Exam 16: Sources of Equity Financing

To begin an offering,the entrepreneur and the underwriter must negotiate a letter of intent.

In a firm commitment agreement,the underwriter agrees to purchase all of the shares in the offering and then resells them to investors.

To justify the cost of investigating the offers they receive,venture capitalists typically seek investments in the $200,000 to $500,000 range.

Angels are an excellent source of "IPO money."

Seed capital for the entrepreneur is risk capital for investors.

Most venture capitalists make investments in promising business ventures in return for a share of the ownership.

Discuss the role of "angels" in financing small companies,and what and how they tend to finance start-ups.

The money needed to launch a new business is known as growth capital.

One important intangible yet highly important advantage an investment from a large corporate partner gives a start-up is:

________ is a key criteria that most venture capitalists look for.

The need for growth capital is created by the uneven flow of cash into and out of the business due to normal seasonal fluctuations.

The IPO process requires costly compliance with federal regulations.

The single most important ingredient in making a successful IPO is the road show.

Most small companies meet the criteria for making a successful public stock offering.

"Angels" control a larger pool of venture capital than venture capitalists.

When taking a company public,investment bankers look for:

Although the three types of capital are interdependent,each has certain sources,characteristics,and effects on the business.

________ are private,for-profit organizations that purchase equity positions in young businesses they believe have high-growth and high-profit potential,producing annual returns of 300 to 500 percent over five to seven years.

In an initial public offering,a company raises capital by selling shares of its stock to the general public for the first time.

Venture capital companies reject 90% of the proposals they receive because they don't meet the firms' standards.