Venture Capital Management Fees Calculation Quiz
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Questions and Answers

What is true

  • Generally speaking, VC invest before angel investors and before private equity firms
  • Generally speaking, VC invest before angel investors but after private equity firms
  • Generally speaking, VC invest before private equity firms but after angel investors (correct)

    • Which of the following options are a downside of using Net Present Value?

  • Includes Real options
  • Dynamic assumptions
  • Sensitive to discount rate (correct)
  • Multiple IRRs

    • What does the normative perspective of risk entail

  • Rational decision-making (correct)
  • Irrational decision-making
  • Imperfect decision-making
  • Sensitivity-based decision

    • Which of the following statements most accurately describe a VC?

    <p>A VC is a financial intermediary, i.e., that they take the investors’ capital and invest it directly in portfolio companies, where the portfolio companies are characterized as risky and entrepreneurial</p> Signup and view all the answers

    What is net invested capital?

    <p>(invested capital) – (cost basis of all exited and written-off investments)</p> Signup and view all the answers

    Zero Ventures has raised their $50M fund, Zero Ventures 1, with management fees computed based on committed capital. These fees are 2.5 percent per year in the first five years of the fund, then fall by 75 basis points in year 6 and stay on that level for the subsequent five years. The fees will be paid quarterly, with equal installments within each year. Given this description: What are the lifetime fees?

    <p>The lifetime fees are above $10.6M</p> Signup and view all the answers

    What is the investment capital based on the previous question?

    <p>The investment capital is below $40M</p> Signup and view all the answers

    Alpha Ventures is considering two alternative carry structures for its AV2.

    1. 25% carry with a basis of all committed capital
    2. 20% carry with a basis of all investment capital Committed capital = $200M Management fees = 2% of committed capital every year Fund duration = 10 years Suppose total cumulative distributions for 10 years = $325M. How much carry would the GP get under:

    Alternative 1

    <p>More than $31M but less than $31.5M</p> Signup and view all the answers

    Alternative 2

    <p>More than $31.5M</p> Signup and view all the answers

    What is true

    <p>In order to close one deal, a typical VC generally need to screen ca. 100-1000 companies</p> Signup and view all the answers

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