FlexiQuiz - QAI - Module #13 Quiz

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

An equity incentive plan for employees and advisors.

A fair distribution of proceeds.

Eventual liquidity through acquisitions or public offerings.

Access to relevant information and time for due diligence.

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

Fear of Missed Outcomes

Fear of Making Offers

Fear of Market Opportunities

Fear of Missing Out

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

Observation Rights

Information Rights

Approval Rights

Appointment Rights

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

Mutual respect and a dynamic relationship.

Control over all decisions in the business.

A liquidation preference to protect their shares from any loss.

Short-term investment commitments for faster returns.

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

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

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

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

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

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

Negotiating with other investors on their behalf.

Providing mentorship to the company's management team.

Dictating the company's operational strategies.

Calculating the exact value of the company's shares.

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

To ensure immediate returns on investment.

To avoid diversifying their portfolio.

To accommodate their specific investment horizon and investment recycling needs.

To maximize their control over the invested company.

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

Higher valuations

Less prevalent board observation

Lower cumulative dividends

Less stringent redemption rights

9. 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?

Drag Along Rights

Demand Registration Rights

Tag Along Rights

Redemption Rights

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

Customers

Founders

Venture Capitalists

Angels

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

Legal and compliance matters

Financial transactions

Routine day-to-day operations

Marketing and advertising campaigns

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

Founders

All answers are correct

Venture Capitalists

Angels

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

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

To provide investors with an immediate return on investment.

To dilute the founder's ownership in the company.

To secure a liquidation preference for the founder.

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

Full-time involvement from entrepreneurs.

A long-term commitment.

Control over the business through board seats.

Liquidation preferences to protect their shares.

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

To accelerate the company's exit strategy.

To guarantee a minimum return on investment for investors.

To restrict founders from participating in future rounds of financing.

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

16. 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?

Force the majority shareholder to retain their shares.

Buy additional shares from the majority shareholder at a discount.

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

Prevent the majority shareholder from selling their shares.

17. 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?

Cumulative Dividends

Right of First Refusal (ROFR)

Preemptive Rights

Convertible Preferred Shares

18. 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?

3,000,000

500,000

1,500,000

2,000,000

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

It limits their ability to raise capital from new investors.

They fear an immediate loss of control over the company.

It accelerates the timeline for a liquidity event.

It guarantees existing investors a minimum return.

20. 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?

2,142,857

700,000

1,428,571

1,142,857

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

To fulfill their fiduciary duties to limited partners.

To ensure a rapid exit strategy for the startup.

All answers are correct

To maximize their control over the company's direction.