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LOS g, (Part 2): Explain venture capital investment characteristics and the challenges to venture capital valuation and performance measurement. ffice ffice" />
Q1. Which of the following is NOT among the three most important factors in valuing a venture capital investment?
A) Timing of exit.
B) Liquidity.
C) Expected payoff at exit.
Correct answer is B)
Illiquidity is a characteristic common to all venture capital investments, but is difficult to quantify valuing an investment. The timing and amount of the expected payoff at exit, adjusted for the probability of failure, are the three most important factors in the valuation of venture capital opportunities.
Q2. Which of the following statements regarding venture capital investing is FALSE?
A) Investors in venture capital projects typically require a short-term investment horizon.
B) The success of venture capital projects is dependent upon market entrance and exit strategies.
C) Valuation of venture capital projects is difficult due to the unique qualities of each project.
Correct answer is A)
Valuation of venture capital investments is difficult because of the uniqueness of each project in addition to a lack of historical risk and return data. Venture capital investors generally do not know what other competing projects or ideas may hamper their success. Market entrance and exit strategies are critical to the success of a venture capital project. Venture capital investors know upfront they are investing in an illiquid asset with a long time horizon.
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发表于 2009-2-28 17:28
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