Exam 12: Informal Risk Capital, Venture Capital, and Going Public

The Small Business Investment Company Act of 1958 married the use of private capital with government funds to finance small businesses.

Which section of the business plan is used for initial screening and provides the starting point for the venture-capital process?

With the enactment of the Sarbanes-Oxley Act in 2002:

Angel investors typically finance firms that are close to their homes.

Business angels are members of a professionally managed group of wealthy individuals who efficiently distribute risk capital.

Endowment and pension funds can be part of venture capital equity pools.

The detailed review of a potential venture capital deal is called diligent research.

Making long-term decisions can be difficult in publicly traded companies where sales and profit evaluations indicate the capability of management via stock values.

The current ratio is used to measure the long-term solvency of the venture and its ability to meet short-term debts.

Venture capital firms expect returns in the range of:

With the enactment of the Sarbanes-Oxley Act in 2002,the expense and administrative responsibilities of being a public company,as well as the liability risks of officers and directors,are significantly greater.

There is more risk involved in financing a business's early operations,therefore,higher rates of return are expected.

The three main advantages of going public are obtaining new capital,realizing an enhanced valuation,and enhancing the company's ability to obtain future funds.

For a company to go public,larger underwriting firms have more stringent criteria,such as sales as high as $50 million to $100 million,and a 40 to 70 percent annual growth rate.

The inventory turnover ratio measures the efficiency of the venture in managing its inventory.