Corporate Dividend Policy and Behaviour: the Malaysia Experience

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Chapter 14 - Obtaining Venture and Growth CapitalChapter 14 - Obtaining Venture and Growth Capital Student: ___________________________________________________________________________ 1. One of the toughest trade-offs for any young company is to balance the need for startup and growth capital with preservation of equity. True False

2. Bootstrapping an early stage company is a means of retaining equity. True False

3. A central idea with obtaining risk capital is that a smaller percentage of a larger pie is preferred to a larger percentage of a smaller pie. True False

4. In the majority of the high-technology startups and early-stage companies, debt is normally secured to fund research and development, prototype development and product marketing, launch, and cover early losses. True False

5. An equity investment requires that the management team firmly believe that investors can and will add value to the venture. True False

6. Angels or wealthy individuals are often sought because they are more easily sold than formal investors (i.e. venture capitalists and private placements). True False

7. Informal investors prefer to invest in local ventures.
True False

8. The most effective means of reaching informal investors is to consult online directories that have been developed for that purpose. True False

9. Gaining referrals can be a useful way of contacting informal investors. True False

10. If an entrepreneur has obtained a referral, he or she needs to get permission to use the name of the person making a referral when the investor is contacted. True False

11. Effective entrepreneurs set up meetings that allow them to present to more than one informal investor at the same time. True False

12. Whether or not the outcome of a presentation is continued investment interest, the entrepreneur needs to try to obtain the names of other potential investors from this meeting. True False

13. It is best to be vague about other investors you are speaking with. True False

14. While corporate venture capitalists are similar to traditional VCs in that they look for promising young companies on the verge of a spike in sales, corporations tend to be more risk-averse and specialised. True False

15. Mezzanine is a debt instrument that does not require regular interest payments. True False

16. With mezzanine financing, the principal amount may be converted into equity. True False

17. Private Placements are used for firms that are not in a position to pursue an IPO. True False

18. Going public enables a firm to raise more capital with less dilution than occurs with private placements or venture capital. True False

19. A private placement may not be offered after a company has already gone public. True False

20. An ESOP is a program in which the employees create an internal source of funding by becoming investors in the company. True False

21. ESOPs are a potential source of funding used by existing companies that have low to moderate confidence in the stability of their future earnings and cash flow. True False

22. Public companies that get into financial trouble can opt to raise funds through a private placement. True False

23. In periods of negative market sentiment:
A. capital becomes easy to get with low valuations
B. capital becomes difficult to get and valuations are variable C. capital becomes scarce and valuations much lower
D. capital becomes scarce and valuations rise

24. How long does it typically take to close a financing round or to acquire a company? A. 12 months
B. 6 months
C. 9 months
D. 18 months

25. What are the three central issues that should be considered when beginning to think about obtaining risk capital? A. Does the venture need outside equity capital; do the founders want it; who should invest? B. Do the founders want outside capital;...
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