FlexiQuiz - QAI - Module #13 Quiz

1. 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.

Force the majority shareholder to retain their shares.

Prevent the majority shareholder from selling their shares.

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

2. 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.

Negotiating with other investors on their behalf.

Calculating the exact value of the company's shares.

Dictating the company's operational strategies.

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

Control over all decisions in the business.

Mutual respect and a dynamic relationship.

Short-term investment commitments for faster returns.

A liquidation preference to protect their shares from any loss.

4. 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)

Cumulative Dividends

Convertible Preferred Shares

Preemptive Rights

5. 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

Drag Along Rights

Redemption Rights

Tag Along Rights

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

500,000

3,000,000

2,000,000

1,500,000

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

All answers are correct

Founders

Angels

Venture Capitalists

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

700,000

2,142,857

1,142,857

1,428,571

9. 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 limits their ability to raise capital from new investors.

It guarantees existing investors a minimum return.

It accelerates the timeline for a liquidity event.

10. 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.

An equity incentive plan for employees and advisors.

Access to relevant information and time for due diligence.

Eventual liquidity through acquisitions or public offerings.

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

Founders

Customers

Angels

Venture Capitalists

12. 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

Observation Rights

Appointment Rights

Approval Rights

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

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

Less prevalent board observation

Higher valuations

Less stringent redemption rights

Lower cumulative dividends

15. 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 fulfill their fiduciary duties to limited partners.

To maximize their control over the company's direction.

All answers are correct

16. 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 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 restrict founders from participating in future rounds of financing.

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

Fear of Making Offers

Fear of Missed Outcomes

Fear of Missing Out

Fear of Market Opportunities

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

To avoid diversifying their portfolio.

To ensure immediate returns on investment.

To maximize their control over the invested company.

To accommodate their specific investment horizon and investment recycling needs.

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

A long-term commitment.

Full-time involvement from entrepreneurs.

Liquidation preferences to protect their shares.

Control over the business through board seats.

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

To secure a liquidation preference for the founder.

To dilute the founder's ownership in the company.

21. 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

Legal and compliance matters

Marketing and advertising campaigns

Routine day-to-day operations