Chapter 4

1. What are the difficulties and challenges that investors face in valuing early-stage companies?

2. Describe the difference between pre-money and post-money valuation. In what settings are investors most likely to focus on pre-money valuation, and when on post-money valuation?

3. What were the pre-and post-money valuations for GENBANDs August 2000 financing?

4. What are the potential shortfalls of using comparable to value a private company?

5. What are appropriate multiples to use when comparing two companies with different capital structures and varying levels of capital expenditures? Which are not?

Chapter 5

1. Why do venture capitalists use preferred stock?

2. If you were an entrepreneur, how would you think of the difference between a preferred-plus-cheap- common structure and a convertible preferred structure?

3. How does the concept of fiduciary duty play into the use of preferred stock?

4. Why is vesting used in venture capital deals? Why do managements agree to it?

5. Why would Kevin Laracey of eDOCs agree to a transaction that included a liquidation preference, vesting of the management teams stock, and the possibility of his replacement? Why would Charles River Ventures have suggested it?