FlexiQuiz - QAI - Module #11 Quiz

1. Stock options are primarily granted to:

Common shareholders

Employees

All answers are correct

Preferred shareholders

2. What happens to unvested equity if a founder leaves the company before the vesting period is over?

The unvested equity is transferred to the departing founder.

The unvested equity is divided among the remaining founders.

The unvested equity is converted into preferred stock.

The unvested equity is returned to the company.

3. What is the primary purpose of equity vesting agreements for founders?

To prevent the founders from leaving the company without their equity

To distribute equity equally among founders to minimize disputes

To align the interests of founders with the company's success

To provide immediate ownership of all equity to the founders

4. Syndicate Investor A (SIA) invested $250,000 into StartupX in the form of a SAFE with a valuation cap of $7 million and a floor conversion valuation of $3,000,000 ($7.50 per share). As part of the agreement, StartupX had to raise at least $2 million in a Qualified Round or the floor conversion would be triggered. StartupX failed to raise a qualified round, triggering the floor conversion. How many shares will SIA own following the conversion?

46,666

33,333

40,000

26,666

5. What does a shareholder agreement (buy-sell agreement) among founders typically include?

A clear plan for distributing founders' equity

Instructions for distributing dividends to shareholders

A requirement for equal equity ownership among founders

Provisions for selling shares to external investors

6. Why do startups often use convertible notes or SAFEs for early-stage fundraising?

To avoid legal and accounting expenses in a raise

To secure voting rights for investors

To raise capital quickly without committing to a valuation

To set a fixed valuation for the company

7. What is the purpose of "Floor Conversion" in a SAFE agreement?

It determines the minimum amount of funding required for conversion

It sets the minimum valuation for equity conversion

It safeguards investors from excessively high valuations

It establishes a discount on share prices for early investors

8. Why is it recommended for founders to agree on the issuance of equity from the beginning?

To simplify the company's capital structure

To avoid vesting agreements

To prevent equity disputes in the future

To ensure equal ownership among founders

9. In the case of warrants, what gives the holder the right to purchase shares at a predetermined price?

Strike price

Valuation cap

Vesting period

Liquidation preference

10. Which type of equity provides a liquidation preference over common shares, ensuring shareholders are paid out first in case of a low or no harvest (Terminal Value)?

Preferred shares

Phantom shares

Stock options

Warrants

11. What is one of the downsides of convertible notes and SAFEs for investors?

They provide investors with significant voting rights.

They are cost-effective for startups.

They may limit investors' ability to influence the company's direction.

They require a fixed valuation of the company.

12. Angel Investor A (AIA) invested $5000 in StartupX in exchange for a Safe Note with a $5MM Valuation Cap. A year later, StartupX raised a $2.5 million round at a pre-money valuation of $8 Million. The pre-money share price for the seed round was $10. What share price did AIA's investment convert into?

$6.25

$10.00

$8.00

$5.00

13. What distinguishes Participating Preferred Shares from other types of preferred equity?

They offer a liquidation preference and a share of remaining profits

They are non-transferable to new shareholders

They are typically used by mature companies to raise capital

They have a fixed current dividend rate

14. Angel Investor A (AIA) invested $10,000 into StartupX and received a convertible note with a 25% discount. A year later, Startup X raised a $3 million seed round at post-money valuation of $10 million. What valuation will AIA's note convert into equity?

$7 million

$5.25 million

$7.5 million

$10 million

15. What does the term "Valuation Cap" in the context of SAFE agreements refer to?

The investor's commitment to invest

The discount rate applied to the share price

The minimum amount of funding raised

A price ceiling for equity conversion

16. Which event triggers the conversion of a SAFE into equity?

The company's acquisition by an institutional investor

Meeting certain conditions such as a minimum funding threshold

The discount rate applied to share prices

The investor's commitment to invest

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