Venture Capital Interview Questions

Intro
Venture capital interview question resources online often lack quality and depth. Many articles
are merely regurgitated or slightly modified text, some seem to be generated by AI, and others
recycle repeat questions you'd encounter in interviews for basic positions like janitorial roles.

However, there's a valid reason behind this lack of comprehensive content. Unlike the
standardized interview questions in investment banking or private equity, venture capital
interview questions vary widely.

Nevertheless, it's still feasible to provide valuable insights into the critical topics and offer some
preparation tips. So, let's dive in:

What are some of the big differences with Venture Capital

interview questions?
- More Emphasis on Research, Less on Technical Knowledge – Venture capital
interviews won't grill you on intricate financial models or rapid IRR calculations.
However, they will expect you to demonstrate your familiarity with their firm, their
portfolio companies, and your ability to generate investment ideas.
- No Definitive Right or Wrong Answers – While certain technical questions have clear
correct answers, many inquiries related to markets and investments don't. Your
responses may vary in quality, but VC interviewers cannot ascertain the accuracy of your
startup investment pitch unless time travel becomes possible.
- In some respects, preparing for VC interviews is simpler because you don't need to
master a plethora of technical subjects. However, it can also be more challenging as it
necessitates extensive research tailored to each specific firm.

What Categories of Venture Capital Interview Questions?

VC Interview Questions can be categorized into six primary areas, each serving a distinct
purpose:
1. Fit and Background Queries: These questions delve into your background and alignment
with the role. They encompass topics such as your resume, your motivation for pursuing
venture capital, your interest in the specific firm, and an exploration of your strengths and
weaknesses.
2. Market and Investment Inquiries: This category assesses your ability to identify promising
investment opportunities. You may be asked to evaluate potential startup investments, assess
the attractiveness of specific markets, or provide insights into markets that should be
avoided.
3. Firm-Specific and Process Interrogations: These questions gauge your knowledge of the
firm and its portfolio. You might be asked to share your thoughts on the existing portfolio,
offer your perspective on past investment decisions, and outline your approach to analyzing
potential investments.
4. Deal, Client, and Fundraising Experience Exploration: Here, interviewers seek to
understand your practical experience. You could be questioned about your contributions to
past deals, your impact on client relationships, or your fundraising achievements, especially if
you've worked in a sales or business development capacity at a startup.

MIM Prep Education

5. Technical Inquiries: This category covers technical aspects relevant to venture capital.
Questions may encompass traditional topics like accounting and valuation, as well as VC-
specific topics such as cap tables and key performance metrics in your industry.
6. Case Studies and Modeling Tests: While less common, you might encounter these
exercises. They could include tasks like providing an investment recommendation,
conducting market and company analyses, or performing cap table exercises to test your
practical skills.

Fit/Background - Interview Questions

1. Walk me through your resume.

- In the venture capital realm, it's crucial to highlight your genuine passion for nurturing
and investing in start-ups over the long haul. To illustrate this, you might express your
preference for the client-oriented and relationship-building aspects you encountered in
investment banking, while conveying a reduced interest in the technical aspects.
Emphasize how you envision making a more substantial and enduring impact by
collaborating with early-stage companies.

2. Why Venture Capital?

- Your passion lies in collaborating with startups, nurturing their growth, and discovering
promising ventures. This preference extends beyond the desire to launch your own
enterprise or execute deals independently.
- You can further reinforce this inclination by drawing connections to your previous
involvement with tech or healthcare companies, as well as your contributions to earlier-
stage businesses where your efforts had a significant impact.

