These Venture Capital multiple-choice questions and their answers will help you strengthen your grip on the subject of Venture Capital. You can prepare for an upcoming exam or job interview with these 80 Venture Capital MCQs.
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A. None; their investment is passive
B. Very active; a venture capital team member will be on site daily
C. Somewhat active; weekly visits to the target company
D. No day to day involvement; involvement through participation in the board of directors only
A. As limited partners
B. As shareholders
C. As a limited liability company
D. No formal structure agreements are needed
A. It is a clause that requires that the books of the company be kept clean and free of fraud.
B. It is a clause that requires the attendance of three management personnel at all meetings.
C. It is a clause that allows the venture capitalist to make requests for financial information from the company from time to time.
D. It is a clause that allows the venture capitalist not to attend meetings.
A. The pricing of the product
B. The Intellectual Property and any competitors with similar IP
C. The customer base, the competition, and the opportunity in the market space
D. Location of competition
A. Call board meetings at any point
B. Require liquidation within 30 days
C. Overturn decisions made by the company directors
D. Fire the management
A. They are terms that allow a venture capitalist to sell off their stock at any point.
B. They are terms that stipulate that the venture capitalists can convert their preferred shares into common shares which will be more easily liquidated.
C. They are terms that allow the target company to surrender more equity to the venture capitalist if the venture is growing quickly.
D. They are terms that prevent anyone from selling stock for the first three years.
A. The venture capitalist doesn't have to come to the board meetings
B. The venture capitalist can bring in an observer, who can not vote, to the board meeting
C. The company is only allowed to watch board meetings, and not to participate
D. The company management is required to be present at all board meetings
A. They protect the target company in case they don't perform well.
B. They prevent outsiders from investing until specific goals are met.
C. They force the management to make decisions they would not want to make otherwise.
D. They stipulate the goals the target company has to meet in order to receive subsequent amounts of funding.
A. Due to their lack of trust in the target company
B. To check that assumptions are reasonable and the model covers all aspects of the company
C. To see if there's potential for even more revenue
D. To spot check for formula errors
A. Often, several times a year
B. Annually
C. Every three to five years
D. Almost never
A. That of investment screeners
B. That of managing directors
C. That of advisors
D. That of due diligence experts
A. Companies with no IP will never succeed
B. Companies who have IP may be competing against firms with similar IP
C. Venture capitalists want to make sure the company is not at risk of being sued over the IP
D. IP can be a key deciding factor, as the target company's success or failure may hinge on the IP they own
A. In the 1960s
B. In late 2000s
C. In mid 2000s
D. In early 2000s
A. It allows the investor to put more money into a company to get a better return.
B. It makes everyone involved rich.
C. It determines the value of the company at the given point.
D. It allows the venture capitalist to sell their equity in some fashion, either on the stock market, or to the owners, or to the new owners.
A. It is the expected value of the company after it has received the venture capital investment.
B. It is the expected value of the company before it has received the venture capital investment.
C. It is the expected value of the company after five years.
D. it is the expected value of the company once the venture capitalist exits the company.
A. At the beginning, offering direction and guidance
B. After a year, when the company begins to grow
C. Towards the exit point
D. Throughout the process
A. It prevents outsiders from investing at all.
B. It discusses what happens in the event the company fails to execute.
C. It allows venture capitalists to merge two or more of their investments into one company.
D. It discusses the process required for additional investors to invest in the target company.
A. To segregate investments into specific categories with similar criteria
B. To deal with tax implications
C. To rule out potential investments
D. To meet the requirements of the SEC
A. Local government municipalities, such as utilities
B. Small businesses such as a brick and mortar store, or a coffee shop
C. Professional services industries, such as lawyers and accountants
D. Internet based companies, such as an e-commerce site
A. At least 10 times their original investment
B. The market interest rate, compounded annually
C. Double their investment
D. Enough to break even and hold on to some equity
A. The interest rate they expect to earn on their investment
B. How quickly a target company may burn out, or fail
C. The monthly amount of cash spent on an average by a target company, which can then be used to calculate how far investment dollars will take the company
D. How quickly the management team members are phased out
A. They act as specialized arms of the board to address specific topics such as Human Resources or Accounting and Finance Matters.
B. They are at a higher level than the board, and are called in to make decisions when the board can not agree.
C. They are the key management personnel in the company.
D. They are formed to organize things such as employee birthday parties.
A. It can earn more money than equity when the company performs well.
B. It is easier to sell off debt.
C. It limits how well the management has to perform.
D. It is less risky, gives the right to demand repayment, and earns interest.
A. High tech, Entertainment, E-commerce, Food and Beverage
B. High Risk, Low Risk, Zero Risk
C. Local, National, Global
D. Equity, Bonds, Debt, Convertible Debt
A. They are guaranteed at least a 3% return on the investment.
B. They are guaranteed to double their money within one year.
C. There is no protection. They are not guaranteed a return on their investment, and it is made very clear that investing in new ventures is risky.
