Question

True/False for the following:

1) Venture capitalists rely on preferred stock in a company to skew investment returns in their favor relative to the owners of the common stock, gain a disproportionate level of control of key decisions relative to the common shareholders and ensure that their interests are aligned with the founders.

2) When a subsequent round of financing takes place at a lower price per share than previous round of financing; existing shareholders would suffer from the dilution of their ownership stake. If the existing shareholders required a clause in the terms of their financing that would obligate the company to offer them additional shares when subsequent shares are issued at a lower price than the paid is an example of an anti-dilution clause.

3) A Drag-Along clause in a term sheet will address the rights of shareholders who control a majority of shares relative to shareholders who control a minority of shares.

4) Use the “YIELD” function in Excel to find the yield to maturity of a bond with the following characteristics. The yield to maturity on this bond is over 7%

Settlement	5/17/2018
Maturity	5/17/2028
Rate	5%
Price	90
Redemption	100
Frequency	2
Basis	0

Answer 1

1. True

Venture capital financing is a type of financing by venture capital. It is private equity capital provided as seed funding to early-stage, high-potential, growth companies (startup companies) or more often it is after the seed funding round as a growth funding round (also referred to as series A round). It is provided in the interest of generating a return on investment through an eventual realization event such as an IPO or trade sale of the company.

4. =YIELD(DATE(2018,5,17),DATE(2028,5,17),5%,90,100,2,0)

=YIELD(settlement,maturity,rate,pr,redemption,frequency,basis)

2. True.

An anti-dilution provision is a clause in an option, security, or merger agreement that gives the investor the right to maintain his or her percentage ownership of a company by buying a proportionate number of shares of any future issue of the security.

3. False

A drag-along right is a right that enables a majority shareholder to force a minority shareholder to join in the sale of a company. The majority owner doing the dragging must give the minority shareholder the same price, terms and conditions as any other seller. Drag-along rights are designed to protect the majority shareholder.

4.