Question 1

In Canada the average size of an IPO in 2007 was about ________,which is quite ________ compared to IPOs in other countries.

Accepted Answer

The question states that the average size of an IPO in Canada in 2007 was "quite" small compared to other countries. Therefore, options A and D can be eliminated as $35 billion would not be considered small. Option C is also not the best choice as $35 million is not particularly big compared to IPOs in other countries. Therefore, option B ($35 million; small) is the best choice.

Question 2

Which of the following statements is NOT true regarding angel investors?

Accepted Answer

Angel investors are not necessarily organized as limited partnerships. They can invest as individuals or as part of a group.

Question 3

Which of the following is NOT a common name for a corporation that invests in private companies?

Accepted Answer

Venture partner is not typically used to describe a corporation that invests in private companies. Instead, it often refers to an individual or entity involved in a venture capital firm who contributes time, expertise, or networks to assist the firm's investments.

Question 4

In Canada,________ usually takes the lead in reviewing and approving the preliminary prospectus.The other provincial securities commissions usually follow ________.

Accepted Answer

The Ontario Securities Commission (OSC) is the primary regulator for securities in Canada, and therefore usually takes the lead in reviewing and approving preliminary prospectuses. The other provincial securities commissions usually follow Ontario's decision, as they defer to the OSC's expertise and judgment.

Question 5

Use the information for the question(s) below.
You founded your own firm three years ago. You initially contributed $200,000 of your own money and in return you received 2 million shares of stock. Since then, you have sold an additional 1 million shares of stock to angel investors. You are now considering raising capital from a venture capital firm. This venture capital firm would invest $5 million and would receive 2 million newly issued shares in return.
-Assuming that this is the venture capitalist's first investment in your firm,the post-money valuation of your shares are closest to:

Accepted Answer

A) Total shares outstanding = 2M (yours) + 1M (angels) + 2M (Venture) = 5 million shares
The venture capitalist would be paying 11ea7e5a_6ef0_74d5_9a0a_0764afb5111e_TB1623_11 = $2.50 per share
Therefore your post-money valuation = $2.50 × 2 million shares = $5 million

Question 6

Sovereign wealth funds (SWFs)are pools of money controlled ________.

Accepted Answer

Sovereign wealth funds are pools of money that are controlled by governments, often through a specialized entity that manages the fund on behalf of the state. These entities are typically established to manage a country's surplus foreign exchange reserves or income from natural resource exports. Therefore, the best choice is letter C: by a government.

Question 7

For many start-ups,the first round of outside private equity financing is often obtained from ________ which may also bring expertise to the firm that the entrepreneur lacks.

Accepted Answer

Angel investors are often the first source of outside private equity financing for start-ups, providing not only capital but also expertise and mentorship that entrepreneurs may lack.

Question 8

Which of the following statements is false?

Accepted Answer

B) Venture capitalists typically control about one-third of the seats on a start-up's board of directors, and often represent the single largest voting block on the board.

Question 9

In the U.S.over 80% of businesses are ________,but nearly 85% of sales are generated by ________ while in Canada,about 80% of businesses are ________,but more than 60% of incomes before tax are generated by ________.

Accepted Answer

In both the U.S. and Canada, the majority of businesses are structured as either sole proprietorships or partnerships, which are typically smaller in scale. However, the bulk of sales or income before tax is generated by businesses organized as corporations, which, despite being fewer in number, are generally larger and have more economic impact.

Question 10

Use the information for the question(s) below.
You founded your own firm three years ago. You initially contributed $200,000 of your own money and in return you received 2 million shares of stock. Since then, you have sold an additional 1 million shares of stock to angel investors. You are now considering raising capital from a venture capital firm. This venture capital firm would invest $5 million and would receive 2 million newly issued shares in return.
-Assuming that this is the venture capitalist's first investment in your firm,the post-money valuation of the angel investor's shares are closest to:

Accepted Answer

D) Total shares outstanding = 2M (yours) + 1M (angels) + 2M (Venture) = 5 million shares
The venture capitalist would be paying 11ea7e5a_6ef0_9be6_9a0a_2b36b8fe8968_TB1623_11 = $2.50 per share
Therefore your post-money valuation = $2.50 × 1 million shares = $2.5 million

Question 11

Use the information for the question(s) below.
You founded your own firm three years ago. You initially contributed $200,000 of your own money and in return you received 2 million shares of stock. Since then, you have sold an additional 1 million shares of stock to angel investors. You are now considering raising capital from a venture capital firm. This venture capital firm would invest $5 million and would receive 2 million newly issued shares in return.
-The post-money valuation of your firm is closest to:

Accepted Answer

A) Total shares outstanding = 2M (yours) + 1M (angels) + 2M (Venture) = 5 million shares
The venture capitalist would be paying 11ea7e5a_6ef0_4dc2_9a0a_49dc23559e1f_TB1623_11 = $2.50 per share
Therefore post-money valuation = $2.50 × 5 million shares = $12.5 million

Question 12

Which of the following statements is false?

