Exam 14: Raising Equity Capital

At what stage of the IPO process do senior management and the lead underwriters travel to promote the company and explain their rationale for the offer price to the underwriters' largest customers?

You founded your own firm three years ago. You initially contributed $200,000 of your own money and in return you received 3 million shares of stock. Since then, you have sold an additional 2 million shares of stock to angel investors. You are now considering raising capital from a venture capital firm. This venture capital firm would invest $5 million and would receive 4 million newly issued shares in return. Suppose you sold the 2 million shares to the angel investor for $500,000. What was your percentage ownership in the company immediately following the angel investor's investment?

Parafoil Avionics sells 50 million shares of stock in an SEO-20 million being primary shares issued by the company and 30 million being secondary shares sold by investors in the company. At the time of the sale, Parafoil's stock was selling at $13.00 per share. If the underwriter charges 7% of the gross proceeds as a fee, how much money was raised in the sale?

Which of the following is NOT a reason why an investor would choose to invest in new and growing firms as a limited partner in a venture capital firm rather than making those investments directly by themselves?

Luther Industries is in the process of selling shares of stock in an auction IPO. At the end of the bidding period, Luther's investment bank has received the following bids: What will the offer price of these shares be if Luther is selling 1 million shares?

The main advantages for a firm in going public are greater liquidity and better access to capital.

Parafoil Avionics sells 50 million shares of stock in an SEO-30 million being primary shares issued by the company and 20 million being secondary shares sold by investors in the company. At the time of the sale, Parafoil's stock was selling at $11.50 per share. If the underwriter charges 7% of the gross proceeds as a fee, how much money did existing investors in the company raise in the sale?

You founded your own firm three years ago. You initially contributed $200,000 of your own money and in return you received 2 million shares of stock. Since then, you have sold an additional 1 million shares of stock to angel investors. You are now considering raising capital from a venture capital firm. This venture capital firm would invest $5 million and would receive 4 million newly issued shares in return. After the venture capitalist's investment, the post-money valuation of your shares is closest to ________.

The founder of a company issues 200,000 shares of stock of series A stock for his own $250,000 investment. He then goes through three further rounds of investment, as shown below: Which of the following is closest to the percentage of the company owned by the founder of the company?

What are some of the highlights of Google's IPO process?

You founded your own firm three years ago. You initially contributed $200,000 of your own money and in return you received 3 million shares of stock. Since then, you have sold an additional 2 million shares of stock to angel investors. You are now considering raising capital from a venture capital firm. This venture capital firm would invest $5 million and would receive 4 million newly issued shares in return. Suppose you sold the 2 million shares to the angel investor for $500,000. What was the post-money valuation of your shares immediately following the angel investor's investment?

Which of the following statements regarding best efforts IPOs is FALSE?

You founded your own firm three years ago. You initially contributed $200,000 of your own money and in return you received 3 million shares of stock. Since then, you have sold an additional 2 million shares of stock to angel investors. You are now considering raising capital from a venture capital firm. This venture capital firm would invest $4 million and would receive 2 million newly issued shares in return. Assuming that this is the venture capitalist's first investment in your firm, what percentage of the firm will the venture capitalist own?

A cash offer differs from a rights offer in that in the latter shares are offered to both existing shareholders and investors at large.

Which of the following statements is NOT true regarding angel investors?

Equity investors in a private company usually plan to realize a return on their investment by selling their stock when that company is acquired by another firm or sold to the public in a public offering.

Jeremy founded a company. He issues 100,000 shares of series A stock for his own $100,000 investment. He then goes through three further rounds of investment, as shown below: Which of the following is closest to the percentage of the company owned by the series D investors?

Which of the following is a notable puzzle in IPOs?

Which of the following statements is FALSE?

Which of the following is an activity typically taken by an underwriter during an IPO of a company?