Fundamentals of Corporate Finance Chapter 15 How Corporations Raise Venture Capital and Issue Securities Homework 1) Define venture capital 2) Why do venture capital investors structure deals so that the venture capital managers have a strong incentive to work hard? 3) Infant companies try to raise capital to get them through to where? 4) How is most venture capital is provided? 5) Who are angel investors? 6) How are venture capital firms involved with the companies they fund? 7) How are most venture capital firms organized and what is the life of this business? 8) What are venture capitalists looking for? 9) What is an IPO (Initial Public Offering)? 10) Compare primary offerings to secondary offerings 11) What is the first task in arranging a public issue? 12) What is the role of the underwrite in the issue? 13) Define the spread involved in arranging a public issue. 14) What is the role of the SEC (Securities and Exchange Commission)? 15) Describe the \"blue sky\" laws. 16) What is the prospectus? 17) Who arranges the \"road show\" and what occurs at the show? 18) Describe the how the issue goes from the issuing company to the actual investors in the market. 19). what are some of the alternative ways to issue stock? 20) What is shelf registration and what are some advantages?. 21)What is private placement and what are advantages of private placement? Solution 1) Define venture capital 1) Venture capital is investment for seed early-stage, emerging and emerging growth companies. Venture capital funds invest in companies in exchange for equity in the companies they invest in, which usually have a new technology or business model in high technology industries, such as biotechnology and IT. Venture capital is invested for high rate of return with high risk of investment. 2) Why do venture capital investors structure deals so that the venture capital managers have a strong incentive to work hard? 3) Infant companies try to raise capital to get them through to where? 3) Infant companies try to raise capital through angel investors and super angels 4) How is most venture capital is provided? 4) Within the venture capital industry, the general partners and other investment professionals of the venture capital firm are often referred to as \"venture capitalists\". Venture capitalists provide the venture capital, 5) Who are angel investors? 5) Angel investors are high net worth individuals who will invest between $25,000 and $500,000 in your company in exchange for an ownership interest. That can be done through an equity investment or something called “convertible debt,” which is a short-term loan that is turned into equity if and when the company raises further venture capital in a Series A offering of shares through an institutional firm like a venture capital fund. 6) How are venture capital firms involved with the companies they fund? 6) Once you have raised your seed round of funding and perhaps gotten to the point where you have your product a.

1. Fundamentals of Corporate Finance Chapter 15 How Corporations Raise Venture Capital and
Issue Securities Homework
1) Define venture capital
2) Why do venture capital investors structure deals so that the venture capital managers have a
strong incentive to work hard?
3) Infant companies try to raise capital to get them through to where?
4) How is most venture capital is provided?
5) Who are angel investors?
6) How are venture capital firms involved with the companies they fund?
7) How are most venture capital firms organized and what is the life of this business?
8) What are venture capitalists looking for?
9) What is an IPO (Initial Public Offering)?
10) Compare primary offerings to secondary offerings
11) What is the first task in arranging a public issue?
12) What is the role of the underwrite in the issue?
13) Define the spread involved in arranging a public issue.
14) What is the role of the SEC (Securities and Exchange Commission)?
15) Describe the "blue sky" laws.
16) What is the prospectus?
17) Who arranges the "road show" and what occurs at the show?
18) Describe the how the issue goes from the issuing company to the actual investors in the
market.
19). what are some of the alternative ways to issue stock?
20) What is shelf registration and what are some advantages?.
21)What is private placement and what are advantages of private placement?
Solution
1) Define venture capital 1) Venture capital is investment for seed early-stage, emerging and
emerging growth companies. Venture capital funds invest in companies in exchange for equity in
the companies they invest in, which usually have a new technology or business model in high
technology industries, such as biotechnology and IT. Venture capital is invested for high rate of
return with high risk of investment. 2) Why do venture capital investors structure deals so that
the venture capital managers have a strong incentive to work hard? 3) Infant companies try to
raise capital to get them through to where? 3) Infant companies try to raise capital through
angel investors and super angels 4) How is most venture capital is provided? 4) Within the

