FlexiQuiz - QAI - Module #13 Quiz

1. Why do investors need liquidity protection and exit strategies for their private securities investments?

To accommodate their specific investment horizon and investment recycling needs.

To ensure immediate returns on investment.

To maximize their control over the invested company.

To avoid diversifying their portfolio.

2. Why is downside protection particularly crucial for venture capital investors in comparison to other investors?

All answers are correct

To fulfill their fiduciary duties to limited partners.

To maximize their control over the company's direction.

To ensure a rapid exit strategy for the startup.

3. During a bear market, which of the following becomes more prevalent in funding rounds, indicating that deals are chasing money?

Lower cumulative dividends

Higher valuations

Less stringent redemption rights

Less prevalent board observation

4. What is a primary concern of venture capitalists (VCs) that differentiates them from founders and angels?

Control over the business through board seats.

Full-time involvement from entrepreneurs.

Liquidation preferences to protect their shares.

A long-term commitment.

5. Which of the following is a form of "Up Round" dilution protection that allows existing investors to maintain their percentage ownership in the company during future financing rounds?

Preemptive Rights

Cumulative Dividends

Convertible Preferred Shares

Right of First Refusal (ROFR)

6. Venture Investor A (VIA) owns 1,000,000 shares priced at $1.50 per share in StartupX. A year later, StartupX raises $2,000,000 by issuing 4,000,000 new shares. If VIA has “Weighted Average” Anti-Dilution Protection, how many more shares will VIA receive at the closing of the 2^nd investment?

1,428,571

2,142,857

1,142,857

700,000

7. What is a shared need for all parties in an investment partnership regarding the distribution of proceeds at the time of exit?

Eventual liquidity through acquisitions or public offerings.

An equity incentive plan for employees and advisors.

Access to relevant information and time for due diligence.

A fair distribution of proceeds.

8. Venture Investor A (VIA) owns 1,000,000 shares priced at $1.50 per share in StartupX. A year later, StartupX raises $2,000,000 by issuing 4,000,000 new shares. If VIA has “Full Ratchet” Anti-Dilution Protection, how many more shares will VIA receive at the closing of the 2^nd investment?

1,500,000

3,000,000

2,000,000

500,000

9. Which party seeks honesty, ethical behavior, and adequate information for making informed investment decisions?

Venture Capitalists

Founders

Angels

All answers are correct

10. Why might founders be hesitant to agree to "up round" dilution protection terms in a term sheet?

It accelerates the timeline for a liquidity event.

It limits their ability to raise capital from new investors.

It guarantees existing investors a minimum return.

They fear an immediate loss of control over the company.

11. Which party is particularly concerned about ensuring the availability of adequate resources to shape the destiny of the business?

Venture Capitalists

Customers

Angels

Founders

12. Which of the following liquidation protections gives the investor the right to require the company to buy back their shares at a certain price or within a certain timeframe?

Tag Along Rights

Drag Along Rights

Redemption Rights

Demand Registration Rights

13. Approval rights in a startup investment agreement give investors the authority to make decisions related to which of the following aspects of the company?

Routine day-to-day operations

Legal and compliance matters

Marketing and advertising campaigns

Financial transactions

14. What is the primary purpose of issuing warrants in an investment deal, especially when a founder demands a high valuation?

To dilute the founder's ownership in the company.

To counterbalance a high valuation and protect the investor's upside.

To secure a liquidation preference for the founder.

To provide investors with an immediate return on investment.

15. Which control provision in a startup investment agreement gives investors the right to attend and observe board meetings but not participate or vote?

Approval Rights

Observation Rights

Appointment Rights

Information Rights

16. What is FOMO in the context of investing during a bull market?

Fear of Market Opportunities

Fear of Missed Outcomes

Fear of Missing Out

Fear of Making Offers

17. What is the primary purpose of a term sheet in the context of a priced round?

To serve as the legally binding contract between the company and investors.

To outline the proposed terms and conditions for an investment and provide a basis for a stock purchase agreement.

To establish the valuation of the company's shares without further negotiation.

To provide a detailed plan for the use of proceeds from the investment.

18. In a priced round led by a venture capital firm, what is one of the key responsibilities of the lead investor?

Dictating the company's operational strategies.

Negotiating with other investors on their behalf.

Calculating the exact value of the company's shares.

Providing mentorship to the company's management team.

19. In a scenario with Tag Along Rights, what do minority shareholders have the right to do when a majority shareholder decides to sell their shares?

Compel the buyer to purchase their shares at the same price and terms as the majority shareholder's sale.

Force the majority shareholder to retain their shares.

Prevent the majority shareholder from selling their shares.

Buy additional shares from the majority shareholder at a discount.

20. What is a key need shared by both founders and investors in a successful partnership?

A liquidation preference to protect their shares from any loss.

Mutual respect and a dynamic relationship.

Short-term investment commitments for faster returns.

Control over all decisions in the business.

21. What is the purpose of a Right of First Refusal (ROFR) in an investment agreement?

To restrict founders from participating in future rounds of financing.

To accelerate the company's exit strategy.

To minimize dilution of control by allowing existing investors to match offers to purchase shares from current shareholders.

To guarantee a minimum return on investment for investors.