Entrepreneurship & Startup Funding- 2026 Practice Test

Global Venture Capital, Valuation & Exit Strategies (100 Questions) 1. What is the primary purpose of a "SAFE" (Simple Agreement for Future Equity)? A) To guarantee a fixed interest rate for the investor B) To allow a startup to receive capital now and issue shares later during a priced round C) To provide insurance for the founders' personal assets D) To formalize a bank loan for small businesses Correct Answer: B) To allow a startup to receive capital now and issue shares later during a priced round 2. In startup finance, what does "Runway" represent? A) The physical length of the office hallway B) The amount of time a company can operate before running out of cash, based on its current burn rate C) The speed at which a company is hiring new employees D) The time it takes to go from a seed round to an IPO Correct Answer: B) The amount of time a company can operate before running out of cash, based on its current burn rate 3. A "Unicorn" is a private startup company valued at over: A) $$100$ million B) $$1$ billion C) $$10$ billion D) $$500$ million Correct Answer: B) $$1$ billion 4. What is "Bootstrapping"? A) Hiring only senior developers B) Building a company using only personal savings and initial cash flow from sales C) Using a specialized software for automated accounting D) Taking a high-interest loan from a commercial bank Correct Answer: B) Building a company using only personal savings and initial cash flow from sales 5. "Vesting" typically means that founders or employees: A) Must wear a specific uniform in the office ) Earn the right to their stock options over a specific period of time (e.g., 4 years) C) Can sell their shares immediately after joining D) Are paid a bonus for every year of service Correct Answer: B) Earn the right to their stock options over a specific period of time (e.g., 4 years) 6. What is a "Cliff" in a vesting schedule? A) The moment a company goes bankrupt B) A specific period (usually 1 year) before any shares or options begin to vest C) The highest valuation a company has ever reached D) A type of debt that converts to equity Correct Answer: B) A specific period (usually 1 year) before any shares or options begin to vest 7. "Pre-money Valuation" refers to the value of a company: A) After a funding round is completed B) Before it receives any new investment in a specific round C) Before it makes its first dollar of revenue D) Based on its total debt Correct Answer: B) Before it receives any new investment in a specific round 8. If a company's Pre-money valuation is $$8M$ and it raises $$2M$, what is the Post-money valuation? A) $$6M$ B) $$10M$ C) $$16M$ D) $$4M$ Correct Answer: B) $$10M$ 9. "Burn Rate" is defined as: A) The percentage of customers who quit using the product B) The monthly rate at which a company spends its capital to cover operating expenses (negative cash flow) C) The speed of the server's CPU D) The rate at which employees are fired Correct Answer: B) The monthly rate at which a company spends its capital to cover operating expenses (negative cash flow) 10. What are "Drag-along Rights"? A) Rights that allow minority shareholders to stop a sale B) Rights that allow majority shareholders to force minority shareholders to join in the sale of a company C) The right of a founder to take a long vacation D) The right to move the company headquarters to another city Correct Answer: B) Rights that allow majority shareholders to force minority shareholders to join in the sale of a company 11. "Tag-along Rights" protect: A) Majority shareholders B) Minority shareholders by allowing them to join a sale if a majority shareholder sells their stake C) New employees D) The company's creditors Correct Answer: B) Minority shareholders by allowing them to join a sale if a majority shareholder sells their stake 12. A "Down Round" occurs when: A) The company moves to a smaller office B) A company raises capital at a lower valuation than its previous funding round C) The stock market is down D) A founder leaves the company Correct Answer: B) A company raises capital at a lower valuation than its previous funding round 13. What is "Liquidation Preference"? A) A founder's preference for cash over stock B) A clause determining who gets paid first and how much during a company sale or liquidation C) The speed at which a product is sold D) A type of tax discount for startups Correct Answer: B) A clause determining who gets paid first and how much during a company sale or liquidation 14. An "Angel Investor" is typically: A) A large government agency B) An affluent individual who provides capital for a business start-up, usually in exchange for equity C) A specialized bank for tech companies D) A software tool for automatic investing Correct Answer: B) An affluent individual who provides capital for a business start-up, usually in exchange for equity 15. What does "LP" (Limited Partner) mean in a Venture Capital context? A) The lead programmer of the fund B) Investors (like pension funds or wealthy individuals) who provide capital to the VC fund but don't manage it C) A lower-priced subscription plan D) The founder of the startup Correct Answer: B) Investors (like pension funds or wealthy individuals) who provide capital to the VC fund but don't manage it 16. What does "GP" (General Partner) mean in a Venture Capital context? A) A general practitioner doctor B) The managers of a venture capital fund who make investment decisions C) A global product manager D) The customer service department Correct Answer: B) The managers of a venture capital fund who make investment decisions 17. "Series A" funding usually happens when a startup has: A) Only an idea on a napkin B) A proven business model, product-market fit, and significant revenue/growth potential C) Already filed for an IPO D) 100 years of history Correct Answer: B) A proven business model, product-market fit, and significant revenue/growth potential 18. What is a "Cap Table"? A) A table where the CEO sits B) A spreadsheet showing the ownership stakes (equity) of all shareholders in a company C) A list of all hardware owned by the company D) A marketing plan for a new product Correct Answer: B) A spreadsheet showing the ownership stakes (equity) of all shareholders in a company