Venture Capital Interview Questions: What to Expect and How to Prepare
Look around online, and you will quickly discover that most coverage of venture capital interview questions is junk.
Most articles are copied/pasted/tweaked text, others appear to be written by ChatGPT, and others repeat generic questions you might get in an interview for a janitorial position.
That said, it is still possible to explain the most important topics and give a few preparation tips, so let’s get started:
The Biggest Differences with Venture Capital Interview Questions
I’d summarize them as follows:
- Less Technical and More Research – They’re not going to quiz you on merger models or how to calculate the IRR quickly, but they will expect that you’ve read about their firm and their portfolio companies and that you have investment ideas.
- No Right or Wrong Answers – Some technical questions have correct answers, but many market and investment ones do not. There are better and worse explanations for your answers, but in the absence of time travel, VC interviewers can’t determine if your startup investment pitch was “correct.”
In some ways, prep for VC interviews is easier because you don’t have to learn or memorize many technical topics, but in some ways, it’s harder since you have to do lots of firm-specific research.
Categories of Venture Capital Interview Questions
I would split VC interview questions into 6 main categories. We’ll explain each one and give a few examples along with model answers:
- “Fit” and Background Questions – Your resume, why venture capital, why this firm, your strengths and weaknesses, etc.
- Market and Investment Questions – Which startup would you invest in? Which market is attractive? Which markets should we avoid?
- Firm-Specific and Process Questions – What do you think about our portfolio? Which companies would you have invested in or not invested in? How would you analyze a potential investment and make a decision?
- Deal, Client, and Fundraising Experience Questions – How did you add value to the deals you’ve worked on? If you worked at a startup, how did you win more customers or partners in a sales or business development role?
- Technical Questions – You could get standard questions about accounting and valuation or VC-specific questions about cap tables, key metrics in your industry, or how to value startups.
- Case Studies and Modeling Tests – These are less likely, but you could get a short investment recommendation, a market/company analysis, or a cap table exercise.
Venture Capital Interview Questions: Fit / Background
Q: Walk me through your resume.
A: See our guide and examples for the “Walk me through your resume” question and the article on how to walk through your resume in buy-side interviews.
The main difference for VC is that you want to emphasize your desire to advise and invest in startups in the long term.
For example, you could say that you liked the client and relationship aspects of IB but are less interested in the technical work, and you would make a bigger impact working with early-stage companies.
Q: Why venture capital?
A: Because you are passionate about working with startups, helping them grow, and finding promising new companies – and you prefer that to starting your own company or executing deals.
You can also link this back to tech or healthcare companies you’ve advised or earlier-stage businesses where your work made a difference.
Q: Where do you see yourself in 5 or 10 years?
A: The answer depends on whether you’re interviewing for a Partner-track position, which usually means “post-MBA role.”
If you are, the only correct answer is, “I want to continue in venture capital, advance, and make a long-term career of it.”
If not, you can say that you want to work with startups in the long term, but you understand that candidates normally move into something else after a few years.
So, you could mention a related job, such as strategy, finance, or business development at a portfolio company, and say that you want to return to VC at a higher level eventually.
Q: What are your strengths and weaknesses?
A: See our walk-through, guide, and examples. For VC, your strengths should include points like “communication/presentation skills,” “networking ability,” and “being able to update your views quickly” (i.e., strong opinions, loosely held).
For weaknesses, it might be acceptable to say that you don’t have the best technical skills or sometimes have trouble balancing important, long-term tasks with short-term, urgent ones.
It’s probably not a great idea to say that you second-guess yourself or take too long to make decisions because these are both bad weaknesses for investing roles.
Q: Why not private equity, growth equity, hedge funds, or entrepreneurship?
A: You’re most interested in tech or life science startups, and PE funds and hedge funds do not work with these companies in the same way, as they don’t directly fund their development activities.
Growth equity is a bit closer, but you’re more interested in early-stage companies that need VC support rather than already successful companies that need more capital.
Finally, you’re not interested in starting your own company because you like to advise portfolio companies and get a broad view of the industry rather than working on one idea for years or decades.
Q: Why our firm?
A: This one should relate directly to your research on the firm, including their target markets and portfolio companies. Example answer:
“I’m interested in your firm because you focus heavily on tech-enabled healthcare, which matches my biology and computer science background, and you have some of the best portfolio companies in the market, like [Insert Names]. I have also liked everyone I’ve met here, such as [Insert Names], and think I would fit in with your culture.”
Venture Capital Interview Questions: Markets and Investments
These questions span a wide range, as they could ask you to discuss everything from the current M&A and IPO markets to specific startup sectors you like.
There is no real “answer” to the preparation other than “Read a lot about markets and specific startups each week.”
Q: Tell me about the current IPO, M&A, and VC funding markets.
A: This one will change over time, but if you’re interviewing in 2023, you could say something like:
“Currently, all these markets are doing poorly after many companies went public over the past few years due to loose monetary conditions – and then failed to perform well. So, the IPO market has largely been closed, but there are some signs that it’s now opening up with recent deals like ARM and Instacart.
