True/False
1. Ventures that attract venture capital money are expected to carve out defensible positions in their markets. These markets should be large and have the potential to grow.
2. According to Berkery it is not wise for a limited partner to make all of her VC investments in one year. It makes more sense to spread the fund’s investments out over time since the VC market is cyclical and this reduces the chance of hitting the bottom of a cycle.
3 Amazon and Facebook are both “number 1” in their respective markets. The plan to become the number 1 company in a market is attractive to venture capital investors because market leaders have more market power which translates into higher potential profit growth over a longer period.
4. There is a potential conflict of interest if a Venture capital company manages multiple funds and each fund invests in a different series issued by the same company. The conflict arises because Fund X may invest in series A of company 1 and Fund Y may then invest in series B of company 1. If Fund Y places to high a pre-money value on the company it is essentially supporting investors in Fund X. The opposite is also a risk, if the pre-money valuation prior to the B series is set too low then the Venture Capital company is shifting value from Fund X investors to Fund Y investors.