MBA Entrepreneurship 2 — Questions and Answers
Question 1: What is 'angel investing' in the startup ecosystem?
- Government-funded grants for social enterprises
- High-net-worth individuals investing their personal funds in early-stage startups, often providing mentorship too (Correct answer)
- Institutional investment from pension funds in public companies
- Crowdfunding from many small individual contributors
Correct answer: High-net-worth individuals investing their personal funds in early-stage startups, often providing mentorship too
Angel investors are typically experienced entrepreneurs or executives who invest their personal capital in early-stage startups, often filling the funding gap before venture capital becomes available.
Question 2: What is a 'go-to-market strategy' for a startup?
- The logistics plan for international shipping
- A plan specifying how the startup will reach target customers, deliver its value proposition, and achieve competitive positioning at launch (Correct answer)
- The strategy for going public through an IPO
- The plan for acquiring competitors in the market
Correct answer: A plan specifying how the startup will reach target customers, deliver its value proposition, and achieve competitive positioning at launch
A go-to-market (GTM) strategy defines target customer segments, sales channels, pricing, messaging, and the action plan for bringing a new product to market successfully.
Question 3: What is 'product-market fit'?
- Matching your product's color to your target market's preferences
- The degree to which a product satisfies strong market demand — evidenced by rapid organic growth and customer retention (Correct answer)
- Ensuring your product meets all regulatory requirements for the market
- Matching your product price to what the market can afford
Correct answer: The degree to which a product satisfies strong market demand — evidenced by rapid organic growth and customer retention
Product-market fit (Marc Andreessen) is achieved when a product genuinely meets the needs of a specific market, evidenced by high retention, strong word-of-mouth, and growing organic demand.
Question 4: What is a 'term sheet' in startup fundraising?
- A detailed legal contract finalizing an investment
- A non-binding document outlining the key terms and conditions of a proposed investment before formal documentation (Correct answer)
- An invoice for services rendered to a startup
- A government form required for business registration
Correct answer: A non-binding document outlining the key terms and conditions of a proposed investment before formal documentation
A term sheet is a preliminary, non-binding agreement that outlines the key deal terms — valuation, equity stake, board seats, investor rights — before lawyers draft the final binding investment documents.
Question 5: What is 'dilution' in the context of startup equity?
- Reducing the price of a product to gain market share
- The reduction in existing shareholders' ownership percentage when new shares are issued in a funding round (Correct answer)
- The process of paying dividends to existing shareholders
- The effect of debt financing on company valuation
Correct answer: The reduction in existing shareholders' ownership percentage when new shares are issued in a funding round
Dilution occurs when a startup issues new shares (to investors, employees, or advisors), reducing the percentage ownership of existing shareholders even if the total value of their stake may increase.
Question 6: What does 'burn rate' measure in a startup context?
- The speed at which a startup generates new customers
- The monthly rate at which a startup spends its cash reserves before reaching profitability (Correct answer)
- The rate of product defects during manufacturing
- The speed of employee turnover in early-stage companies
Correct answer: The monthly rate at which a startup spends its cash reserves before reaching profitability
Burn rate measures how fast a startup consumes its cash reserves each month, determining the 'runway' — how many months of operation remain before funds are exhausted.
MBA Entrepreneurship 2
What is 'angel investing' in the startup ecosystem?