Question

1. General Partners of venture capital funds tend to avoid high risk investments in order to secure moderate returns for the limited partners which are consistent with returns earned on the Standard and Poor’s 500 stock index.

   True

   False

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QUESTION 2

1. Levi Strauss & Co. recently completed an IPO. The funds raised in this IPO will ony be used to retire corporate debt.

   True

   False

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QUESTION 3

1. The General Partners of venture capital funds are not permitted to sit on the board of directors of companies their funds finance.

   True

   False

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QUESTION 4

1. The sole objective of a term sheet from the investor’s point of view is to maximize their upside in the event of an exit.

   True

   False

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QUESTION 5

1. VC firm X makes a $1 million dollar investment. Five years later the firm liqudiates its investment for $2 million. The IRR of the investment is over 16%.

   True

   False

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QUESTION 6

1. Investments in fixed assets are a use of cash.

   True

   False

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QUESTION 7

1. According to information on Crunchbase Sequoia Capital participated in the series A round of financing for Dropbox in November of 2008.

   True

   False

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QUESTION 8

1. The term sheet between a venture capital company and the founders of a venture give control of the company to the venture capitalists.

   True

   False

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QUESTION 9

1. According to the 424B4 filed by Spotify on April 3^rd, 2018, Spotify had gross margins of less than 25%, for the year ended December 31^st, 2017.

   True

   False

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QUESTION 10

1. Ideal investors in VC funds are money market mutual funds because people use these funds for transactions and sources of liquidity.

   True

   False

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QUESTION 11

1. LYFT will offer 30,770,00 hares of Class A common Stock to the public during its IPO.

   True

   False

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QUESTION 12

1. An option pool is used by founders to make payments to employees. The options grant the employees the right but not the obligation to buy shares of the companies shares at a set price before they expire. Using options conserves cash and ties the employee to the long-term success of the venture.

   True

   False

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QUESTION 13

1. Venture capital funds will typically have a 25-year horizon.

   True

   False

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QUESTION 14

1. The J curve illustrates how much capital a venture will have to raise before it can generate sufficient cash to support itself.

   True

   False

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QUESTION 15

1. Product patents are valued by venture capitalists because they give a company a legal monopoly.

   True

   False

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QUESTION 16

1. Uncertain insurance costs are a factor that pose a risk to the financial condition of LYFT.

   True

   False

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QUESTION 17

1. The primary source of income for a general partner in a VC fund is the management fee the fund charges the limited partners.

   True

   False

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QUESTION 18

1. The only bank willing to underwrite the LYFT IPO was J.P.Morgan. This is because most banks consider UBER to be a bigger and better managed company.

   True

   False

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QUESTION 19

1. The principal purposes of LYFT’s IPO is to increase the company’s capitalization and financial flexibility, create a public market for its Class A common stock and enable access to the public equity markets for LYFT and LYFT’s stockholders.

   True

   False

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QUESTION 20

1. The underwriting discounts and commissions that Levi Strauss had to pay to the underwriters of its IPO amounted to .9138 dollars per share sold to the public.

   True

   False

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QUESTION 21

1. According to the 424B4 filed by Dropbox on March 23^rd, 2018, Dropbox had gross margins of over 75%, for the year ended December 31^st, 2017.

   True

   False

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QUESTION 22

1. Preferred stock offers investors protections relative to the owners of common shares such as liquidation preferences and anti-dilution protection.

   True

   False

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QUESTION 23

1. The term sheet between a venture capital company and the founders of a venture will specify the share of the company being sold and the price it is being sold for.

   True

   False

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QUESTION 24

1. It is common for a VC fund to have investments of up to 25 different companies. A few large winners can easily offset the losers and sideways deals.

   True

   False

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QUESTION 25

1. The funds invested by limited partners in a VC fund are generally invested by the General Partners over a 1-5-year horizon. Sometimes investments are made in the same company in different funding series sometimes in other companies. After about five years when funds have been fully invested the payout to the limited partners may begin as companies in the fund go public or are acquired.

   True

   False

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QUESTION 26

1. VC firm X makes a $1 million dollar investment. Ten years later the firm liqudiates its investment for $80 million. The IRR of the investment is over 61%.

