Chapter 13: Exiting the Venture

True/ False

1. Before making an IPO decision, you should ask yourself, “Am I ready to share ownership of this company with the public?”
2. One of the benefits of going public is that the company can then issue stock options to management and employees.
3. Loss of control is an advantage of going public.
4. Fortunately, when going public there are no added fiduciary responsibilities.
5. Going public is a cheap process.
6. Before going public, a company needs to take out a personal liability insurance policy.
7. The first step in discounting cash flow is to forecast the next 5 years of sales.
8. When establishing an alliance, the first step is to identify the objective of the alliance.
9. Bust-up fees should be part of a selling memorandum.
10. In the “employees” section of a selling memorandum, it should specify whether a union represents them or not.

Fill in the blank

1. When going public it is a good idea to hire an _________ to manage the IPO.
2. The time and date the company agrees with the investment firm to offer the securities to the public until twenty-five days after the securities become available to the public is known as the ____________.
3. The SEC places restrictions on what a company can do while in _______________.
4. ______________ are meetings that give perspective members of the underwriting syndicate to meet the management team and ask questions.
5. When the IPO is completed and finalized, the entrepreneur and the management team must begin meeting the shareholders and _______________.
6. _____________ is more suitable for a company with an established track record.
7. ____________ is based on the worth of the business’s assets.
8. The final step in calculating discounted cash flow is estimating when the firm will reach _______________ and what characteristics it will have when it does.
9. The ______________ company is a concept that can help you identify the most appropriate assets.
10. For a company that has established a history of operations, the sale is more likely to be for a _______________.

Multiple Choice

1. A “liquidity event” is:
   1. bankruptcy.
   2. shareholders selling their stock to the public or another company for cash.
   3. obtaining a bank loan.
   4. having at least three months’ cash on hand.
2. An “exit strategy” is:
3. a liquidity event.
4. being able to retire with sufficient funds.
5. paying a dividend to angels to keep them happy.
6. paying down your bank loan.
7. It is necessary to provide an exit strategy for:
8. angel investors or venture capitalists.
9. state governments.
10. bankers.
11. employees.
12. The most common method for a private equity investor to get a return is:
13. Receiving a regular dividend on earnings from the company.
14. Outright sale to another company.
15. Partial sale to another company.
16. An initial public offering.
17. An ESOP provides an exit strategy for:
18. Angels and Venture Capitalists.
19. Employees.
20. Lenders.
21. Founders.
22. An MBO provides an exit strategy for:
23. Employees.
24. Banks.
25. Managers.
26. Founders.
27. Planning a merger requires calculating values of both the business and all:
28. existing resources.
29. the other business.
30. the management salaries.
31. goodwill.
32. A selling memorandum need not have which of the following items?
33. Historical financial statements
34. Executive Summary
35. Expected sales price of the company
36. Full description of the business
37. The transaction sequence when selling your company to another is in this order:
38. Prepare memorandum, Find buyers, Establish value, Negotiate terms, Letter of intent, Due diligence, Close.
39. Prepare memorandum, Establish value, Find buyers, Due diligence, Letter of intent, Negotiate terms, Close.
40. Find buyers, Prepare memorandum, Letter of intent, Establish value, Due diligence, Negotiate terms, Close.
41. Find buyers, Due Diligence, Establish value, Negotiate terms, Letter of intent, Close.
42. A road show is:
43. Pitching the sale of stock government agencies.
44. Exhibiting at a trade show.
45. A recruiting drive at colleges.
46. A dog-and-pony show.
47. MBO stands for:
48. Major buy-out.
49. Multi buy-out.
50. Management buy-out.
51. Majority buy out.
52. If the company has sold shares only to angel investors and not to a VC firm, the entrepreneur must:
53. Pay a dividend to the angel investors.
54. Convert the investors’ shares into debt.
55. Buy back the angels’ shares at the price that was paid originally.
56. Plan a liquidity event to provide the investors with an acceptable return on their investment.
57. Which of the following is NOT a part of a selling memorandum:
58. Management
59. Marketing and sales
60. Earn-out agreements
61. Employees
62. In a selling memorandum, financial projections should be prepared for the next:
63. 1 Year.
64. 3-5 years.
65. 10-15 years.
66. 20 years.
67. Which of the following is NOT included in the letter of intent?
68. What is being purchased
69. The structure
70. Government’s role
71. Due diligence
72. Asking “what are the timing and extent,” in the letter of intent, is part of:
73. the structure.
74. due diligence.
75. exclusivity agreement.
76. bust-up fees.
77. Which of the following is NOT a typical condition of a sale?
78. Maintenance of minimum net worth requirements
79. Transfer of material agreements
80. Delivery of financial statements
81. Acceptance of ESOP
82. What percent of successful family owned businesses fail to survive through the second generation?
83. 10
84. 45
85. 75
86. 99
87. Why do most family businesses not survive through the second generation?
88. Goals and objectives are rarely the same
89. Second generation is lazy
90. Second generation usually cashes in
91. Most business survive through the second generation
92. Which of the following is a benefit of going public?
93. You solely own the company
94. No one can tell you how to run your business
95. You have greater access to capital
96. You can hire all your closest friends
97. Which of the following is a disadvantage of going public?
98. Management and employee incentives
99. Access to capital
100. Improved financial condition
101. Upfront expenses
102. Which of the following is NOT a benefit of going public?
103. Enhanced corporate reputation
104. Improved opportunities for future financing
105. Sharing success
106. Access to capital
107. Which of the following is NOT a factor to consider when selecting an underwriter?
108. Post-IPO support
109. Distribution
110. Experience
111. His/her personal wealth
112. When does the registration process begin?
113. After the IPO
114. When the entrepreneur and underwriter reach agreement on proposed public offering
115. During the quiet period
116. Whenever the company wants