Capital: Through CVC, corporations can establish strategic partnerships with startups, collaborating on research, development, distribution, or marketing efforts.

Answer 48

Strategic Partnerships

Question 49

Objectives of Corporate Venture Capital: While strategic alignment is a primary focus, CVC programs also aim to generate financial returns on their investments, which can contribute to the corporation's bottom line.

Answer 49

Financial Returns

Question 50

Benefits for Startups: CVCs often provide startups with access to the resources, expertise, and distribution channels of the parent corporation.

Answer 50

Access to Resources

Question 51

Benefits for Startups: An investment from a well-known corporation can lend credibility and validation to a startup's business model and technology.

Answer 51

Validation and Credibility

Question 52

Benefits for Startups: CVCs may offer strategic guidance and mentorship to help startups navigate challenges and grow their businesses.

Answer 52

Strategic Guidance

Question 53

Benefits for Startups: Startups can leverage the corporate partner's market presence to enter new markets more effectively.

Answer 53

Market Entry

Question 54

Challenges and Considerations Balancing the strategic goals of the corporation with the financial interests of the startup can be complex.

Answer 54

Alignment of Objectives

Question 55

Challenges and Considerations Ensuring effective integration between the startup and the corporate parent can be challenging, especially when it comes to culture, decision-making, and autonomy.

Answer 55

Integration

Question 56

Challenges and Considerations: Deciding on exit strategies, such as acquisition or IPO, may require careful negotiation between the startup and the corporate parent.

Answer 56

Exit Strategies

Question 57

Examples of Corporate Venture Capital: inter national

Answer 57

google venture intel capital salesforce venture

Question 58

Examples of Corporate Venture Capital: local

Answer 58

globe PLDT ideaspace JGDEV