Finance VEE (Coaching Actuaries) Exam Answered Correctly A+
1. the combination of debt, equity, and Capital Structure
other securities (e.g., cash or warrants)
the company uses to finance its busi-
ness.
2. Someone who invests in the firm for Angel Investor
shares of the business. They usually
hold convertible notes rather than equi-
ty.
3. can convert the note into equity at dis- Convertible Notes
counted prices to what new investors
pay when the company raises finances
with equity for the first time. This helps
investors and company owners to agree
to the terms of an investment without
agreeing on the value of the business.
Starts out like a loan and can be con-
verted to equity later when it is easier to
value the business.
4. a limited partnership that raises money Venture Capital Firms (eg. Cornell)
to invest in early stage companies. They
demand a lot of control of the company,
and may sit on board of directors or be
in management roles.
5. aka venture capitalists, who run the General partners
firm, and get around 2% of the invest-
ment value each year, and carried inter-
est, which is a percentage of the profits
(around 20%)
, Finance VEE (Coaching Actuaries) Exam Answered Correctly A+
6. consisting of mainly institutional in- Limited partners
vestors (eg. pension funds)
7. similar to venture capital firms, but in- Private Equity Firms
vest in privately held firms instead of
start-ups. They may buy a public firm
and privatize it in a leverage buyout
(LBO), where they issue debt to pur-
chase the firm. Similar fees to venture
capital firms (2% management fee, +
20% of profits). But they typically invest
a lot more than VCFs.
8. examples: Pension funds, insurance Institutional Investors
companies, endowments, and founda-
tions. They invest large sums of money,
directly in private firms or indirectly thru
venture capital firms or private equity
firms.
9. aka corporate partners, strategic part- Corporate Investors
ners, or strategic investors; corpora-
tions that invest in private companies.
10. When a private company first sells equi- Preferred stock
ty, it typically issues this type of stock.
11. in a liquidation, sale, or merger, a min- Liquidity preference
imum amount must be paid to pre-
ferred stockholders before payments
are made to common stockholders.
12. Liquidation preference
, Finance VEE (Coaching Actuaries) Exam Answered Correctly A+
Multiplier × Initial investment. The mul-
tiplier is usually between 1 and 3.
13. has fixed-rate dividends (like a bond) Preferred stock
14. Investors in later rounds can demand Pari passu
higher seniority than those in earlier
rounds. When instead they are given
equal priority, it is called .
15. allows preferred stockholders to con- Anti-dilution protection
vert their shares to a common stock at
a cheaper price
16. Convertible shares may have , where Participation rights
the convertible stockholders can receive
the payments that common sharehold-
ers get, as if they had already converted
to common stocks. But the payments
are capped at around 2-3 times the ini-
tial investment.
17. Preferred stockholders may be/appoint Board members
.
18. when a company raises funds at a lower Down Round
price than the previous round.
19. when a company raises money. Funding Round
20. Timeline of funding rounds from incep- Idea, Angel, Seed Round, Series A, Series B,
tion of company to initial public offering Series C, Series D...IPO
(IPO)
1. the combination of debt, equity, and Capital Structure
other securities (e.g., cash or warrants)
the company uses to finance its busi-
ness.
2. Someone who invests in the firm for Angel Investor
shares of the business. They usually
hold convertible notes rather than equi-
ty.
3. can convert the note into equity at dis- Convertible Notes
counted prices to what new investors
pay when the company raises finances
with equity for the first time. This helps
investors and company owners to agree
to the terms of an investment without
agreeing on the value of the business.
Starts out like a loan and can be con-
verted to equity later when it is easier to
value the business.
4. a limited partnership that raises money Venture Capital Firms (eg. Cornell)
to invest in early stage companies. They
demand a lot of control of the company,
and may sit on board of directors or be
in management roles.
5. aka venture capitalists, who run the General partners
firm, and get around 2% of the invest-
ment value each year, and carried inter-
est, which is a percentage of the profits
(around 20%)
, Finance VEE (Coaching Actuaries) Exam Answered Correctly A+
6. consisting of mainly institutional in- Limited partners
vestors (eg. pension funds)
7. similar to venture capital firms, but in- Private Equity Firms
vest in privately held firms instead of
start-ups. They may buy a public firm
and privatize it in a leverage buyout
(LBO), where they issue debt to pur-
chase the firm. Similar fees to venture
capital firms (2% management fee, +
20% of profits). But they typically invest
a lot more than VCFs.
8. examples: Pension funds, insurance Institutional Investors
companies, endowments, and founda-
tions. They invest large sums of money,
directly in private firms or indirectly thru
venture capital firms or private equity
firms.
9. aka corporate partners, strategic part- Corporate Investors
ners, or strategic investors; corpora-
tions that invest in private companies.
10. When a private company first sells equi- Preferred stock
ty, it typically issues this type of stock.
11. in a liquidation, sale, or merger, a min- Liquidity preference
imum amount must be paid to pre-
ferred stockholders before payments
are made to common stockholders.
12. Liquidation preference
, Finance VEE (Coaching Actuaries) Exam Answered Correctly A+
Multiplier × Initial investment. The mul-
tiplier is usually between 1 and 3.
13. has fixed-rate dividends (like a bond) Preferred stock
14. Investors in later rounds can demand Pari passu
higher seniority than those in earlier
rounds. When instead they are given
equal priority, it is called .
15. allows preferred stockholders to con- Anti-dilution protection
vert their shares to a common stock at
a cheaper price
16. Convertible shares may have , where Participation rights
the convertible stockholders can receive
the payments that common sharehold-
ers get, as if they had already converted
to common stocks. But the payments
are capped at around 2-3 times the ini-
tial investment.
17. Preferred stockholders may be/appoint Board members
.
18. when a company raises funds at a lower Down Round
price than the previous round.
19. when a company raises money. Funding Round
20. Timeline of funding rounds from incep- Idea, Angel, Seed Round, Series A, Series B,
tion of company to initial public offering Series C, Series D...IPO
(IPO)
