What are the major trends in your industry?
First, be able to explain the big picture. "My industry built overcapacity over the last six years, so a wave of consolidation is beginning." "Explosive growth and competition for technical talent has made the business unprofitable, so we are looking overseas." This shows you can frame market forces in simple and understandable ways.
Second, explain subtle trends that would only be apparent to an observant insider. "There was an assumption in the industry, based on macro price competition, that the customer didn't want higher prices. Turns out consumers believed that higher prices indicated quality, so the companies positioned in the upper tier have fared better." "Four of the six competitors didn't pay close enough attention to the standards bodies and wasted two years building software that won't be compatible with the next generation databases. They're in trouble and they don't even know it yet." This sort of insight shows you get how things really work.
Can you explain why your former company took the path they did?
More insight, more demonstration that you "get it." "They said it was a strategic alliance, but in reality, it appears the Board of Directors chose the path of least resistance."
When you did that project, did you use a certain technology?
What did you think of it? Review all the projects and jobs on your resume. What specific details did you observe and think about during or after the project. How did you make your decisions and why?
What companies in your industry might make interesting investments?
This is the end game for VCs. Always have an answer for this question.
How would you value an investment?
The idea is to value it as low as possible and still have the entrepreneur take the money and give you a seat on the board. Say you would use several methods and then triangulate on a number. That number would serve as an anchor around which you would begin discussions with the entrepreneurs.Begin by putting an upper bound on the valuation by estimating the maximum potential exit valuation for a company and then calculating the maximum price the firm could pay and still get their desired return. That desired return is typically 40 percent per year, or 10 times the invested capital over a reasonable period, such as five years.
The Discounted Cash Flow (DCF) method can only be used on later stage companies with significant profit history and relatively predictable growth plans. Price earnings multiples from comparable public companies is a fair method, but not the best. A third and more common way VCs hone in on valuation is to look at comparable private equity investments made by other VCs in similar firms.
When you evaluate a business plan, what's the most critical element you look for?
The answer is management --the brains behind the operation. The market opportunity is a good fallback answer.
Why do you want to work at a venture capital firm?
Do not mention trendiness or money.
Would you want to invest in companies geographically near or far from our offices?
You want to invest near the VC offices to make monitoring and supporting the company easier. You would try to increase returns by giving each invested company more attention and thus an increased chance of succeeding. Early stage investments especially need assistance.
On the other hand, it's worthwhile to search for lower valuations on good companies in faraway regions underserved by competing venture capital firms.
What investment areas do you find interesting?
Do some research on a niche within the investment landscape of the firm. It will take hours of reading in the library, but should give you a differentiated interview and show you are truly interested in venture capital. The VC may disagree with you, but as long as you have good reasons for your opinion, and can show them you can disagree confidently and constructively, you score big.
Do you have any questions for me?
This is your big chance to differentiate and you must have some killer questions to show you're a critical thinker. The best place to start is to ask questions about the near-term evolution of the firm. Learn about firm's portfolio companies and which partner sits on which board. Learn the histories of the companies. You can find out most of this from the Web and trade press. It also helps to talk to other VCs. Discover companies the venture capital firm (probably) regrets not investing in. Asking about a missed opportunity shows you know that all firms err --and shows that you've done your research.
Where do you want to be in five years?
If the position you are interviewing for is pre-MBA, express a desire to attend business school and be in a position to work in the venture capital industry somewhere. Many firms are worried about making promises to young professionals they can't keep if the person doesn't fit into a partner track position later, so they might be more comfortable if you don't say, "I want to be a partner at your firm." If the position is a partner track position, you should probably want to suggest you are looking for a place as a partner in five years, preferably at their firm.
Would you ever want to be an entrepreneur?
If you are a pre-MBA candidate, it's fine to say yes. Most VC types have entrepreneurial leanings and vice versa. However, for a partner-track candidate, this is a dangerous question. If a VC firm is going to give you a coveted partner-track position, they want you to stay in the firm and make them a lot of money.
What will you do if you don't get a job here or in the venture capital industry?
Say you'd work on leads with other VC firms, or with related businesses like investment banks, market research firms, or small companies that might interest VCs. The keys here are 1) to be excited about other jobs that are similar to the job you are interviewing for, and 2) to have other options. VCs instinctively value something higher if there's competition for it (and that includes you). That said, prioritize venture capital.
What did you like about your old job and why did you leave?
Be sure you know the answer to this. The answer to this question should indicate your strengths and why VC is the right industry for you at this point. Be clear about why you are moving on, but don't complain excessively about your previous job.
What's the thing you are most proud of?
Have some great stories prepared from the "personal" section at the bottom of your resume.
Questions in VC interviews typically fall into three categories: questions about your expertise, questions about the VC process, and personality/fit questions.