10 Questions
What is true
Generally speaking, VC invest before private equity firms but after angel investors
Which of the following options are a downside of using Net Present Value?
Sensitive to discount rate
What does the normative perspective of risk entail
Rational decision-making
Which of the following statements most accurately describe a VC?
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
What is net invested capital?
(invested capital) – (cost basis of all exited and written-off investments)
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?
The lifetime fees are above $10.6M
What is the investment capital based on the previous question?
The investment capital is below $40M
Alpha Ventures is considering two alternative carry structures for its AV2.
- 25% carry with a basis of all committed capital
- 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
More than $31M but less than $31.5M
Alternative 2
More than $31.5M
What is true
In order to close one deal, a typical VC generally need to screen ca. 100-1000 companies
Test your knowledge on calculating venture capital management fees based on committed capital over a specific timeline. Understand how fees are structured and paid out over the course of a fund's life cycle.
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