M&A activity is also down significantly, and higher interest rates, inflation, and more antitrust enforcement are making many companies think twice about acquisitions.
Finally, VC funding is also down significantly, and fewer startups are getting funded – and when they do get funded, it’s typically at much lower valuations than in the boom years, especially for late-stage deals.”
Q: Which current startup would you invest in? Why?
A: As with hedge fund stock pitches, you need to research markets and companies and develop 2-3 solid ideas here. These ideas must match the firm’s strategy and represent significant potential upside.
In other words, if the firm does mostly Series A investments, you should present ideas that could potentially generate a 10x multiple; but if the firm focuses on later-stage investments, the potential multiples can be lower.
“I would invest in Novoic, a healthcare IT startup in the U.K. that is using AI to do early detection of Parkinson’s, Alzheimer’s, and other diseases based on variances in speech patterns. It raised a $2.6 million seed round a few years ago, and if it could capture even a small percentage of the ~$3 billion revenue Alzheimer’s diagnostics market, it could be worth $500 million to $1 billion in 5-10 years. The market could also be much bigger than people think, especially due to aging populations worldwide – expectations are that it will double by 2030, but I think it could triple by then as younger people increasingly use these early detection tools.”
Q: Which markets are the most attractive to you? Why?
A: For this one, you should find highly specific markets – such as P&C insurance technology rather than “fintech” – and argue that others have overlooked them for reasons X, Y, and Z, but they could potentially create billion-dollar startups.
Avoid mentioning markets that are over-hyped or that represent “The Current Thing.”
“I would be interested in anything in the ‘care tech’ space, especially marketplace companies, because the population in most developed countries (and China) is aging rapidly, and there aren’t enough doctors, nurses, and care workers to meet demand, so technology will have to meet at least some of the needs. Marketplace companies also solve the problem of younger people who need to find jobs or income sources outside the traditional channels.
If you consider the hundreds of millions of elderly by 2030 or 2040, this market could potentially be worth tens of billions by then, with many startups positioned to grow as a complement to the traditional healthcare system.”
Q: Which markets should we avoid?
A: 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.”
“I would avoid anything in the ‘general AI’ space right now because most of these companies are building ‘products’ that should be features, and most of the benefits from this technology will go to the biggest tech companies, not startups. Although there have been many high-profile funding rounds lately, I don’t think most of these companies will have good outcomes for investors. There might be room for investment in something with proprietary data or a huge moat, such as a patent or other IP that gives them access to a market and limits competition.”
Venture Capital Interview Questions: Firms and Processes
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.
Q: Of our portfolio companies, name one that you would have invested in and another that you would not have invested in.
A: 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.
“I would have invested in Qventus because the ‘hospital optimization’ space is huge, and many struggling hospitals are looking to cut costs ASAP. It has raised over $90 million so far at relatively low valuations, most recently in the hundreds of millions, and I believe it could eventually grow to a $1 billion market cap company, which might produce a 10x+ multiple for you.”
“I would not have invested in cargo.one because the freight forwarding space is quite crowded and commoditized, and while the market is big and the company’s product is good, it doesn’t do enough to differentiate against the competition. It might still produce a decent return, but I would have avoided this specific market and focused on others with higher potential.”
Q: How would you think through an investment decision?
A: First, you must ensure that the startup matches your firm’s size, stage, and strategy. If your firm only does Seed and Series A investments in tech companies, you won’t invest in a Series D round for a biotech company.
Next, you research the market and estimate how big the company could eventually get and what it might be worth to see if you could earn a reasonable multiple, such as 10x for a Series A or 5x for a Series B deal.
Then, you look at the team, the product, and the competitive advantages and make sure all of these are reasonable. As part of this, you’ll request due diligence data on users, Average Revenue per User, customers, financial performance, clinical trial data for biotech companies, and SaaS metrics for enterprise software companies.
You might also conduct some DD and analyze the data via Excel database functions.
If all of these check out, you might recommend investing.
Assessing the risk is not that important for early-stage VC investments because most startups fail – so you focus on the potential upside rather than everything that could go wrong.
Q: Suppose that you join our firm. How would you screen for new companies to invest in?
A: You would start by reading about the market and its current startups and finding product, team, and financial information.
However, the best VC deals tend to come from your network and personal referrals – so once you have an idea of the companies you’re seeking, you would reach out to everyone who might be connected and see if they can make introductions.
You’ll usually review each startup’s pitch deck or meet with them, and if they’re of interest, you’ll go through additional meetings and request more information before investing (see above).
Q: What are the most important provisions in VC term sheets?
A: The most important terms relate to economics and control. With economics, the investment amount and pre- and post-money valuations are critical, but so are terms like the employee options pool, liquidation preference, and participating preferred and participation cap (if they exist).
The pay-to-play and anti-dilution provisions are also important for determining what happens to a VC’s ownership in future funding rounds.
With control, the key terms are the Board of Directors composition, “protective provisions” that allow investors to veto certain actions, and drag-along rights that effectively allow one investor group to make decisions for the other group(s) (usually, majority shareholders “dragging along” minority shareholders).
