FlexiQuiz - QAI - Module #13 Quiz

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

Calculating the exact value of the company's shares.

Providing mentorship to the company's management team.

Dictating the company's operational strategies.

Negotiating with other investors on their behalf.

2. 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?

Convertible Preferred Shares

Right of First Refusal (ROFR)

Preemptive Rights

Cumulative Dividends

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

Marketing and advertising campaigns

Financial transactions

Routine day-to-day operations

Legal and compliance matters

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

To maximize their control over the invested company.

To avoid diversifying their portfolio.

To accommodate their specific investment horizon and investment recycling needs.

To ensure immediate returns on investment.

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

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.

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.

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

Access to relevant information and time for due diligence.

A fair distribution of proceeds.

Eventual liquidity through acquisitions or public offerings.

An equity incentive plan for employees and advisors.

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

Appointment Rights

Information Rights

Approval Rights

Observation Rights

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

To secure a liquidation preference for the founder.

To provide investors with an immediate return on investment.

To dilute the founder's ownership in the company.

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

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

Less stringent redemption rights

Less prevalent board observation

Lower cumulative dividends

Higher valuations

10. 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?

1,142,857

700,000

1,428,571

2,142,857

11. 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?

Prevent the majority shareholder from selling 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.

Force the majority shareholder to retain their shares.

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

Liquidation preferences to protect their shares.

A long-term commitment.

Control over the business through board seats.

Full-time involvement from entrepreneurs.

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

Angels

All answers are correct

Venture Capitalists

Founders

14. 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?

Redemption Rights

Demand Registration Rights

Tag Along Rights

Drag Along Rights

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

It guarantees existing investors a minimum return.

They fear an immediate loss of control over the company.

It accelerates the timeline for a liquidity event.

It limits their ability to raise capital from new investors.

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

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.

To restrict founders from participating in future rounds of financing.

To accelerate the company's exit strategy.

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

Short-term investment commitments for faster returns.

Control over all decisions in the business.

A liquidation preference to protect their shares from any loss.

Mutual respect and a dynamic relationship.

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

To maximize their control over the company's direction.

To ensure a rapid exit strategy for the startup.

All answers are correct

To fulfill their fiduciary duties to limited partners.

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

Angels

Founders

Venture Capitalists

Customers

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 “Full Ratchet” Anti-Dilution Protection, how many more shares will VIA receive at the closing of the 2^nd investment?

2,000,000

500,000

1,500,000

3,000,000

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

Fear of Missing Out

Fear of Making Offers

Fear of Market Opportunities

Fear of Missed Outcomes