Entrepreneurship Funding and Finance 1

Question 1

What is venture capital?

Accepted Answer

Private equity investment in high-growth startups in exchange for equity

Answer

Venture capital (VC) is financing provided by investors to high-potential startups in exchange for an equity stake and often board involvement.

Question 2

What is an angel investor?

Accepted Answer

A wealthy individual who provides capital to startups in early stages

Answer

Angel investors are high-net-worth individuals who invest their personal funds into early-stage companies, often providing mentorship alongside capital.

Question 3

What does equity financing mean?

Accepted Answer

Raising capital by selling ownership shares in a company

Answer

Equity financing involves raising capital by selling a portion of ownership (shares) in the business to investors.

Question 4

What is a convertible note?

Accepted Answer

A short-term debt instrument that converts into equity at a future funding round

Answer

A convertible note is a debt instrument that automatically converts into equity—typically at a discount—when the startup raises a subsequent financing round.

Question 5

What is a SAFE (Simple Agreement for Future Equity)?

Accepted Answer

An investment contract that gives investors the right to future equity without debt terms

Answer

A SAFE is a financing instrument created by Y Combinator that gives investors the right to receive equity in a future round without accruing interest.

Entrepreneurship Practice Test

Entrepreneurship Practice Test

Entrepreneurship Funding and Finance 1