Botazzi Exam Questions

How often do venture capital firms change the investments within their portfolios, on average?
a. after 5 to 8 years

b. during hot markets

c. when the limited partners decide to disinvest

d. at IPO
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How often do venture capital firms change the investments within their portfolios, on average?
a. after 5 to 8 years

b. during hot markets

c. when the limited partners decide to disinvest

d. at IPO
a.
Consider an entrepreneur whose investment cost is 100 and has an asset of 20. She needs a financing of 80. The probability of failure of the project when the entrepreneur uses all her effort is 0.2. The return of the project is 50 and 0 in case of failure.

a. the contract between the entrepreneur and the investor is an equity contract

b. the contract between the entrepreneur and the investor is a debt contract

c. the entrepreneur and the investor are indifferent between a debt and an equity contract

d. the project will not be financed
d.
Consider an entrepreneur whose investment cost is 100 and has an asset of 40. He needs a financing of 60. The probability of failure of the project is 0.2 when the entrepreneur uses all her effort and is 0.8 when she misbehaves. If she misbehaves she has a private benefit of 10. The return of the project is 200 and 0 in case of failure. It is optimal for the investor to reward the entrepreneur:
a. 0 in case of failure and at least 40 in case of success

b. 0 in case of failure and at least 20 in case of success

c. 0 in case of failure and 125 in case of success

d. it is rational for the investor not to finance the project.
c.
The most important factor that create non-favorable climate for venture capital is:
a. lack of entrepreneurial talent

b. difficulty in achieving successful exit

c. lack of established VC community

d. unfavorable R&D incentives
b.
Consider an entrepreneur whose investment cost is 100 and has an asset of 20. He needs a financing of 80. The probability of failure of the project when the entrepreneur uses all his effort is 0.2 and it is 0.8 when he misbehaves. The return of the project is 200 and 100 in case of failure.
a. the contract between the entrepreneur and the investor is an equity plus debt contract

b. the contract between the entrepreneur and the investor is a debt contract

c. the entrepreneur and the investor are indifferent between a debt and an equity contract

d. the project will not be financed because the expected return is too low
a.
An entrepreneur and a VC sign a contract. A preferred convertible stock is issued. The initial investment is of 4M and the conversion price is 4$. The outstanding stocks are 1 million. The VC will convert :
a. when V> $8M

b. since she owns 40% of the share she will convert when V>$10M

c. she will never convert

d. she will convert to get 2M shares.
a.
Suppose the VC owns 50% of the outstanding shares: 1.5M convertible preferred stocks with a conversion price of 1$. The entrepreneur raises more money by issuing 150000 new shares at a price 0.3 each. If the contract has a full ratched anti-dilution condition specified, the VC
a. has now 60% of equity

b. has now 75% of equity

c. as the new conversion price is 0.3$/each and the outstanding stocks becomes 10M she keeps 50% of equity

d. neither of the three
b.
Suppose the VC owns 50% of the outstanding shares: 1.5M convertible preferred shares with a conversion price of 1$. The entrepreneur decides to raise more money by issuing 150000 new shares at a price 0.3 each. If the contract has a weighted average anti-dilution condition specified, the new conversion price is.
a. 0.853

b. 0.968

c. 0.3 each

d. 1.15
b.
An entrepreneur needs $15M in the first period and $15M in the second period. In the second
period the probability that a negative shock occurs is 1/5. In that case the return of the project is 0. With probability 4/5 good news arrives and the entrepreneur gets $150M. If bad news arrives it is better not to raise the 15M in a SCC contract. Instead, if good news arrives:
a. she will sell 18.75% of the firm in the second period and 10.5% in the first period

b. she will sell 10% of the firm in the second period an 12.5% in the first period

c. she will sell 25% of the company

d. she will sell only 20% of the company thanks to stage financing
b.
If the aim of the VC is to liquidate her stake before the entrepreneur and participate to the profit of the project she will sign:
a. a debt contract + equity contract

b. a preferred stock contract

c. a preferred stock + common stock

d. an all equity contract
c.