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VC/PE Exam 2 questions with correct answers
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VC/PE Exam 2 questions with correct answers
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VC/PE Exam 2Private Equity - correct answer ✔✔Money invested in firms what have not gone public and are not listed
on any stock exchange
Dry Powder - correct answer ✔✔Committed capital that hasn't yet been allocated. Unspent cash waiting
to be invested.
Industry Multiples - correct answer ✔✔The multiples you can apply to your business
LBO (Leveraged Buyout) - correct answer ✔✔Acquisition of another company using a significant amount
of debt to meet the cost of acquisition
High Yield/Risk Debt - correct answer ✔✔Riskier debts have much higher returns/yields
No Fault Divorce Clause - correct answer ✔✔Permits investors, at a time after the final closing date, to
remove the general partner of a fund and either terminate the Partnership or appoint a new general
partner
Side Car Investment - correct answer ✔✔GPs putting their personal money in an investment alongside
their LPs money
Bridge Finance - correct answer ✔✔A form of temporary financing that is intended to cover a company's
short term costs until regular long term financing is secured
Catchup Caluse - correct answer ✔✔Allows GPs to catch up to LPs returns until they get back to the
80/20 split
Concerted Action - correct answer ✔✔An action which is planned, arranged, and agreed on by parties
acting together. Usually used to take legal action against a GP.
, Divestment - correct answer ✔✔Exiting your investments
Earn Out Clause - correct answer ✔✔Sellers must "earn" part of the purchase price based on the
performance of the business following the acquisition agreement
Evergreen Vehicle - correct answer ✔✔Deal/Fund that doesn't have an end date
Lockup Period - correct answer ✔✔Period where you cannot divest your investment. Ex: Insiders cannot
sell shares for 6 months after an IPO.
Private Placement Memorandum - correct answer ✔✔A specialized legal form of business plan crafted
by lawyers for the purpose of soliciting formal investments
Preference Payment/Preferred Return - correct answer ✔✔Payments made to creditors before a
bankruptcy case is filed that allow the creditor to receive more than they would have be able to recover
in the bankruptcy case
Top Line Growth - correct answer ✔✔Growth of revenue
Bottom Line Growth - correct answer ✔✔Growth of net income
What are the differences between PE and VC? - correct answer ✔✔PE...
-Invests in more mature companies
-Buy majority or total business
-New management and direction
-Work synergies to increase value
Who invests in Private Equity? - correct answer ✔✔Institutions (Insurance Companies, Endowments,
Pension Plans), Accredited Investors, Corporations, Foreign Sources
Capital Split for a PE Fund? - correct answer ✔✔20% for GPs, 80% for LPs
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