3. Where do you see yourself in 5-10 years?

- The response you provide depends on whether you're interviewing for a Partner-track
position, typically reserved for post-MBA roles.
- If you are indeed interviewing for such a role, the ideal answer centers on your
commitment to advancing and building a long-term career in venture capital.
- Conversely, if you're not interviewing for a Partner-track position, you can express your
desire to engage with startups over the long haul. However, it's crucial to acknowledge
the typical career trajectory, where candidates often transition into other roles after a few
years. In this context, you can mention a related position, such as one in strategy, finance,
or business development at a portfolio company, while expressing your intention to
eventually return to venture capital at a higher level.
-

4. Tell me about your strengths and weaknesses?

- In our comprehensive walk-through, guide, and illustrative examples, we emphasize that
in the context of venture capital, your strengths should encompass attributes like
"effective communication and presentation skills," "exceptional networking abilities,"
and the capacity to "readily adapt and update your perspectives" (often described as
having strong opinions that are loosely held).
- Regarding weaknesses, it can be acceptable to admit that you may not possess the most
advanced technical skills or occasionally struggle with balancing critical, long-term
objectives against pressing short-term demands. However, it's generally advisable to

MIM Prep Education

 avoid highlighting weaknesses related to indecision or excessively prolonged decision-
making processes, as these traits are less favourable in investment roles.

5. Why not private equity, growth equity, hedge funds, or

entrepreneurship?
- Your primary area of interest lies in tech and life science startups. It's worth noting that
private equity funds and hedge funds engage with these types of companies differently,
as they typically don't directly finance their developmental efforts.
- While growth equity is somewhat more aligned, your particular focus leans towards early-
stage companies requiring the kind of support typically provided by venture capital, as
opposed to mature enterprises seeking additional capital.
- Lastly, you aren't inclined towards launching your own company, as your preference lies
in advising portfolio companies and gaining a comprehensive industry perspective, rather
than committing to a single idea for an extended period.

6. Why this firm?

This one should relate directly to your research on the firm, including their target markets
and portfolio companies. Example answer:
- "I'm drawn to your firm due to its substantial emphasis on tech-enabled healthcare, a
field that closely aligns with my educational background in biology and computer science.
Your impressive portfolio, featuring notable companies like [Insert Names], further
reinforces my interest. Additionally, I've had the opportunity to connect with several
team members, including [Insert Names], and have been genuinely impressed by both
their professionalism and the cultural synergy I perceive, making me believe that I would
be a valuable fit within your organization."

Markets and Investments - Interview Questions

- These questions span a wide range, as they could ask you to discuss everything from the
current M&A and IPO markets to specific start-up sectors you like.
- In terms of preparation, the most effective approach is to engage in continuous and
comprehensive reading about markets and specific startups on a weekly basis.

1. Tell me about the current IPO, M&A, and VC funding

markets.
This one will change over time, but if you’re interviewing in 2023, you could say something like:
- Currently, these markets are facing challenges, primarily stemming from the aftermath of
numerous companies going public in recent years, often driven by loose monetary
conditions, only to underperform subsequently. Consequently, the IPO market has
predominantly been subdued, although recent transactions like ARM and Instacart
indicate signs of a potential resurgence.
- M&A activities have also experienced a significant decline, attributed in part to elevated
interest rates, inflation concerns, and heightened antitrust scrutiny, which have prompted
many companies to exercise caution when considering acquisitions.
- Furthermore, the realm of venture capital has witnessed a noticeable decrease in funding,
with fewer startups securing investments. Notably, when start-ups do secure funding, it
tends to be at substantially lower valuations than the peak years, particularly for late-stage
deals.

MIM Prep Education

2. Which current startup would you invest in? Why?
- Similar to preparing stock pitches for hedge funds, your approach should involve
extensive research on markets and companies, ultimately crafting 2-3 compelling ideas.
These ideas should closely align with the firm's strategic objectives and exhibit substantial
potential for significant growth.
- To clarify, if the firm primarily engages in Series A investments, your presented ideas
should have the potential to yield a 10x multiple. Conversely, if the firm specializes in
later-stage investments, it's acceptable for the projected multiples to be comparatively
lower, provided they still demonstrate considerable growth prospects.
Example answer:
- I'd consider an investment in Novoic, a healthcare IT start-up situated in the United
Kingdom. Novoic employs AI to conduct early detection of diseases such as Parkinson's
and Alzheimer's, relying on the analysis of speech pattern variations. The company
successfully secured a $2.6 million seed round a few years ago. Given the potential to
capture even a modest share of the approximately $3 billion Alzheimer's diagnostics
market, Novoic could conceivably appreciate to a valuation ranging from $500 million to
$1 billion within 5-10 years.
- Moreover, it's worth noting that the market may possess more significant growth
potential than initially perceived, primarily due to the global aging population. While
current projections anticipate a doubling of the market by 2030, I believe there's potential
for it to triple, particularly as younger individuals increasingly adopt these early detection
tools.

