IQ Quiz

Question 1 (10 points)

Your company looks to raise $500,000 and your brother-in-law tells you to look for a 'bell cow' investor. A 'bell cow' investor is:

A) The individual who invests the most money
B) The individual who refers the deal to you
C) The placement agent
D) Your mother-in-law

Question 2 (10 points)

You understand your lead investor will put in $500,000 at a 'pre-money' valuation of $2 million. 'Pre-money' valuation means:

A) The value of your money invested in the company
B) The value of a company immediately prior to the most recent round of financing
C) The possible ROI of your investment
D) The reorganization of the company capital structure

Question 3 (15 points)

You are asked to be a director of a start-up company, to be incorporated in Delaware. When you receive the incorporation papers, what is the most important item to have your lawyer look for?

A) The language from Section 102(b)(7)
B) The language from Section 117(a)(4)
C) The Securities and Exchange Commission Regulation D section
D) The secondary sale provisions

Question 4 (15 points)

You are an executive recently recruited by a high-flying dotcom and given an employment contract including a bunch of options. Some wise-guy asks you if you have heard of the 'early exercise strategy and AMT'. The 'early exercise strategy and AMT' allow you to:

A) Exercise your options the day they are granted, and avoid alternative minimum tax.
B) Exit the company at your first opportunity.
C) Exercise your options, earliest first.
D) Await an exit event.

Question 5 (20 points)

The definition of a private equity fund of funds is:

A) The purchase of partnership interests on the secondary market
B) A financial instrument that invests in a number of private equity partnerships.
C) A gatekeeper
D) A fund that owns a private equity partnership interest

Question 6 (20 points)

You're dealing with the VCs for the first time. They throw a term sheet at you giving you the money but referring to a 'convertible participating preferred.' Your lawyer says he understands 'convertible preferred' but 'participating' is a new concept.
'Convertible participating preferred' means:

A) You all participate equally
B) The preferred must convert or else lose the upside.
C) The preferred gets its money back.
D) The preferred gets its money back and its share, on an 'as converted' basis of the upside.

Question 7 (25 points)

What is 'weighted average anti-dilution'?

A) A price the VCs extort if a subsequent financing is at a low price.
B) An average of all previous stock profits.
C) A form of projection of future profits.
D) A veto on future stock issuances

Question 8 (25 points)

What are 'tag-along rights'?

A) Pre-emptive rights
B) Severance benefits
C) The rights of minority shareholders to sell if the controlling shareholders sell
D) The rights to participate in a future financing

Question 9 (30 points)

What are 'drag-along rights'?

A) Veto power of the VCs
B) A way to fire redundant employees
C) A right to dissent from a merger
D) The power in the controlling shareholder to compel all shareholders to follow its lead in selling the entire company

Question 10 (30 points)

What do Gompers and Lerner cite as the industry standard for determining annual management fees for a LBO fund?

A) Percent of Capital Under Management (less cost basis of distributions)
B) Percent of Capital Under Management (less cost basis of distributions plus write off's)
C) Negotiated Annually
D) Percent of Capital Under Management

When you are done, click the 'Get My Score' button to find out how you did.