BU403 Exam Study Guide With
Accurate Answers
Which of the following statements is true of angel investors?
I) They normally seek control of the companies in which they invest
II) They are longtime friends of the founders of the companies in which they invest.
III) They rely on investment banks to secure deal flow.
IV) They need to be patient investors. - ANSWER IV) They need to be patient investors.
Highly successful venture capitalists make more money in carried interest than in
management fees. - ANSWER true
Both revenues and margins are affected by a company's product cycle. - ANSWER True
Which of the following is true about early stage financing?
I) It is important for companies that their early investors participate in follow-on rounds
of financing?
II) Founders will keep a larger percentage of their companies if there is an up round
versus a down round.
III) The IAF and the BDC provide early stage funding. - ANSWER I), II) and III)
In the case, DermaCare: Zapping Zits Directly, the angel financing would leave
founders' post-money valuation higher than venture capital financing. - ANSWER True
For venture capital partnerships, the limited partners earn carried interest when
significant returns are generated on investments. - ANSWER False
The term down rounds means that the next round of financing is a smaller total dollar
amount than the size of the previous round of financing. - ANSWER False
Which of the following is true about due diligence for early stage investing?
I) Due diligence requires that the analyst understand the perspective of the company's
intended customer.
II) Due diligence requires that the analyst understand the expected exit strategy for the
investment.
III) Due diligence requires that the analyst understand the founder's motivation and
, commitment to the company. - ANSWER I), II) and III)
Based on the experience of the Golden Triangle Angel Network, which of the following
statements is true of angel investors?
I) Up rounds are more common than down rounds.
II) In one case, after a convertible promissory note reached maturity, the conditions of
conversion were not met and the holders of the note received a return of principal.
III) Angel investing is suitable for investors with a 3 year investment horizon.
IV) Half of the companies failed. - ANSWER I) and II) Only
Which of the following statements is normally true of lead investors in seed rounds of
financing?
I) They ask for a seat on the board of directors of the company.
II) They negotiate the terms of the deal on behalf of other investors in the financing
round.
III) They want a majority interest in the voting equity of the company. - ANSWER I) and II)
Only
Which is the following is true?
Due diligence is the process whereby prospecitve investors investigate a company and
its offering of securities.
Some angel investors focus mainly on the background and qualities of the founders
during their due diligence.
Institutional investors like the Investment Accelerator Fund have a structured approach
to due diligence.
All of the above.
None of the above. - ANSWER All of the above.
Light automobile production is expected to drop by 7% in 2020 because of a decline in
demand due to COVID 19. How much do you expect growth capex spending to be
affected? - ANSWER A decline of more than 7%
With the recent pandemic, a grocery retail chain experienced an increase in same store
sales while there was a decline in the average customer traffic per store? Which of the
following most directly explains the situation:
An increase in the average purchases per customer visiting the stores.
An increase in total sales.
Accurate Answers
Which of the following statements is true of angel investors?
I) They normally seek control of the companies in which they invest
II) They are longtime friends of the founders of the companies in which they invest.
III) They rely on investment banks to secure deal flow.
IV) They need to be patient investors. - ANSWER IV) They need to be patient investors.
Highly successful venture capitalists make more money in carried interest than in
management fees. - ANSWER true
Both revenues and margins are affected by a company's product cycle. - ANSWER True
Which of the following is true about early stage financing?
I) It is important for companies that their early investors participate in follow-on rounds
of financing?
II) Founders will keep a larger percentage of their companies if there is an up round
versus a down round.
III) The IAF and the BDC provide early stage funding. - ANSWER I), II) and III)
In the case, DermaCare: Zapping Zits Directly, the angel financing would leave
founders' post-money valuation higher than venture capital financing. - ANSWER True
For venture capital partnerships, the limited partners earn carried interest when
significant returns are generated on investments. - ANSWER False
The term down rounds means that the next round of financing is a smaller total dollar
amount than the size of the previous round of financing. - ANSWER False
Which of the following is true about due diligence for early stage investing?
I) Due diligence requires that the analyst understand the perspective of the company's
intended customer.
II) Due diligence requires that the analyst understand the expected exit strategy for the
investment.
III) Due diligence requires that the analyst understand the founder's motivation and
, commitment to the company. - ANSWER I), II) and III)
Based on the experience of the Golden Triangle Angel Network, which of the following
statements is true of angel investors?
I) Up rounds are more common than down rounds.
II) In one case, after a convertible promissory note reached maturity, the conditions of
conversion were not met and the holders of the note received a return of principal.
III) Angel investing is suitable for investors with a 3 year investment horizon.
IV) Half of the companies failed. - ANSWER I) and II) Only
Which of the following statements is normally true of lead investors in seed rounds of
financing?
I) They ask for a seat on the board of directors of the company.
II) They negotiate the terms of the deal on behalf of other investors in the financing
round.
III) They want a majority interest in the voting equity of the company. - ANSWER I) and II)
Only
Which is the following is true?
Due diligence is the process whereby prospecitve investors investigate a company and
its offering of securities.
Some angel investors focus mainly on the background and qualities of the founders
during their due diligence.
Institutional investors like the Investment Accelerator Fund have a structured approach
to due diligence.
All of the above.
None of the above. - ANSWER All of the above.
Light automobile production is expected to drop by 7% in 2020 because of a decline in
demand due to COVID 19. How much do you expect growth capex spending to be
affected? - ANSWER A decline of more than 7%
With the recent pandemic, a grocery retail chain experienced an increase in same store
sales while there was a decline in the average customer traffic per store? Which of the
following most directly explains the situation:
An increase in the average purchases per customer visiting the stores.
An increase in total sales.
