26 Questions
Which type of stock is limited so that an investor cannot receive more than a specified amount?
Capped participating preferred stock
What is the rate at which a startup uses available cash to cover expenses in excess of revenue called?
Burn rate
What type of ownership structure allows any number of individuals or companies to own shares?
C Corporation
What is the difficulty faced by some entrepreneurs in trying to raise between $2 million and $5 million called?
Capital gap
Which round of financing is typically referred to as the 'A' round?
The second institutional round
What are the current criteria for an individual to be considered an accredited investor?
$1 million net worth and annual income exceeding $200,000 individually or $300,000 with a spouse
What does 'alpha' refer to in finance theory?
The return produced by a fund manager in excess of the return of a benchmark index
Which of the following is NOT considered an alternative asset class?
Publicly traded securities
What is the purpose of allocating a certain percentage of investments to alternative assets for pension plans and college endowments?
To diversify portfolios
What does the term 'anti-dilution' refer to?
A contract clause that protects an investor from a reduction in percentage ownership
What does the term 'beta' measure in relation to a public stock?
Volatility relative to the index
Which discount rate is used in a discounted cash flow model to determine the enterprise value of a firm using FCFF?
Weighted average cost of capital (WACC)
What is friends and family financing in the context of early-stage companies?
Capital provided by the friends and family of founders
What is full ratchet in the context of investment rounds?
An anti-dilution protection mechanism
Which one of the following is a financing event that can significantly reduce the ownership percentage of previous investors in a startup company?
Cram down round
What is the ratio of current assets to current liabilities called?
Current ratio
What type of retirement plan is based on an employee's salary and number of years worked, with fixed benefits paid after retirement?
Defined benefit plan
What is the interest rate used to determine the present value of future cash flows called?
Discount rate
Which stage of a company is characterized by a complete management team and a substantial increase in revenues?
Expansion stage
What is the formula for equity?
Equity = Assets - Liabilities
What is the purpose of a fairness opinion?
To assess the fairness of a negotiated price for a merger or acquisition
What is the difference between EBIT and EBITDA?
EBIT includes interest, taxes, depreciation, and amortization, while EBITDA excludes these items
Which one of the following is a type of stock that gives an owner the right to convert preferred shares to common shares of stock?
Convertible preferred stock
Which one of the following describes a company’s ability to pay debt from cash flow or profits?
Coverage ratio
Which one of the following refers to the conclusion of a financing round whereby all necessary legal documents are signed and capital has been transferred?
Closing
Which one of the following is a contractual right of an investor to sell some of the investor’s stock along with the founder’s or majority shareholder’s stock if either the founder or majority shareholder elects to sell stock to a third-party?
Co-sale right
Test your knowledge of key terms in finance and investments with this quiz. From understanding DPO (Direct Public Offering) to drag-along rights and drawdown schedules, challenge yourself on the important concepts in the world of finance. See how much you know about due diligence and other essential terms.
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