3. Which markets are the most attractive to you? Why?

- In this context, it's essential to pinpoint highly specific markets, like Property and
Casualty (P&C) insurance technology, as opposed to broadly categorizing them under the
umbrella of "fintech." The goal is to present a compelling case that these specific markets
have been somewhat neglected, often due to reasons X, Y, and Z. However, there exists
significant untapped potential within these niches, with the possibility of nurturing
billion-dollar start-ups.
- Avoid mentioning markets that are over-hyped or that represent “The Current Thing.”
Example answer:
- I'm highly interested in the "care tech" sector, especially marketplace-oriented ventures.
The aging population in developed countries, including China, is creating an escalating
demand for healthcare services, and technology can fill this gap. Additionally, these
marketplace companies offer novel income sources for younger individuals. Looking
ahead, the market's value could reach tens of billions by 2030 or 2040, with start-ups
playing a vital role alongside traditional healthcare systems.

4. Which markets should we avoid?

- You’ll make the opposite argument here and say that a market is worse than the
consensus view because it’s smaller than expected, it will grow more slowly than
expected, or it has other disadvantages, such as too much competition or no way to build
a “moat.”
Example answer:
- I'd avoid 'general AI' ventures currently. Many are building standalone 'products' better
suited as features within larger tech platforms. The tech giants, not start-ups, are poised
to benefit most from this technology. Despite recent funding rounds, I'm sceptical about
favourable investor outcomes for most of these companies.

MIM Prep Education

 - However, I see potential in investments with unique advantages like proprietary data or
strong competitive 'moats,' such as patents or intellectual property, which grant market
access while limiting competition and making them more attractive to investors.

Firms and Processes - Interview Questions

These questions are important in venture capital recruiting because firms value “fit” so much – if
you haven’t researched the firm and its portfolio extensively, they’ll find out quickly.

1. Of our portfolio companies, name one that you would

have invested in and another that you would not have
invested in.
- Most of your answer here should come down to the market being smaller or bigger than
expected, but for later-stage companies, you can add something about the competition,
the company’s product/services, and even its valuation in recent funding rounds.
Example answer:
- I would consider investing in Qventus due to the immense potential within the 'hospital
optimization' sector. Many struggling hospitals are urgently seeking ways to trim costs.
Qventus has successfully secured over $90 million in funding, consistently at relatively
modest valuations. In its most recent funding rounds, the valuation stood in the
hundreds of millions. I believe that Qventus could ultimately evolve into a company with
a market capitalization of $1 billion, potentially yielding an impressive multiple exceeding
10x for investors.
- However, I would exercise caution when it comes to cargo.one. The freight forwarding
industry is notably crowded and commoditized. While the market size is substantial, and
the company offers a commendable product, it doesn't seem to have taken sufficient
steps to establish a distinct competitive edge. Although it might still generate a
reasonable return, I would have opted for markets with greater growth potential,
avoiding this particular sector.

2. How would you think through an investment decision?

- The process of evaluating a start-up for investment begins with ensuring alignment with
your firm's size, stage, and strategic focus. It's imperative that the start-up’s stage and
industry match your firm's investment criteria; for instance, if your firm specializes in
Seed and Series A investments in the tech sector, a Series D round for a biotech
company wouldn't align.
- Subsequently, thorough market research is conducted to estimate the start-up’s growth
potential and eventual valuation. The goal is to determine if a reasonable multiple, such
as 10x for a Series A or 5x for a Series B deal, can be achieved.
- Next, a close examination of the start-up’s team, product, and competitive advantages is
crucial. Due diligence includes requests for data on users, customers, financial
performance, clinical trial data (for biotech firms), and SaaS metrics (for enterprise
software companies).
- If all these factors align positively, the recommendation for investment may follow.
Notably, assessing risk takes a backseat in early-stage VC investments, as it's understood
that the majority of start-ups face the risk of failure. Instead, the primary focus remains
on the potential upside and growth prospects.
-

