What is securities crowdfunding?
> 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.
> 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?
> 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.
> 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?
> Briefly describe venture debt capital and venture equity capital.
> Describe how the costs of debt and equity differ from the perspective of accounting measures.
> Provide a description of the financing cost implications associated with a venture’s need for additional funds.
> What is meant by a cash budget? Describe how a cash budget is prepared.
> Briefly explain how changes in the conversion times of the components of the C3 can be interpreted.
> Describe the types of financial ratios and other financial performance measures that are used during a venture’s successful life cycle. Who are the users of financial performance measures?
> What does short-term financial planning involve?
> Kareem Construction Company has the following amounts of interest-bearing debt and common equity capital: FINANCING DOLLAR INTEREST COST OF SOURCE AMOUNT RATE CAPITAL Short-term loan $200,000 12% Long-term loan $200,000
> Assume the operation of your business resulted in sales of $730,000 last year. Year-end receivables are $100,000. You are considering factoring the receivables to raise cash to help finance your venture’s growth. The factor imposes a 7 percent discount a
> Artero Corporation, discussed in Problem 7, is a retailer of toy products. The firm’s management team recently extended the monthly sales forecasts that were prepared for the last three months of 2017 for an additional 6 months in 2018. These forecasts
> Short-term financial planning for the PDC Company was described during the early part of this chapter. Refer to the PDC Company’s projected monthly operating schedules in Table 6.2. PDC’s monthly sales for the remainder of 2017 are expected to be: Sep
> The firm’s management team recently extended the monthly sales forecasts through the last six months of 2018. Artero expects to spend $100,000 on fixed assets in July 2018 and depreciation charges will increase to $12,000 per month beginning in August 2
> The VirtualStream Company has developed proprietary server and control software for providing communication and media-on-demand services via the Internet. The company is in the process of collecting prerecorded video and audio content from clients and t
> Suppose you become an intern at a local VC firm and are asked to assist in due diligence on a proposed investment in a telecommunication company. Explain how you would approach such a task and where and how you would structure your investigation. What
> Determine the three largest venture capital firms in the U.S. How much money do they have under management? In what areas, if any, do they specialize? Where are they located? Where are their branch offices?
> Describe the cash conversion cycle (C3).
> List three venture capital firms active in your region and describe their investing style and restrictions.
> In 2016, Jennifer (Jen) Liu and Larry Mestas founded Jen and Larry’s Frozen Yogurt Company, which was based on the idea of applying the microbrew or microbatch strategy to the production and sale of frozen yogurt. Jen and Larry began producing small quan
> Wok Yow Imports, Inc., is a rapidly growing, closely held corporation that imports and sells oriental style furniture and accessories at several retail outlets. The equity owners are considering selling the venture and want to estimate the enterprise or
> RxDelivery Systems is an R&D venture specializing in the development and testing of new drug delivery technologies. The market for alternative drug delivery systems grew rapidly during the past several years. Driving factors behind this growth include
> The Minoso Corporation anticipates a 20 percent increase in sales for 2017, 2018, and 2019. Minoso is currently operating at full capacity and thus expects to increase its investment in both current and fixed assets in order to support the increase in f
> RxDelivery Systems is an R&D venture specializing in the development and testing of new drug delivery technologies. The market for alternative drug delivery systems grew rapidly during the 1990s. Driving factors behind this growth include efforts to re
> What is the meaning of leverage ratios? What are typical ratios used for relating total debt to a venture’s assets and/or its equity?
> Following is rate of return component information for FirstVenture investors. Rate Return Component Component Liquidity premium 5.5% Risk-free rate 6 Advisory premium 9 Investment risk premium 11.5 Target rate of return 40 A. Calculate
> Refer to Problem 7. Show how your answer to Part A of Problem 7 would change if Jerry were willing to pay 16 percent annual interest and a principal payment of $100,000 at the end of three years. Problem 7 with Part A: Jerry’s Tree Services is trying t
> Jerry’s Tree Services is trying to raise debt funds from a prospective venture investors, SureWay LLC. SureWay indicated to Jerry Lau that the annual interest rate on risky venture loans is currently 15 percent. Jerry is seeking a 3-year loan with annu
> What is meant by a venture’s operating cycle?
> Draw the payoff for a portfolio of a share of venture equity and a short call option to buy that share at $5.
