Financing Entrepreneurial Ventures Assignment - University Name

This document presents a homework assignment solution focused on financing entrepreneurial ventures. The assignment includes multiple-choice questions covering topics like financial assets, risk-free rates, and venture capital transactions. True or false questions assess understanding of financial asset functions and venture capital risk. The assignment also explores the practical aspects of managing and financing a startup, including cash flow management, setting milestones, and maintaining low fixed expenses. It also addresses the risks associated with venture capital, such as market trends and exit strategy challenges. The solution references key academic papers on venture capital and corporate venture capital to support the analysis and provide a comprehensive understanding of the subject matter.

Running head: FINANCING ENTREPRENEURIAL VENTURES
Financing entrepreneurial ventures
Name of the student
Name of the university
Student ID
Author note

1FINANCING ENTREPRENEURIAL VENTURES
Table of Contents
Multiple Choice Questions.........................................................................................................2
True or false...............................................................................................................................3
Questions....................................................................................................................................3
Reference....................................................................................................................................5

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Multiple Choice Questions
1) An asset is a possession that has value in an exchange and can be classified as
C) Tangible or intangible
2) The financial asset is referred to as a ________ if the claim is a fixed dollar
A) Debt Instrument
3) Venture Capital transactions include which of the following?
C) All securities that are purchased in the open market
4) The closest approximation to the real, risk-free rate of interest is
B) The short-term Treasury bill rate minus the inflation rate
5) The risk-free rate is equal to the real rate of return plus
A) An expected inflation premium.
6) The markets in general are paying a 2% real rate of return. Inflation is expected to be 3%.
ABC stock commands a 6% risk premium. What is the expected rate of return on ABC stock?
D) 11%
7) For a venture capital Management, assume that the market thinks the real rate is 2.00%,
the inflation premium is 2.70%, the bond's default risk justifies a premium of 2.10%, the
maturity premium is 0.50%, and the liquidity premium is 1.10%. Since the cash flows are
denominated in Euros, the foreign-exchange rate premium is 1.50%. What is the discount rate
to use when assessing the future cash flow of this VC?
C) 9.90%

3FINANCING ENTREPRENEURIAL VENTURES
True or false
1) Financial assets have two principal economic functions. One function is to transfer funds
from those who have surplus funds to invest to those who need funds to invest in tangible
assets. - True
2) Venture Capitals are considered to be the riskiest assets among financial assets - False
3) If the discount rate for a venture Capital is appropriate for the level of risk, a satisfactory
investment will have a present value of benefits equal to or greater than the present value of
costs – True
Questions
1. Tips for managing and financing the start up –
 To learn about managing the cash flow
 Set clear milestones and goals
 Track the expenses
 Keep the fixed expenses at low level
 Pay the payables at time that is before expiration of due date (Chemmanur et al.)
 Be honest and open with the lenders and vendors.
2. Risks involved in Venture Capital Start up –
 Market trends – venture capital generally look for the companies with the potential of
high growth. The term potential is itself risky.
 Timely exists – venture capital faces the risks if the managers of the company are not
able to pull off the exit strategy as per plan.
 Barriers to the success – every venture capital company faces barriers that shall be
overcome. These barriers will be considered as risks if the company is not able to
overcome these (Cumming, Douglas and Sofia).

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Reference
Chemmanur, Thomas J., Elena Loutskina, and Xuan Tian. "Corporate venture capital, value
creation, and innovation." The Review of Financial Studies 27.8 (2014): 2434-2473.
Cumming, Douglas J., and Sofia A. Johan. Venture capital and private equity contracting: An
international perspective. Academic Press, 2013.