D. There is no protection. They are told that they may lose their money, but most likely, they will make a lot of money.
A. It is how the venture capitalist plans to merge with another venture capitalist.
B. It is how the target company is planning to liquidate all investors and give them a return for their investment.
C. It is how the target company plans to fire key personnel.
D. It is how the target company plans to exit their target markets if they are not successful.
A. They can choose immediately if they want debt or equity.
B. They can convert back and forth between debt and equity depending on which is more beneficial.
C. They can sell off some of the debt before converting the rest to equity.
D. They can keep their investment as debt, or convert to equity given some predetermined circumstances have occurred.
A. Enough to allow the company to survive for three years
B. Enough to cover management salaries
C. Enough to allow the company to reach traction and prove their business model, regardless of time line
D. One year's operating expenses
A. An investment in a company which is at the idea stage
B. An investment in a company which is early in its growth, typically one generating some revenue
C. An investment in a company where the venture capitalist is the very first investor
D. An investment in a company in its first year
A. It is the legally documented agreement between the venture capitalist and the target company.
B. It is used as an outline for the legal team to draw up the official legal agreement between the venture capital firm and the target company.
C. It is a guideline for future operations.
D. It is similar to a business plan for the upcoming year.
A. Making a private company public via an initial public offering
B. Bringing in additional investors
C. Firing the management to bring in a more experienced management
D. Converting debt to shares
A. The venture capital firm invests its own equity in other companies.
B. The partners of the venture capital firm invest individually.
C. The money is raised through the stock market for the purpose of investing it in companies.
D. Other companies invest in the venture capital firm which then invests in new ventures.
A. That ten out of ten companies will be huge successes
B. That all the ten will perform satisfactorily
C. That five of the ten will succeed, five will fail
D. That out of every ten companies invested in, at least one will be a tremendous success, at least five will fail completely, and the other four will break even or be marginally successful
A. After the initial engagement, but before the completion of the deal
B. Before getting engaged with the potential target investment
C. As a final step before the deal is completed
D. The target investment company would do this before approaching the venture capitalist
A. Equity represents ownership, debt represents a loan to the company.
B. Debt represents steady earnings, equity represents up and down earnings.
C. Debt can be secured by assets but equity can not be.
D. Debt is easier to sell than equity.
A. A stock broker
B. A mutual fund
C. An investment bank
D. An options trader
A. Valuation gives the venture capitalist a definite value of the target in five years.
B. Valuation doesn't matter as much as the management team.
C. Valuation is the target company's expected value at some point in the future, typically five years, and helps the venture capitalist see the potential.
D. Valuation helps the venture capitalist decide which portfolio to place the target company in.
A. Submission of Business Plan, Term Sheet, Due Diligence, Legal Closing
B. Term Sheet, Submission of Business Plan, Legal Closing
C. Evaluation, Due Diligence, Legal Closing, Business Plan Review
D. Screening, Kick off Meeting, Evaluation, Initial Due Diligence, Negotiation of Terms, Due Diligence, Legal Closing
A. Terms that guarantee a specific return on investment
B. Terms that restrict the target company to no more than three founders owning stock
C. Terms that protect the venture capitalist from dilution of their investment by the target company by offering subsequent investments at lower valuations to other investors
D. Terms that prevent original owners from having more stock than the venture capitalist
A. The venture capital firm will look online for companies who are looking for capital.
B. The venture capital firm holds monthly open casting calls for potential companies.
C. The target company contacts the venture capitalist to introduce the opportunity.
D. The target company mails the venture capital firm a full business plan and due diligence package.
A. 4 to 6 weeks
B. 1 to 2 weeks
C. 10 to 12 weeks
D. Any duration from 1 week to a year
A. Mid way through the process
B. Usually within two weeks from the start of the process
C. After the legal closing, on a stipulated closing date
D. They never receive the full amount and have to request disbursements weekly
A. Detailed financial statements, explaining the expenses line by line
B. That the company invested in is meeting the goals stipulated in the negotiation process, and if not, has an action plan to rectify
C. An exciting presentation by the CEO
D. Meeting with individual employees
A. Yes; it will definitely drive down the value of the company.
B. Typically no; the exit just means the end of a successful relationship.
C. Yes; the employees will question why the venture capitalist is now exiting.
D. No; it will usually bolster the stock price.
A. Online submission of the business plan by the target company
B. Initial examination of the potential investment by the venture capitalist to see whether it fits in their portfolio
C. The meet and greet meeting held after the venture capitalist has expressed interest in the target company
D. Examination of the target company by the legal team
A. It allows them to gain more control over the firm.
B. It gives them the potential to hold debt or equity, depending on how the firm grows and what will be most profitable.
C. It allows them to liquidate more easily.
D. It limits any risk.
A. From 1 million to 50 million dollars
B. From 100 thousand to 1 million dollars
C. At least 50 million dollars
D. There is no limit
A. It is a document which stipulates the term of the investment.
B. It is a document which the company receiving funding prepares, stating what their expected revenues for the upcoming years are.
C. It is another term for
D. It is a document which stipulates the venture capital firm's terms for the investment, such as the amount they will invest, the percentage of equity they require in exchange for the investment, and their expectations of the company they are investing in.
A. No one else has entered the market space.
B. All the members of the management team come from different backgrounds.
C. Several competitors have entered and left the market due to low traction.
D. The company hasn't yet talked to other venture capitalists.
A. No one wants to work with someone who is all business no play.
B. It is not. It is just a small factor in the decision. Profitability is most important.
C. Nice people tend to do better in negotiations than mean people.
D. The target company and the venture capitalist will be in business together for several years and need a good working relationship.