   True

   False

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QUESTION 27

1. The management of LYFT estimates that the net proceeds of the sale of its Class A common stock in its IPO will be approximately $4 million.

   True

   False

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QUESTION 28

1. VC firm X makes a $1 million dollar investment. Ten years later the firm liqudiates its investment for $2 million. The IRR of the investment is over 12%.

   True

   False

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QUESTION 29

1. The capitalization table in a term sheet summarizes the ownership positions of all parties before and after a series of investments are made.

   True

   False

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QUESTION 30

1. During the initial years of most new ventures, the cash generated by operations are insufficient to cover the cash flow requirements of the venture.

   True

   False

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QUESTION 31

1. Limited partners in venture capital funds expect to earn a rate of return equivalent to the return of the Stand and Poor’s 500.

   True

   False

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QUESTION 32

1. While LYFT faces many risks; management does not believe that the competition in the rise sharing market is one of these risks.

   True

   False

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QUESTION 33

1. Ventures that attract venture capital money are expected to carve out defensible positions in their markets. These markets should be large and have the potential to grow.

   True

   False

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QUESTION 34

1. The General Partners in a venture capital fund are the people who decide which companies to invest in.

   True

   False

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QUESTION 35

1. The market price of a share of Levi Strauss common stock at the close of the markets on, 3/21, was above its IPO price.

   True

   False

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QUESTION 36

1. According to the information on the web site of Crunchbase Origin Ventures and Amicus Capital supplied the Series A funding to Grubhub in November of 2007. The amount supplied by the two VC firms was $1,100,000.

   True

   False

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QUESTION 37

1. The J curve is illustrates the expected, estimated or simulated cash flow profile of a venture over its life.

   True

   False

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QUESTION 38

1. The (fully diluted share count) is the total of all existing shares + things that might eventually convert into shares.

   True

   False

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QUESTION 39

1. The money raised by a VC fund from limited partners must be invested in its entirety during the first year of the fund’s existence.

   True

   False

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QUESTION 40

1. The limited partners in a VC fund are responsible for selecting the fund’s investments.

   True

   False

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QUESTION 41

1. The Management of LYFT does not believe that investments in autonomous driving technologies are a necessary for the success of LYFT since the technology is not currently commercially viable.

   True

   False

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QUESTION 42

1. Selling shares in a venture to a venture capital fund is a source of cash.

   True

   False

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QUESTION 43

1. The term sheet between an investors and founder is a legally binding agreement.

   True

   False

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QUESTION 44

1. Term sheets are used to work out the natural financial and control tensions that exist between founders and venture capitalists. The specifics of a term sheet will vary from deal to deal.

   True

   False

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QUESTION 45

1. Venture capitalists rely on preferred stock in a company to skew investment returns in their favor relative to the owners of the common stock, gain a disproportionate level of control of key decisions relative to the common shareholders and ensure that their interests are aligned with the founders.

   True

   False

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QUESTION 46

1. When a subsequent round of financing takes place at a lower price per share than previous round of financing; existing shareholders would suffer from the dilution of their ownership stake. If the existing shareholders required a clause in the terms of their financing that would obligate the company to offer them additional shares when subsequent shares are issued at a lower price than the paid is an example of an anti-dilution clause.

   True

   False

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QUESTION 47

1. The ultimate goal of a venture capitalist is to grow the company to a point where it can go public or be acquired by a larger corporation at a price that exceeds the amount of capital invested. Of these two exit options, a successful IPO provides some important advantages, including more capital raised for the companies to hire, greater investor participation in the growth of the companies, higher returns distributed to limited partners, and the potential to transform local and regional economies in significant ways as the company expands.

   True

   False

Answer 1

Answering the first four questions as per Chegg policy

Answer 1: FALSE

Explanation: The general partners of VC funds take optimally risky bets so that limited partners earn returns which can outperform the market index like S&P 500.

Answer 2: FALSE

Explanation: Companies go for IPO not just to pay off corporate debt but also to expand and achieve scalability.

Answer 3: TRUE

Explanation: A specialist from the VC firm sits on the board of directors of the investment firm, not the general partners.

Answer 4: FALSE

Explanation: Term sheet is the document which shows how the investor is going to make an investment in the firm.