Financing a start-up company

After the stock market crash in 1929, 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? (Pick all that apply)

Private placements need to be registered with the SEC at least 20 days before they are issued.

The SEC evaluates the information given in the prospectus and has the right to delay or stop a public offering if the information is misrepresented or if material facts are not included in the prospectus.

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

The SEC has jurisdiction over interstate public offerings of any amount.

In most public offerings, investors are classified based on their profiles. Individuals of high net worth, institutional investors, senior executives, and directors of companies are referred to as accredited investors .

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 of 2004, their first investor, Peter Thielthe cofounder of PayPalinvested $500,000 into Facebook for a 10.2% stake in the company.

In late 2004, Facebook was valued at $100 million and received funding of $12.7 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 1.6% 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 to as a venture capitalist?

PayPal

Greylock Partners

Dustin Moskowitz

Peter Thiel