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How to Ace a Venture Capital Interview

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Michael Brown

November 01, 2019
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With a rising number of entrepreneurs creating small businesses, an increasing number of angels entering the investing scene, and growing popularity of shows like Shark Tank and The Profit, the venture industry is more active than ever. But with such a large supply of candidates, venture capital is a seemingly impossible industry to break into—so how do you become well-versed in an industry with so much competition? In this article, we’ll provide the key pieces of information you will need to understand to become knowledgeable in venture and ace a venture capital interview.

Industry and Portfolio Company Research:

Firstly, when breaking into the venture capital industry it is necessary to carry out research on the focus of the fund you’re interviewing at. For example, if are interviewing at a fund focused on B2B SaaS companies, you should research current events related to early stage businesses in the industry. A candidate should also have a basic understanding of statistics in the industry, such as average seed stage deal size, number of deals year-over-year, and overall M&A activity in the sector. Additionally, most funds will have a page on their website with their portfolio companies listed out. It is important to retain details about the portfolio companies of the fund; many venture capitalists will ask interviewees about their favorite portfolio company, least favorite portfolio company, and why or why not the interviewee would invest in each company. Funds will also typically ask questions on more than one company, so it is key to have background knowledge on multiple companies in the portfolio across varying sectors.

Lastly, a venture capitalist may ask an interviewee about a fund’s average deal size, past co-investors, and overall investment criteria. A candidate should be able to demonstrate a clear understanding of these three areas; to bring in relevant deal flow, you need to discover deals that fall within a fund’s mission and check size. Interviewees should enter the room with several startups in mind that a venture capital fund should invest in, by researching early stage businesses in the sector (ideally businesses that are raising capital). Popular resources to obtain this type of information include LinkedIn, Crunchbase, Pitchbook, and CapIQ. You can get free memberships for LinkedIn and Crunchbase, and can pay for access to Pitchbook and CapIQ or gain access through a university. For industry research, interviewees can utilize blogs written by individuals such as John Gannon, or take advantage of public blogs published by venture capital funds, such as the Bowery Blog or Andreesen Horowitz Blog.

Venture Math:

To ace a venture capital interview, a candidate should have mastered the math involved in venture capital. Firstly, founders typically raise money through different debt instruments, including equity, convertible notes (uncapped and capped), and SAFE notes. An equity investment is typically a simple exchange—an investment of X dollars in exchange Y percent of your company. Convertible notes and SAFE notes will grant an investor a certain number of shares that will convert to equity at the valuation and share price of the next round of financing, at times with a cap on the valuation or share price the note can convert at. Knowing how a founder raises money, and how that affects a venture capitalist’s returns is a critical piece to understanding the details of the industry.

Secondly, you should be able to understand a capitalization table. A capitalization table outlines all the investors in a business, and includes their number of shares, share prices, class, and ownership of the company. Being able to explain how an investor’s (and founder’s) equity ownership can be diluted in subsequent rounds of financing is critical to demonstrating to a fund that you can make intelligent investment recommendations.

Lastly, you should be able to understand the key components of a term sheet. A term sheet is the legal document that investors and founders agree upon before finalizing an investment. A term sheet includes investment terms, pre-money and post-money valuations, and liquidation preferences. A pre-money valuation is a company’s valuation pre-investment, and a post-money valuation is after an investment. Liquidation preferences determine when preferred stockholders receive their investments back in case the company liquidates. Having a fundamental grasp of the terms of an investment shows a venture capitalist that you are significantly more well-versed in the industry than other candidates.

Deal Flow and Building Relationships:

To get hired at a venture capital fund, a candidate should demonstrate that they have access to deals that the fund does not currently have. By attending startup fairs, keynote speaker events, and sector specific panels, interviewees will be able to bring in deal flow and connections as soon as they jump into in a new role. A recommended way to collect deal flow quickly is to attend a large accelerator’s demo day. When a large accelerator such as Y Combinator or MetaProp hosts a demo day, they will often line up a presentation featuring startups and founders the incubator has helped refine over several months.

It is also useful to provide a unique perspective on deal flow; for example, if an interviewee is an MBA candidate, they have access to an MBA class of founders as well as MBA interns at venture capital funds and startups. If an MBA student is evaluating a potential portfolio company, they will likely have access to a group of connections with a strong background in that industry. If an interviewee is working at a tech company, they should be able to provide insight into cutting-edge tech trends and be able to identify tech startups that are filling the gaps in the industry. Venture capital is a small world, and between founders, investors, accelerators, family offices, angel investors, incubators, and shared coworking spaces, everyone in the industry has mutual connections. Receiving and sharing referrals from your connections in adjacent industries is key to adding cutting-edge startups to your deal flow. It is crucial to invest in relationships and provide your connections with as much value as you would expect from them.

For a deep dive into venture capital, check out Bowery Capital’s Blog Series on VC School, linked below:

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