MIM Prep Education

3. How would you go about screening and evaluating new
companies for potential investments if you were to join
our firm?
- To initiate the process, you'd commence by immersing yourself in market research,
delving into the landscape of existing start-ups, and diligently gathering information
about their products, teams, and financial performance.
- Nevertheless, it's worth noting that the most promising VC opportunities frequently
emerge from your network and personal referrals. Once you've identified the types of
companies you're targeting, you'd proactively engage with your professional network,
tapping into potential connections who could facilitate introductions.
- Typically, the evaluation process would involve an initial review of each start-up’s pitch
deck or an introductory meeting. If a start-up sparks interest, you'd proceed to conduct
additional meetings and request further information, following a rigorous assessment
protocol before considering any potential investments (as outlined above).

4. Which provisions are considered the most crucial in VC

term sheets?
- The most pivotal elements in VC term sheets revolve around economic and control-
related provisions. In terms of economics, critical factors encompass the investment
amount, pre- and post-money valuations, as well as provisions like the employee options
pool, liquidation preference, and the presence of participating preferred and participation
cap clauses (if applicable).
- Provisions such as pay-to-play and anti-dilution mechanisms hold significant importance
for determining how a VC's ownership stake is affected in future funding rounds.
- In the realm of control, key terms include the composition of the Board of Directors,
"protective provisions" granting investors veto powers over specific actions, and drag-
along rights, which enable one investor group to effectively dictate decisions to other
group(s), typically involving majority shareholders "dragging along" minority
shareholders.
- Additional inquiries could encompass topics such as the VC business model, typical
investment stages, investment sizes, valuations, and strategies for monitoring portfolio
companies.

Deal, Client, and Fundraising Experience – Interview

Questions
- In venture capital interviews, your deal experience may be a topic of discussion, but it
generally carries less weight compared to other industries because VC deals tend to be
relatively straightforward.
- If you have a background in investment banking, you should present your deal
experience using a format akin to the examples provided in the investment banking deal
sheet article. It's important to select deals that are relevant to venture capital, such as tech
or healthcare IPOs or joint ventures between software companies - deals that involved
substantial market analysis and align with the VC focus.
- Furthermore, when discussing your deals, it's essential to adopt a critical perspective. Be
prepared to articulate why you would or would not have pursued a particular deal if you
had been the buyer or institutional investor.

MIM Prep Education

Technical concepts – Interview Questions
While traditional investment banking interview questions are uncommon in venture capital (VC)
interviews, you should be prepared for inquiries tailored to the VC domain. Expect questions
related to VC-specific topics, such as various funding mechanisms, start-up performance metrics,
and related subjects.

1. What’s the difference between pre-money and post-

money valuations?
- The "pre-money valuation" of a start-up refers to its Equity Value before it undertakes
the issuance of new shares to a VC firm, while the "post-money valuation" represents the
Equity Value of the start-up after this transaction has taken place.
- For example, if a company holds a pre-money valuation of $10 million before securing
$5 million in funding from a VC firm, its post-money valuation following the investment
would be $15 million. In this scenario, the VC firm would possess ownership equivalent
to $5 million out of the total post-money valuation of $15 million, which translates to a
one-third ownership stake.

