FlexiQuiz - QAI - Module #13 Quiz

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

Control over all decisions in the business.

Short-term investment commitments for faster returns.

Mutual respect and a dynamic relationship.

A liquidation preference to protect their shares from any loss.

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

Less prevalent board observation

Less stringent redemption rights

Higher valuations

Lower cumulative dividends

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

All answers are correct

Angels

Founders

Venture Capitalists

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

Founders

Angels

Customers

Venture Capitalists

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

Financial transactions

Marketing and advertising campaigns

Legal and compliance matters

Routine day-to-day operations

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

To avoid diversifying their portfolio.

To maximize their control over the invested company.

To ensure immediate returns on investment.

To accommodate their specific investment horizon and investment recycling needs.

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

To guarantee a minimum return on investment for investors.

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

To accelerate the company's exit strategy.

To restrict founders from participating in future rounds of financing.

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

Providing mentorship to the company's management team.

Calculating the exact value of the company's shares.

Negotiating with other investors on their behalf.

Dictating the company's operational strategies.

9. 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?

700,000

1,142,857

2,142,857

1,428,571

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

A long-term commitment.

Liquidation preferences to protect their shares.

Full-time involvement from entrepreneurs.

Control over the business through board seats.

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

To provide investors with an immediate return on investment.

To secure a liquidation preference for the founder.

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

To dilute the founder's ownership in the company.

12. 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?

500,000

2,000,000

3,000,000

1,500,000

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

They fear an immediate loss of control over the company.

It guarantees existing investors a minimum return.

It limits their ability to raise capital from new investors.

It accelerates the timeline for a liquidity event.

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

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

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

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

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

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

Information Rights

Appointment Rights

Observation Rights

Approval Rights

16. 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?

Right of First Refusal (ROFR)

Convertible Preferred Shares

Cumulative Dividends

Preemptive Rights

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

To ensure a rapid exit strategy for the startup.

To maximize their control over the company's direction.

To fulfill their fiduciary duties to limited partners.

All answers are correct

18. 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?

Demand Registration Rights

Redemption Rights

Drag Along Rights

Tag Along Rights

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

Fear of Making Offers

Fear of Missing Out

Fear of Missed Outcomes

Fear of Market Opportunities

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

A fair distribution of proceeds.

Access to relevant information and time for due diligence.

An equity incentive plan for employees and advisors.

Eventual liquidity through acquisitions or public offerings.

21. 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?

Buy additional shares from the majority shareholder at a discount.

Prevent the majority shareholder from selling their shares.

Force the majority shareholder to retain their shares.

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