Accepted Answer

C) When a company founder decides to sell equity to outside investors for the first time, it is common practice for private companies to issue preferred stock rather than common stock to raise capital.

Question 13

________ can provide substantial capital for young companies.In return,________ often demand a great deal of control.

Accepted Answer

Venture capital firms provide substantial capital for young companies in return for a great deal of control. Institutional investors and sovereign wealth funds may also provide capital but may not demand as much control. Corporate investors may provide capital and some control, but they are not specifically focused on young companies.

Question 14

Use the information for the question(s) below.
You founded your own firm three years ago. You initially contributed $200,000 of your own money and in return you received 2 million shares of stock. Since then, you have sold an additional 1 million shares of stock to angel investors. You are now considering raising capital from a venture capital firm. This venture capital firm would invest $5 million and would receive 2 million newly issued shares in return.
-Assuming that this is the venture capitalist's first investment in your firm,what percentage of the firm will the venture capitalist own?

Accepted Answer

B) Total shares outstanding = 2M (yours) + 1M (angels) + 2M (Venture) = 5 million shares
The venture capitalist ownership percentage = 11ea7e5a_6ef0_4dc3_9a0a_bf1b0b8e6bf6_TB1623_11 = 40%

Question 15

Once a company goes public,it must satisfy all of the requirements and new standards that focused on more thorough ________,________ and more stringent requirements for the board of directors.These standards,in general,were designed to provide better protection for ________.

Accepted Answer

When a company goes public, it needs to follow more stringent requirements for financial disclosure and greater accountability to satisfy the new standards. These standards aim to provide better protection to the investors. Hence, option C is the correct choice. Option A and B are incorrect because the standard emphasizes greater accountability, not less, and it provides protection to investors, not companies. Option D is also incorrect because it emphasizes less accountability, which is not the case.

Question 16

In Canada,________ accounted for 32% of private equity funds under management in 2007,up from 28% in 2006.

Accepted Answer

Institutional investors accounted for 32% of private equity funds under management in 2007. This includes pension funds, insurance companies, and endowments.

Question 17

Use the information for the question(s) below.
You founded your own firm three years ago. You initially contributed $200,000 of your own money and in return you received 2 million shares of stock. Since then, you have sold an additional 1 million shares of stock to angel investors. You are now considering raising capital from a venture capital firm. This venture capital firm would invest $5 million and would receive 2 million newly issued shares in return.
-Assuming that this is the venture capitalist's first investment in your firm,what percentage of the firm will you own?

Accepted Answer

B) Total shares outstanding = 2M (yours) + 1M (angels) + 2M (Venture) = 5 million shares
Your ownership percentage = 11ea7e5a_6ef0_74d4_9a0a_9fec1f46ec90_TB1623_11 = 40%

Question 18

Prior to an IPO,in Canada,the first step is the preparation of ________.

Accepted Answer

In Canada, the first step prior to an IPO involves the preparation of the preliminary prospectus. This document provides initial financial and business information about the company to potential investors, and is a crucial part of the process to inform and attract investment.

Question 19

Which of the following statements is false?

Accepted Answer

B) The preferred stock issued by young companies usually gives the owner an option to convert it into common stock on some future date, so it is often called convertible preferred stock.

Question 20

Which of the following statements is NOT true regarding venture capitalists?

Accepted Answer

Venture capitalists primarily invest for financial returns rather than strategic objectives, which is more typical of corporate investors.

Quiz 23: The Mechanics of Raising Equity Capital

In Canada the average size of an IPO in 2007 was about ,which is quite compared to IPOs in other countries.

Which of the following statements is NOT true regarding angel investors?

Which of the following is NOT a common name for a corporation that invests in private companies?

In Canada, usually takes the lead in reviewing and approving the preliminary prospectus.The other provincial securities commissions usually follow .

Sovereign wealth funds (SWFs) are pools of money controlled ________.

For many start-ups,the first round of outside private equity financing is often obtained from ________ which may also bring expertise to the firm that the entrepreneur lacks.

Which of the following statements is false?

In the U.S.over 80% of businesses are ,but nearly 85% of sales are generated by while in Canada,about 80% of businesses are ,but more than 60% of incomes before tax are generated by .

Which of the following statements is false?

can provide substantial capital for young companies.In return, often demand a great deal of control.

Once a company goes public,it must satisfy all of the requirements and new standards that focused on more thorough , and more stringent requirements for the board of directors.These standards,in general,were designed to provide better protection for .

In Canada,________ accounted for 32% of private equity funds under management in 2007,up from 28% in 2006.

Prior to an IPO,in Canada,the first step is the preparation of ________.

Which of the following statements is false?

Which of the following statements is NOT true regarding venture capitalists?