2. What factors influence a start-up’s choice between

raising funds through a priced equity round, a SAFE
note, or a convertible note?
- In a priced equity round, ownership is determined by the investment amount and pre-
money valuation, with investors holding an ownership stake calculated as Investment
Amount / (Pre-Money Valuation + Investment Amount) post-investment. While this
method provides clarity on ownership, it typically involves lengthier negotiations and
potentially higher costs.
- Conversely, some start-ups opt for alternatives like SAFE (Simple Agreement for Future
Equity) notes and convertible notes, which postpone valuation and ownership
discussions. In these cases, investors contribute capital without an immediate allocation
of shares; instead, conversion into equity occurs during the subsequent priced round.
- While these instruments offer advantages in terms of speed and cost-effectiveness, they
can introduce complications during the priced round. The conversion mechanism may
lack clarity, leading to potential disputes with future investors.
- Convertible notes, in particular, tend to be more intricate than SAFE notes, often
featuring additional terms such as accrued interest alongside the standard valuation cap
and discount provisions.

3. Which key performance metrics and ratios are

significant for evaluating SaaS (Software as a Service)
companies?
- The CAC (Customer Acquisition Cost) Payback Period, which indicates the number of
months required to recover the cost of acquiring a customer, holds significance due to its
objective nature compared to LTV (Lifetime Value).
- Furthermore, key metrics for evaluating SaaS companies encompass Gross Retention,
Net Retention, Annualized Recurring Revenue (ARR), and Monthly Recurring Revenue
(MRR).

MIM Prep Education

 - ARR distinguishes itself from conventional "revenue" as it's based on recurring revenue
over a month or quarter, extrapolated for the entire year. Consequently, ARR tends to
surpass simple "revenue" figures for growth-oriented companies because of the
cumulative growth in recurring revenue each month.

4. How do you value a biotech start-up?

- In the case of a company involved in the development of patent-protected products, a
Sum-of-the-Parts Discounted Cash Flow (DCF) approach is typically employed. This
method entails projecting revenue and expenses for each individual product, discounting
these cash flows to their Present Value, and subsequently aggregating them.
- Distinct from a conventional DCF, the Sum-of-the-Parts DCF does not rely on a
Terminal Value calculation. Instead, it extends the projection horizon across several
decades, assuming that the product eventually reaches its "peak sales" phase, followed by
a gradual decline in revenue as generic competitors enter the market.
- In the final step of this evaluation, considerations include factoring in the Present Value
(PV) of Net Operating Losses, the PV of corporate G&A (General and Administrative)
expenses, as well as incorporating standard Enterprise Value bridge components to
determine the company's Implied Equity Value.

Case studies – Interview Questions

- While VC interviews may incorporate case studies, they often take a more qualitative
approach. These case studies could involve scenarios where you are presented with a
company's pitch deck and financial data, and then tasked with evaluating critical aspects
such as the market dynamics, team competency, financial performance, and subsequently
providing an investment recommendation.
- In the event of encountering a more quantitative case study, it is likely to involve
exercises such as a cap table analysis or a variation of the task "Review the customer data
and provide questions for inquiry."
- As an example, a straightforward cap table exercise could be structured as follows:
- Seed Investment: $2 million at an $8 million pre-money valuation, featuring a 1x
liquidation preference.
- Series A Investment: $5 million at a $15 million pre-money valuation, with a 1x
liquidation preference and the creation of a 10% employee options pool (concurrently
with the VC investment). This investment ranks pari passu with the Seed investors.
- Series B Investment: $15 million at a $50 million pre-money valuation, with a 1x
liquidation preference. This investment holds seniority over the Seed and Series A
investments.
- The exercise would entail calculating the distribution of proceeds to each investor group
at various exit values, spanning from $50 million to $300 million, employing sensitivity
analysis within Excel.

What are effective strategies for preparing for venture

capital interview questions?
- This point underscores the importance of thorough research and extensive external
reading when preparing for VC interviews.
- While it's beneficial to practice a few case studies and acquire a foundational
understanding of concepts like cap tables and the VC investment process, it's improbable
that you'll face highly technical questions in these areas.

MIM Prep Education

 - Regrettably, there is no one-size-fits-all solution available online, including this article, as
the specific firm you're interviewing with plays a pivotal role in shaping the questions
you'll encounter.
- However, if there were a simplified answer, it might be to emphasize extensive research
on the firm and its portfolio companies. In many cases, such comprehensive familiarity
with the specific firm you're interviewing with could be the most effective preparation
for venture capital interview questions.

MIM Prep Education