2. venture capital industry, the general partners and other investment professionals of the venture
capital firm are often referred to as "venture capitalists". Venture capitalists provide the venture
capital, 5) Who are angel investors? 5) Angel investors are high net worth individuals who
will invest between $25,000 and $500,000 in your company in exchange for an ownership
interest. That can be done through an equity investment or something called “convertible debt,”
which is a short-term loan that is turned into equity if and when the company raises further
venture capital in a Series A offering of shares through an institutional firm like a venture capital
fund. 6) How are venture capital firms involved with the companies they fund? 6) Once you
have raised your seed round of funding and perhaps gotten to the point where you have your
product and have users or even have customers, and you’re ready to raise half a million dollars or
more, that’s when you can start going to early stage venture capital funds. This is what is known
as your Series A round of funding. As you go into your second round or third round of funding,
your Series B, and you need between $5 and $25 million known as growth stage venture capital.
7) How are most venture capital firms organized and what is the life of this business? 7) Once
are five or six years in to your growth, you have built out your product and generated more than
$20 or $30 million in revenue, and you’re looking for more than $25 million, going to late stage
venture capital funds and private equity shops is often possible. 8) What are venture capitalists
looking for? 8) Venture capitaliss are looking for high rate of returns on their investment at time
exit through IPO or trade sale of company 9) What is an IPO (Initial Public Offering)? 9) An
initial public offering (IPO) refers to the first time a company publicly sells shares of its stock on
the open market through IPO. 10) Compare primary offerings to secondary offerings 10)
Primary offering is known as IPO ( Initial public offering) and Second offering is known as
subsequent public offering 11) What is the first task in arranging a public issue? 11) Building
Prospectus for public offering 12) What is the role of the underwrite in the issue? 12)
Underwrite undertakes to subscribe for shares those are sort of minium subscription in any IPO.
13) Define the spread involved in arranging a public issue. 13) The spread is calculated as a
discount from the price of the shares sold (called the gross spread). 14) What is the role of the
SEC (Securities and Exchange Commission)? 14) SEC is formed for investor protection and
education 15) Describe the "blue sky" laws. 15) A blue sky law is a state law in the United
States that regulates the offering and sale of securities to protect the public from fraud. Though
the specific provisions of these laws vary among states, they all require the registration of all
securities offerings and sales, as well as of stockbrokers and brokerage firms. 16) What is the
prospectus? 16) a printed booklet giving details of a share offer for the benefit of investors.
17) Who arranges the "road show" and what occurs at the show? 17) Road show management
teams arrange the "road show" and management gets to travel all over to meet with investors
and market the company for 1-2 weeks. Sometimes management teams make themselves very

3. open and accessible and go out of their way to win over investors and answer questions during
the show. 18) Describe the how the issue goes from the issuing company to the actual investors
in the market. 19). what are some of the alternative ways to issue stock? 19) a) Offers for sale
b) Private placings c) Bonus issues d) Rights issue e) ESOP 20) What is shelf registration and
what are some advantages?. 20) shelf registration is a type of public offering where certain
issuers are allowed to offer and sell securities to the public without a separate prospectus for each
act of offering. Instead, there is a single prospectus for multiple, undefined future offerings. The
prospectus (often as part of a registration statement) may be used to offer securities for up to
several years after its publication. A shelf registration statement is a filing with the SEC to
register a public offering, usually where there is no present intention to immediately sell all the
securities being registered. A shelf registration statement permits multiple offerings based on the
same registration. A shelf registration can be used for sales of new securities by the issuer
(“primary offerings”) resales of outstanding securities (“secondary offerings”) or a combination
of both. 21)What is private placement and what are advantages of private placement? 21)
'Private Placement' The sale of securities to a relatively small number of select investors as a
way of raising capital. Investors involved in private placements are usually large banks, mutual
funds, insurance companies and pension funds.