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Venture Capital with 100% correct answers
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Venture Capital with 100% correct answers
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Venture Capital"A" Round - correct answer ✔✔A funding round in which Series A preferred stock is issued and sold to
outside investors. This is typically the first institutional venture capital financing round (but may also
include angels and other sophisticated investors). The "A" in the name comes from the use of Series A
Preferred Stock, the securities issued in the round.
Accredited Investor - correct answer ✔✔A funding round in which Series A preferred stock is issued and
sold to outside investors. This is typically the first institutional venture capital financing round (but may
also include angels and other sophisticated investors). The "A" in the name comes from the use of Series
A Preferred Stock, the securities issued in the round.
Anti-Dilution Provision; Anti-Dilution Protection - correct answer ✔✔A provision (in an option, warrant,
or convertible security) intended to protect the holder from dilution of its ownership interest that may
result from future sales or issuances of capital stock by the issuer. See also Weighted Average Ratchet
and Full Ratchet.
Automatic Conversion - correct answer ✔✔A feature of a convertible security, whereby that security,
upon the occurrence of certain specified events or transactions, automatically converts (without any
action on the part of the holder or the issuer) into (and becomes) shares of common stock. See also
Convertible Preferred Stock.
"B" Round - correct answer ✔✔A funding round following the "A" round, in which Series B preferred
stock is issued and sold to one or more outside investors (usually venture capital funds). This can be
accomplished through existing and/or new investors. Subsequent rounds are called "C," "D," and so on.
Basket - correct answer ✔✔Specific dollar limitations on indemnity claims or other provisions provided
under an agreement (typically an investment or purchase agreement). For example, the agreement may
provide that one party may bring indemnity claims against the other only if the aggregate amount of all
claims exceeds a specified dollar amount. A "deductible" basket means that the specified dollar amount
is exempt from, and only the excess over that amount is subject to, indemnity claims. A "threshold" (or
"dollar-one") basket means that once the specified dollar amount is exceeded, the indemnified person
can recover the full amount of all claims (from the first dollar).
Board of Directors;
, Board - correct answer ✔✔The governing body of a corporation, charged with oversight of the
management and direction of the corporation. Individual directors are elected (usually annually) by
shareholders to serve on the board, and they owe certain fiduciary duties to the corporation's
shareholders. Venture capital funds typically have the right to elect a specified number of board
members (and, together with founders/management, to elect one or more independent directors). See
also Independent Director and Investor Rights Agreement.
Bridge Financing - correct answer ✔✔Temporary (and sometimes emergency) limited funding that will
eventually be replaced by permanent capital (from equity investors or debt lenders). In venture capital, a
bridge loan is usually provided in the form of a short-term note (6 to 18 months) that converts to
preferred stock. Typically, the bridge lender has the right to convert the note to preferred stock at a price
that is discounted from the price of the preferred stock in the next financing round. The loan is intended
to "bridge" the borrower to its next round of financing.
Broad-Based Weighted Average Ratchet - correct answer ✔✔The most commonly used form of anti-
dilution provision in venture capital transactions. See also Weighted Average Ratchet.
Burn Rate - correct answer ✔✔The rate at which a business expends its (net) cash over a defined period
(usually a month).
Call Option - correct answer ✔✔The right to buy a security at a specified price (or price range) within a
specific time period. See also Option.
Cap - correct answer ✔✔A maximum limit on indemnity claims or other provisions under a definitive
agreement. Also referred to as a ceiling. Participating preferred stock may have the participation feature
subject to a cap.
Capital Call - correct answer ✔✔When a venture capital fund manager (usually a general partner in a
limited partnership) requests or requires (pursuant to a previous pledge or commitment) that an
investor in the fund (a limited partner) provide additional capital to the fund. Typically, the limited
partners agree to a maximum investment amount, and the general partner makes a series of
requests/demands for capital over time to the limited partners as opportunities to invest in portfolio
companies arise.
Capitalization (or Cap) Table - correct answer ✔✔A table showing the capitalization of a company, which
typically includes all securities issued by the company, and the identity and security/share ownership of
each security-holder (or, at least, of the significant ones). The Cap Table also lists the form of security
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