Chapter 14: Entrepreneurial finance and venture capital
Quiz
A negative covenant is a(n):
requirement a borrower must meet to secure a loan.
restriction a borrower must accept in order to secure a loan.
option to a venture capitalist to sell their shares back to the entrepreneur.
none of the above.
You seek €15,000,000 from a venture capitalist to finance your new company. The value of the firm is currently €25,000,000. When the company goes public in 5 years the market capitalization is expected to be €255 million. If the venture capitalist requires a 45% return on her investment, what fraction of the company will the venture capitalist receive?
47.8%
29.6%
35.1%
37.7%
A venture capital fund that is the subsidiary of a financial institution is called a(n):
angel capitalist.
corporate venture capital fund.
institutional venture capital fund.
financial venture capital fund.
Ten years ago Big Money Fund (BMF) made a €10 million investment in Bavarian Brew and received 2.5 million class A convertible preference shares, each of which can be converted into two Bavarian Brew ordinary shares. Four years ago BMF provided a second round of financing. BMF received 2 million class B convertible shares in exchange for €10 million. Each share of the class B stock can be converted into three Bavarian Brew ordinary shares. Bavarian Brew just announced an IPO and will convert all its outstanding stock into ordinary shares. After the conversion Bavarian Brew will have 55 million shares outstanding and will create another 5 million shares for sale in the IPO. After the IPO the shares will trade at €55. What is the annual return on BMF's first investment into Bavarian Brew?
39.29%
48.25%
32.19%
56.31%
Five years ago Big Money Fund (BMF) made a €4.5 million investment in Bavarian Brew and received 1.5 million class A convertible preference shares, each of which can be converted into three Bavarian Brew ordinary shares. Two years ago BMF provided a second round of financing. BMF received 5 million class B convertible shares in exchange for €10 million. Each class B share can be converted into one Bavarian Brew ordinary share. Bavarian Brew just announced an IPO and will convert all its outstanding shares into ordinary shares. After the conversion Bavarian Brew will have 25 million shares outstanding and will create another 5 million shares for sale in the IPO. What fraction of Bavarian Brew's total outstanding ordinary shares will BMF own after the IPO, assuming that BMF cannot sell any of its Bavarian Brew shares?
78.92%
26.91%
51.52%
31.67%
Ten years ago Big Money Fund (BMF) made a €10 million investment in Bavarian Brew and in return received 5 million shares representing 30% of Bavarian Brew's equity. Bavarian Brew is now planning an IPO selling 5 million newly created shares for €25 per share. BMF will exercise its demand registration right and will sell its shares in the IPO. If the underwriter charges a 7% underwriting spread how much will BMF get per share?
€25.00
€23.25
€1.75
€26.75
en years ago Big Money Fund (BMF) made a €10 million investment in Bavarian Brew and in return received 5 million shares representing 30% of Bavarian Brew's equity. Bavarian Brew is now planning an IPO selling 5 million newly created shares for €25 per share. BMF will exercise its demand registration right and will sell its shares in the IPO. IF the underwriter charges a 7% underwriting spread how much will BMF get in total?
€94.35 million
€125.00 million
€116.25 million
€156.75 million
The right given to a venture capitalist to force the company to buy back the shares held by the venture capitalist is called:
participation right.
repurchase right.
stock option plan.
none of the above.
Five years ago Big Money Fund (BMF) made a €4.5 million investment in Bavarian Brew and received 1.5 million class A convertible preference shares, each of which can be converted into three Bavarian Brew ordinary shares. Two years ago BMF provided a second round of financing. BMF received 5 million B convertible shares in exchange for €10 million. Each class B share can be converted into one Bavarian Brew ordinary share. Bavarian Brew just announced an IPO and will convert all its outstanding shares into ordinary shares. How many shares of Bavarian Brew will BMF own after the IPO, assuming that BMF cannot sell any of its Bavarian Brew shares?
10.25 million
5.50 million
9.50 million
4.50 million
Ten years ago Big Money Fund (BMF) made a €10 million investment in Bavarian Brew and received 2.5 million class A convertible preference shares, each of which can be converted into two Bavarian Brew ordinary shares. Four years ago BMF provided a second round of financing. BMF received 2 million class B convertible shares in exchange for €10 million. Each class B share can be converted into three Bavarian Brew ordinary shares. Bavarian Brew just announced an IPO and will convert all its outstanding shares into ordinary shares. How many shares of Bavarian Brew will BMF own after the IPO, assuming that BMF cannot sell any of its Bavarian Brew shares?