Describe the following terms from the perspective of venture performance: black hole, living dead, and venture utopia. In what sense is the typical business plan utopian?
> What is an employee stock option plan (ESOP)? How is an ESOP used to buy out a venture?
> What is a systematic liquidation of a venture? What are some of the advantages and disadvantages of a systematic liquidation?
> Describe how the relative value method is used to value a firm’s equity.
> What are unicorns? How might their exit values be impacted when they go public?
> Comment on Tesla’s trip from incorporating in 2003 to its IPO in 2010. What impact do you think the IPO had on competitors in the electric car market?
> Describe some of the preparations that a venture can undertake that may increase the possibility of IPO success.
> What discount rates are typically used for development- stage, startup-stage, survival-stage, and early-growth-stage ventures?
> Indicate some of the differences between the NASDAQ’s National Market System and SmallCap listing requirements.
> Briefly describe how securities are traded on an organized stock exchange such as the New York Stock Exchange.
> Describe the terms “tombstone ad” and “red herring disclaimer.”
> What is investment banking? What is an underwriting spread?
> Describe an initial public offering (IPO). What are the differences between a primary offering and a secondary offering?
> Why are options to buy additional shares of stock used in venture financing? What are warrants?
> What are convertible notes? Why are convertible notes issued, and who typically issues them?
> How does convertible debt differ from convertible preferred stock?
> Which is more favorable to the founders, the Market Price Formula (MPF) or the Conversion Price Formula (CPF)?
> What are the basic design features for financial securities used in venture investing?
> How do we estimate the cost of equity capital for private ventures? In developing your answer describe the major components that are considered when estimating the rates of return required by venture investors.
> What would you need if you wanted to conduct an enterprise valuation for a hypothetical Round D for Fuel3D? Discuss the relationship between Fuel3D and MakerBot. How might it affect the terminal value used in the enterprise valuation?
> What is preferred stock? What is participating preferred stock, and what is meant by paid in kind (PIK) preferred stock?
> Why is the weighted average cost of capital (WACC) used as the discount rate in the enterprise method?
> Is the sale of an out-of-the-money warrant a future sale of equity at a favorable price?
> Why is it important that convertible securities also be callable (redeemable)?
> Why is price protection an issue when convertibles or warrants are used?
> How are put and call options similar? How are they different?
> What is the EB-5 immigrant visas program?
> What is meant by venture banks? How do they differ from traditional commercial banks?
> Name three of the common loan restrictions and explain their relation to new venturing financing. What are some additional common loan restrictions?
> What is a liquidity risk premium? What is a maturity risk premium?
> Describe the two major types of crowdfunding.
> Describe the alternative financing Solix arranged for the launch of its biofuels production facility. Comment on your impressions of what attracted the investors.
> Describe examples of customer funding used to reduce financing needs.
> What are some characteristics of a Community Development Financial Institutions (CDFI) loan?
> In which research areas does the SBA provide supplemental programs?
> Compare the characteristics in terms of loan amounts, lenders, and SBA role in 7(a) loans versus 504 loans.
> Identify and briefly describe four basic SBA credit programs.
> What are business incubators and seed accelerators? How do they differ?
> Who are the major suppliers of venture capital by type and size of commitment?
> Briefly describe how professional venture capital got started after World War II.
> What is meant by an investment risk premium? What is a market risk premium?
> Describe the role venture capitalists played in the founding and expansion of Tabula. Comment on possible reasons for the involvement of multiple VC firms.
> Discuss why it is important to have an exit event for each investment held by a venture investment fund.
> What can be learned from the SBA’s creation and the Internal Revenue Service’s subsidy of venture investing through SBICs?
> Why are venture capital funds typically organized as limited partnerships? In particular, why are they private firms instead of public firms?
> What should be the goal of the financial projections in a business plan submitted to a venture capitalist?
> Why do venture capitalists make quick decisions on the infeasibility of some business plans? When a business plan is not quickly determined to be infeasible, what happens next and why?
> What ingredients would you need to conduct a VCSC valuation for Excaliard? Does your calculation suggest that a $15.5 million Series A round is reasonable?
> Discuss the type of data and the procedural changes necessary to implement a five- scenario expected PV valuation for a venture investment.
> Describe how expected present value is calculated when there are two or more scenarios.
> How does an organized securities exchange differ from an over-the-counter market?
> Describe two important motives for having an equity component in employee compensation.
> What is the difference between the direct comparison method and the direct capitalization method?
> What is a stepping stone year? Why is it important in determining a venture’s value?
