LOS h: Discuss the major issuers and buyers of venture capital, the stages through which private companies pass (seed stage through exit), the characteristic sources of financing at each stage, and the purpose of such financing.

Q1. With respect to buyers of venture capital, which group represents the first group to invest in the company after the initial entrepreneurs and their friends and family?

A)   Angel investors.

B)   Venture capitalists.

C)   Strategic partners.

Q2. With respect to the terms “formative-stage companies” and “expansion-stage companies”, which are considered issuers of venture capital?

A)   Formative-stage companies only.

B)   Both formative-stage companies and expansion-stage companies.

C)   Neither formative-stage companies nor expansion-stage companies.

Q3. With respect to the seed and start-up point in the early stage of venture capital, which of the two represents a point where the company has already started generating revenue?

A)   Not at the seed point, but revenue has begun at the start-up point.

B)   Not at the start-up point, but revenue has begun at the seed point.

C)   In neither the seed nor start-up point.

LOS h: Discuss the major issuers and buyers of venture capital, the stages through which private companies pass (seed stage through exit), the characteristic sources of financing at each stage, and the purpose of such financing. fficeffice" />

Q1. With respect to buyers of venture capital, which group represents the first group to invest in the company after the initial entrepreneurs and their friends and family?

A)   Angel investors.

B)   Venture capitalists.

C)   Strategic partners.

Correct answer is A)

Buyers of venture capital include angel investors who are usually accredited investors and the first outside investors after the family and friends of the company founders. Venture capitalists come in later after identifying companies with potential but need financial and strategic support. Further, large companies are usually in the same industry as the issuer and are also called strategic partners.

Q2. With respect to the terms “formative-stage companies” and “expansion-stage companies”, which are considered issuers of venture capital?

A)   Formative-stage companies only.

B)   Both formative-stage companies and expansion-stage companies.

C)   Neither formative-stage companies nor expansion-stage companies.

Correct answer is B)

Issuers of venture capital include formative-stage companies that are either new or young and expansion-stage companies that need funds to expand their revenues or prepare for an IPO.

Q3. With respect to the seed and start-up point in the early stage of venture capital, which of the two represents a point where the company has already started generating revenue?

A)   Not at the seed point, but revenue has begun at the start-up point.

B)   Not at the start-up point, but revenue has begun at the seed point.

C)   In neither the seed nor start-up point.

Correct answer is C)

The stages through which private companies pass are the early-stage, later-stage, and exit stages. The early stage consists of i) seed: the small amount of money provided by the entrepreneur to get the idea off the ground, ii) start-up: usually a pre-revenue stage that brings the entrepreneur’s idea to commercialization, iii) first stage: additional funds if the idea is sound but start-up funds have run out. The later-stage occurs after revenue has started.

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