$1.$ Financing a start$-up$ company

After the stock market crash $in1929,$ the Securities and Exchange Commission $(SEC)$ was established $to$ protect investors from fraudulent investments and $to$ regulate the $securities$ industry.

Based $on$ your understanding $of$ SEC regulations, which $of$ the following statements are true? Check all that apply.

The red herring prospectus can $be$ distributed $to$ potential investors, but the sale $of$ the issuing company$s$ stock cannot $be$ finalized during the $20-$day wait period.

Companies are liable for all $of$ the information presented $in$ the prospectus.

The SEC does not allow companies $to$ specify $orlimit$ which groups $or$ types $of$ investors $to$ whom a company can issue $securities.$

$As$ soon $as$ a company decides $to$ sell stock $to$ prospective investors, $it$ starts $to$ advertise $in$ order $to$ increase the marketability $of$ its new shares.

$In$ most public offerings, investors are classified based $on$ their profiles. Individual investors with relatively less net worth than senior executives, directors, and high$-$wealth investors are referred $toas.$

A company has $to$ grow $to$ a certain level before $it$ can successfully raise capital $by$ selling its stock $to$ the public. $At$ different stages, a company has different financing needs; $it$ raises capital $by$ reaching out $to$ different kinds $of$ investors.

Consider this case:

Mark Zuckerberg started Facebook, a social networking website, $in$ February $2004.He$ recruited his friends Dustin Moskowitz and Chris Hughes $to$ grow the company. $In$ the summer $of2004,$ their first investor, Peter Thiel$-$the cofounder $of$ PayPal$-$invested $$500,000$ into Facebook for $a10\mathrm{.}2\%$ stake $in$ the company.

$In$ late $2004,$ Facebook was valued $at$ $$100$ million and received funding $of$ $$12\mathrm{.}7$ million from Accel Partners. Facebook kept growing and received $$25$ million $in$ funding from Greylock Partners and Meritech Capital. After several acquisition attempts and rounds $of$ funding, Microsoft invested $$240$ million into Facebook for $1\mathrm{.}6\%of$ the company $in$ October $2007.$

Based $on$ your understanding $of$ investors $in$ different stages $of$ a start$-ups$ financial cycle, which $of$ the following companies $or$ individuals would $be$ referred $toas$ a venture capitalist?

Chris Hughes

Mark Zuckerberg

Accel Partners

Dustin Moskowitz