There are many other potential questions, such as queries about the VC business model, the typical investment stages, sizes, and valuations, and how you might monitor portfolio companies.
Venture Capital Interview Questions: Deal, Client, and Fundraising Experience
Your deal experience could come up in venture capital interviews, but it tends to be less important because VC deals are relatively simple.
If you have an IB background, you should outline your deals by following the examples in the investment banking deal sheet article, and you should pick deals that are relevant to venture capital – a tech or healthcare IPO, a joint venture between two software companies, or something that required significant market analysis.
You should also take a critical view of each deal and be able to explain why you would or would not have done it if you had been the buyer or institutional investor.
These questions are not specific to VC interviews, so please refer to the other coverage on this site, such as in the private equity resume guide.
Venture Capital Interview Questions: Technical Concepts
You are highly unlikely to get traditional IB interview questions in VC interviews, but they could ask about VC-specific topics, such as different types of funding, startup metrics, and so on.
Q: What’s the difference between pre-money and post-money valuations?
A: The “pre-money valuation” is a startup’s Equity Value before it issues new shares to the VC firm, and the “post-money valuation” is the startup’s Equity Value after that happens.
If the company’s pre-money valuation is $10 million before it raises $5 million from a VC firm, its post-money valuation is $15 million, and the VC firm owns $5 / $15 = 1/3 of it.
Q: Why would a startup raise money in a priced equity round vs. a SAFE note vs. a convertible note?
A: A priced equity round is based on the amount invested and the pre-money valuation, and the investors own Investment Amount / (Pre-Money Valuation + Investment Amount) afterward.
The ownership is clear, but priced rounds take longer to negotiate and may be more expensive.
Some startups prefer options like SAFE and convertible notes that defer the valuation and ownership questions. Investors that use these instruments contribute capital but do not get shares right away – instead, they convert into equity in the next priced round.
These instruments can be faster and cheaper, but they may also create problems in the priced round because the conversion method isn’t always clear, and future investors may dispute it.
Q: What are some key metrics and ratios for SaaS companies?
The CAC Payback Period, i.e., the number of months it takes to earn back a customer’s acquisition cost, is also important because it is far less subjective than LTV.
Other important metrics include the Gross Retention, Net Retention, Annualized Recurring Revenue (ARR), and Monthly Recurring Revenue (MRR).
ARR is different from normal “revenue” because it’s based on the recurring revenue in one month or one quarter, annualized for the entire year. So, ARR tends to be higher than simple “revenue” for growth companies since the recurring revenue grows each month.
SaaS accounting and metrics like bookings vs. billings vs. revenue are also important.
Q: How do you value a biotech startup?
A: Assuming it is developing patent-protected products, you usually use a Sum-of-the-Parts DCF where you project revenue and expenses for each drug, discount the cash flows to Present Value, and then add them up.
Unlike in a normal DCF, there is no Terminal Value – instead, you go out many decades and assume the drug hits “peak sales,” and that revenue then declines to a low level as generics enter the market.
In the final step, you also must factor in the PV of Net Operating Losses, the PV of corporate G&A / overhead, and the standard Enterprise Value bridge items to determine the company’s Implied Equity Value.
Venture Capital Interview Questions: Case Studies
Case studies could easily come up in VC interviews, but they tend to be more qualitative. They might give you a company’s pitch deck and financial information and ask you to evaluate the market, team, and financials, and make an investment recommendation (for example).
We have a direct example of a venture capital case study in our PitchBookGPT exercise, so refer to that if you want to practice.
If you get a more quantitative case study, it will probably be a cap table exercise or a variant of “Review the customer data and tell us what you would ask questions about.”
A simple cap table exercise might go like this:
- Seed Investment: $2 million at $8 million pre-money valuation with 1x liquidation preference.
- Series A Investment: $5 million at $15 million pre-money valuation with 1x liquidation preference and 10% employee options pool (created at the same time as the VC investment). Pari passu with the Seed investors.
- Series B Investment: $15 million at $50 million pre-money valuation with 1x liquidation preference. Senior to Seed and Series A.
Calculate the proceeds to each investor group at exit values ranging from $50 million to $300 million (use sensitivity analysis in Excel).
So, How Do You Prepare for Venture Capital Interview Questions?
This point goes back to the differences discussed at the top: VC interview prep requires far more research and outside reading.
Sure, you can complete a few case studies for practice, and it’s good to learn the basics of cap tables and the VC investment process, but they’re unlikely to ask you extremely technical questions about any of these.
Unfortunately, no article you can find online – including this one – gives you the magic-bullet solution because they cannot possibly know the specific firm you are interviewing with.
But if they did, they could probably replace most of the article text with “Google this firm and its portfolio companies extensively,” and you’d be well-prepared for venture capital interview questions.
Free Exclusive Report: 57-page guide with the action plan you need to break into investment banking - how to tell your story, network, craft a winning resume, and dominate your interviews
Read below or Add a comment