Question 1
Which of the following statements ARE CORRECT about the due diligence process? (check all that apply)
| Due diligence is a two-way process |
| Due diligence is not time consuming if done properly |
| Prospective investors will want to investigate legal, financial, and strategic matters |
| The key to success in due diligence is advance preparation and cooperation among the parties |
Question 2
Which of the following items discovered in the due diligence process could be a cause for concern by an investor, which could ultimately lead to a decision by the investor to NOT invest?
| A large shareholder loan that will be paid upon completion of the current financing |
| Significant related party transactions that are properly documented and performed on an arms-length basis |
| Large accounts payable for goods and services that are all "current" (i.e., within the terms offered by the vendor) |
| Accounts receivable from 20 very small customers which are 10 days past due |
Question 3
When negotiating term sheets with prospective investors, which of the following are correct? (check all that apply)
| Both the investor and the entrepreneur need to win |
| Compromise indicates to the investor that the entrepreneur is desperate for funding |
| Experience from past deals should be used to negotiate the current term sheet |
| Don't take everything the other side says at face value - they may be posturing |
Question 4
True or False? Valuation of startup companies can be done objectively by following traditional valuation methods.
| False Question 5 Choose that statement that is NOT correct. | ROI = Exit Value / Post-money valuation | | If the average PE ratio of companies similar to your company in the industry in which you will operate is 15X, and your projected after tax earnings in year 5 is $3 million, a reasonable exit valuation for your company in year 5 is $45 million | | Post-money valuation = Exit Value ÷ ROI | | The Wiltbank Study indicates that investors expect an IRR of 15% in six years | |
Question 6
Which factor(s) can impact the valuation of your company?
| A well developed V1 product |
| Management team experience |
| Early traction (revenues, partnerships, etc.) |
| All of the above Question 7 Which of the following statements about term sheets is correct? (select all that apply) | They normally include a statement on the use of the proceeds of the investment | | They are binding on the investor for 60 days | | They state the pre-money valuation and the amount of the investment | | No shop clauses are beneficial to the investor but not that company Question 8 Equity securities include all of the following: (select all that apply) | Options Question 9 A cap on a convertible note is used to: | Establish the maximum pre-money valuation at which the note will convert | | Put a value on the company | | Secure the payment of the note upon liquidation | | Put a limit on the maximum interest rate payable on the note | | | |
Question 10
Which of the following is NOT a characteristic of Preferred Stock?
| Anti-dilution provisions protect the preferred shareholder's pro-rata interests |
| Preferred stock is an equity investment with some characteristic debt |
| It is the financing vehicle of choice for venture capitalists |
| Preferred stock shareholders receive the greater of the original purchase plus accrued dividends OR a percentage of the liquidation proceeds on an âas-convertedâ basis in a standard liquidation of the company |
