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Venture Capital Test Answers

Here you will find most recent test questions and correct answers of Venture Capital Test for Upwork Finance and Accounting category. This test will make your profile more impressive and will help you to get the related job. Search your desired answers of the test questions by pressing Ctrl + F button.

1. What level of involvement will a venture capital firm typically have?
 Answers: • No day to day involvement; involvement through participation in the board of directors only

 2. How are the investments in a venture capital firm structured typically?
 Answers: • As shareholders


 3. What is a sweeper clause?
 Answers: • It is a clause that allows the venture capitalist to make requests for financial information from the company from time to time.

 4. When investigating the target market of the potential investment, what will the venture capitalists focus on specifically?
 Answers: • The customer base, the competition, and the opportunity in the market space

 5. What do veto rights allow the venture capitalist to do?
 Answers: • Overturn decisions made by the company directors

 6. What are the "conversion rights", typically stated on a term sheet?
 Answers: • They are terms that stipulate that the venture capitalists can convert their preferred shares into common shares which will be more easily liquidated.

 7. What is meant by the right to "observer rights"?
 Answers: • The venture capitalist can bring in an observer, who can not vote, to the board meeting

 8. What purpose do milestones serve in the term sheet?
 Answers: • They stipulate the goals the target company has to meet in order to receive subsequent amounts of funding.

 9. What is the main reason why a venture capitalist does its own evaluation of a target company's projected financials?
 Answers: • To check that assumptions are reasonable and the model covers all aspects of the company

 10. How often do venture capital firms change the investments within their portfolios, on an average?
 Answers: • Every three to five years

 11. What role do the investors play in a venture capital firm?
 Answers: • That of investment screeners

 12. What is the importance of the intellectual property (IP) which venture capitalists focus heavily on?
 Answers: • IP can be a key deciding factor, as the target company's success or failure may hinge on the IP they own

 13. When was the largest burst of activity in the venture capital industry witnessed?
 Answers: • In early 2000s

 14. What does an exit effectively do?
 Answers: • It allows the venture capitalist to sell their equity in some fashion, either on the stock market, or to the owners, or to the new owners.

 15. What is meant by Post-money valuation?
 Answers: • It is the expected value of the company after it has received the venture capital investment.

 16. When will the venture capitalist show the most active involvement with the company post funding?
 Answers: • Throughout the process

 17. What does "deal syndication" on the term sheet address?
 Answers: • It allows venture capitalists to merge two or more of their investments into one company.

 18. What is the purpose of having portfolios?
 Answers: • To rule out potential investments

 19. What has been the largest area which venture capitalists have been actively investing in for the last decade?
 Answers: • Internet based companies, such as an e-commerce site

 20. What are the typical returns a venture capital firm expects when exiting from a successful investment?
 Answers: • At least 10 times their original investment

 21. What is meant when a venture capitalist talks about the "burn rate"?
 Answers: • The monthly amount of cash spent on an average by a target company, which can then be used to calculate how far investment dollars will take the company

 22. What role do committees play?
 Answers: • They act as specialized arms of the board to address specific topics such as Human Resources or Accounting and Finance Matters.

 23. What would be the attraction of offering a debt round to a target company?
 Answers: • It limits how well the management has to perform.

 24. Which of the following would be a possible portfolio for a venture capital firm?
 Answers: • High tech, Entertainment, E-commerce, Food and Beverage

 25. What protection do investors in a venture capital fund have?
 Answers: • There is no protection. They are not guaranteed a return on their investment, and it is made very clear that investing in new ventures is risky.

 26. What is meant by "exit strategy"?
 Answers: • It is how the target company is planning to liquidate all investors and give them a return for their investment.

 27. What options does a venture capitalist have when holding convertible debt?
 Answers: • They can keep their investment as debt, or convert to equity given some predetermined circumstances have occurred.

 28. How much in funding, in general, will an investor want to invest?
 Answers: • Enough to allow the company to reach traction and prove their business model, regardless of time line

 29. What is a "first round" investment?
 Answers: • An investment in a company which is at the idea stage

 30. What is the term sheet used for once it is agreed upon and signed?
 Answers: • It is the legally documented agreement between the venture capitalist and the target company.

 31. Which of the following would be considered an exit strategy?
 Answers: • Making a private company public via an initial public offering

 32. What is the primary source of a venture capital firm's funding?
 Answers: • Other companies invest in the venture capital firm which then invests in new ventures.

 33. What is the overall venture capital portfolio expectation?
 Answers: • That out of every ten companies invested in, at least one will be a tremendous success, at least five will fail completely, and the other four will break even or be marginally successful

 34. When is the due diligence process done?
 Answers: • Before getting engaged with the potential target investment

 35. What is the main difference between equity and debt?
 Answers: • Equity represents ownership, debt represents a loan to the company.

 36. What does a venture capitalist look like to its investors, based on the way it operates?
 Answers: • A mutual fund

 37. What role does "valuation" play in selecting the most appropriate investment areas?
 Answers: • Valuation helps the venture capitalist decide which portfolio to place the target company in.

 38. What is the typical process overview?
 Answers: • Screening, Kick off Meeting, Evaluation, Initial Due Diligence, Negotiation of Terms, Due Diligence, Legal Closing

 39. What is meant by the "anti-dilution rights", often found on a term sheet?
 Answers: • Terms that protect the venture capitalist from dilution of their investment by the target company by offering subsequent investments at lower valuations to other investors

 40. What is the first step in the process between the target company and the venture capitalist?
 Answers: • The target company contacts the venture capitalist to introduce the opportunity.

 41. How long does the initial due diligence process last?
 Answers: • Any duration from 1 week to a year

 42. When does the target company actually receive the investment?
 Answers: • After the legal closing, on a stipulated closing date

 43. What is the minimum that a venture capitalist would expect at the monthly board meeting?
 Answers: • That the company invested in is meeting the goals stipulated in the negotiation process, and if not, has an action plan to rectify

 44. Does a venture capital exit have any negative impact on the original founders of the company?
 Answers: • Typically no; the exit just means the end of a successful relationship.

 45. What is meant by "screening" in the investment process?
 Answers: • Initial examination of the potential investment by the venture capitalist to see whether it fits in their portfolio

 46. What is the attraction of convertible debt to a venture capitalist?
 Answers: • It gives them the potential to hold debt or equity, depending on how the firm grows and what will be most profitable.

 47. What is the average size of a venture capitalist's investment in a target company?
 Answers: • There is no limit

 48. What is a Term Sheet?
 Answers: • It is a document which stipulates the venture capital firm's terms for the investment, such as the amount they will invest, the percentage of equity they require in exchange for the investment, and their expectations of the company they are investing in.

 49. Which of the following would be a red flag for a venture capitalist?
 Answers: • Several competitors have entered and left the market due to low traction.