> What is meant by a capitalization (or cap) rate in reference to calculating a terminal value? What other types of terminal values might be appropriate (i.e., other than smooth growth procedures)?
> What is a venture’s present value? Does the past matter?
> What ingredients would you need to conduct a traditional equity method valuation for Foursquare? If you had the necessary projections, do you think that they would also suggest the $80 to $100 million valuations mentioned in the article? Comment on the
> Why do net income and cash flow in the numerical examples in this chapter both grow at the same rate (g) in the terminal value period? Why is this important?
> Why do the numerical examples of this chapter involve a large dividend in the last year of the explicit forecast period?
> Describe how pseudo dividends are used in the equity valuation method.
> Describe the basic additional funds needed (AFN) equation.
> You have been retained as a consultant for Lovely Touch and tasked with assessing the financial viability of their commercial ventures. What types of financial ratios would you enlist in your report to Lovely Touch?
> Identify and describe the two equations that can be used to estimate a firm’s sustainable growth rate.
> What is meant by a sustainable sales growth rate?
> How do venture investors adjust for the belief that entrepreneurs tend to be overly optimistic in their sales forecasts?
> Describe the general relationship between the life cycle stage and the ability to accurately forecast sales for a firm.
> What are the three steps typically used to forecast sales for early-stage ventures?
> Identify and describe the four-step process typically used to forecast sales for seasoned firms.
> Describe how cash budgets and projected financial statements could be used in estimating how far $360 million could take Chipotle after its first 14 restaurants.
> What role does the statement of cash flows play in long-term financial planning?
> Describe how balance sheets are projected once a sales forecast has been made.
> After forecasting sales, describe how the income statement is projected.
> Describe the historical average annual return relationships among long-term U.S. government bonds, corporate bonds, small firm common stocks, and large firm common stocks.
> What is the percent of sales forecasting method?
> Explain how the AFN equation can be used to forecast the amount of funds that will be needed over a several year period.
> Why is it usually easier to forecast sales from seasoned firms in contrast with early-stage ventures?
> Describe the meaning of a “security” in terms of the Securities Act of 1933.
> What is securities crowdfunding?
> From the Headlines – Sock It to Me: The “Internet of Feet”: Discuss the role that Indiegogo played in the initial funding of Sensoria. Do you believe it was important in leading up to the $5 million A round?
> Describe the Jumpstart Our Business Staertups Act of 2012.
> What are the income and net worth requirements for being an accredited investor? What in the requirements for designation as an accredited investor relates to the level of sophistication? Do the criteria act as good proxies for sophistication?
> From the Headlines—Ecosphere: You have been retained as a consultant for Ecosphere and tasked with assessing the financial viability of their commercial ventures. What types of financial ratios would you enlist in your report to Ecosphere? What approach
> How do Rules 504, 505, and 506 of Reg D differ from one another?
> Describe the following: (a) expected rate of return, (b) standard deviation (c) coefficient of variation.
> What types of information need to be disclosed to offerees under Reg D?
> What are the restrictions on general solicitation and advertising covered in Rule 504?
> Briefly describe the importance of the 1953 SEC vs. Ralston Purina case in terms of securities registration requirements.
> What rates of returns have venture capitalists earned on average in recent years? How do these returns compare against the average venture capitalists returns over the past twenty years?
> What does the term accredited investor mean in terms of the Securities Act of 1933? Why does the designation matter?
> Provide a brief description of the use of Regulation A when issuing securities.
> Describe Sustainable Northwest’s short-term inflows and outflows of cash. What would you expect to be the main ingredients of each part of the cash conversion cycle?
> Indicate some of the concerns or cautions that need to be considered when conducting ratio analysis.
> What are the three ratio components of the ROE model? How is each calculated and what financial dimensions do they measure?
> Identify and describe the two components of the ROA model both in terms of what financial dimensions they measure and how they are calculated.
> Explain the meaning of investment risk of loss and describe how risk can be defined relative to an average value.
> Identify and describe four efficiency/return ratios that combine data from both the income statement and the balance sheet.
> What are four measures used to indicate how efficiently the venture is in generating profits on its sales? Describe how each measure is calculated.
> Describe the two types of “coverage” ratios that are typically calculated when trying to assess a venture’s ability to meet its interest payments and other financing-related obligations?
> What is the importance of the relationship between a venture’s current liabilities and its total debt?
> Briefly describe what is meant by the statement “Registering securities with the Securities and Exchange Commission (SEC) is both costly and a time-consuming process.”
> What are the three components of the cash conversion cycle (C3)? How is each component calculated?
