BMGT 289E FINAL questions with
verified solutions
Over-arching attributes
of entrepreneurial setting - correct answer ✔✔-Failure
-Resource scarcity
-Value creation - how much value?
-Valuation by means of negotiation
-Asymmetric information
-Decision making under uncertainty
*Markets
*Assets
*Company stage (i.e., accomplishments)
*Founder reputation
Information asymmetry problems - correct answer ✔✔-Entrepreneurs have information about
their business that investors don't have.
This creates several problems:
-Investors must make decisions based on little
actual evidence
-Entrepreneurs and investors disagree on value
of new venture
-Entrepreneurs can take advantage of investors
-Adverse selection
,-Investors want collateral
"Capital question" - correct answer ✔✔-How much money do I need?
-Where should I get that money?
-What arrangements do I need to obtain that capital?
Startup Capital - correct answer ✔✔-All costs incurred to get the business off
the ground
-Determine the capital you need
-Determine what you'll do with the capital
once you get it
How much do you need?
-60% of all new ventures require less than
$5,000 of capital to get started
-Only 3% require more than $100,000
Two categories of funding a startup - correct answer ✔✔-Debt
-Equity
Debt - correct answer ✔✔-financial obligation
to return capital
provided plus a
scheduled amount
of interest
, ex.
-bank loan
-credit card draft
-Debt guaranteed by the entrepreneur's
personal assets or earning power
-Asset-based financing
-Secured by third-party grants (SBA Loan)
-Supplier credit
Equity - correct answer ✔✔a portion of ownership
received in an
organization in return
for money provided
-Stocks issued
-Most VC funding
New ventures tend to be financed by
equity because - correct answer ✔✔-New ventures have no way to make
scheduled interest payments until they
have positive cash flow
-Debt financing at a fixed rate encourages
people to take risky actions
New Venture Finance rules - correct answer ✔✔Rule 1:
verified solutions
Over-arching attributes
of entrepreneurial setting - correct answer ✔✔-Failure
-Resource scarcity
-Value creation - how much value?
-Valuation by means of negotiation
-Asymmetric information
-Decision making under uncertainty
*Markets
*Assets
*Company stage (i.e., accomplishments)
*Founder reputation
Information asymmetry problems - correct answer ✔✔-Entrepreneurs have information about
their business that investors don't have.
This creates several problems:
-Investors must make decisions based on little
actual evidence
-Entrepreneurs and investors disagree on value
of new venture
-Entrepreneurs can take advantage of investors
-Adverse selection
,-Investors want collateral
"Capital question" - correct answer ✔✔-How much money do I need?
-Where should I get that money?
-What arrangements do I need to obtain that capital?
Startup Capital - correct answer ✔✔-All costs incurred to get the business off
the ground
-Determine the capital you need
-Determine what you'll do with the capital
once you get it
How much do you need?
-60% of all new ventures require less than
$5,000 of capital to get started
-Only 3% require more than $100,000
Two categories of funding a startup - correct answer ✔✔-Debt
-Equity
Debt - correct answer ✔✔-financial obligation
to return capital
provided plus a
scheduled amount
of interest
, ex.
-bank loan
-credit card draft
-Debt guaranteed by the entrepreneur's
personal assets or earning power
-Asset-based financing
-Secured by third-party grants (SBA Loan)
-Supplier credit
Equity - correct answer ✔✔a portion of ownership
received in an
organization in return
for money provided
-Stocks issued
-Most VC funding
New ventures tend to be financed by
equity because - correct answer ✔✔-New ventures have no way to make
scheduled interest payments until they
have positive cash flow
-Debt financing at a fixed rate encourages
people to take risky actions
New Venture Finance rules - correct answer ✔✔Rule 1:
