Venture Capital Recruiting: How to Break into the Industry
When it comes to venture capital recruiting, everyone usually has the same first question:
“How do I break in?!! Tell me!”
To students, engineers, jaded investment bankers, and Uber/Lyft drivers, venture capital sounds like the dream job: take meetings with exciting entrepreneurs all day and then bet money on the best ones.
Wait about a decade, and then… boom! You’re wealthy.
Or, if things don’t go as planned, tell your firm’s investors “it will take more time” to get results.
What could go wrong?
And, going back to that first question, how do you break into this “dream job”?
What is Venture Capital?
Venture capital firms raise capital from Limited Partners, such as pension funds, endowments, and family offices, and then invest in early-stage, high-growth-potential companies in exchange for equity (i.e., ownership in those companies).
Most of these high-growth-potential companies are in technology and healthcare, but some VCs also invest in cleantech, retail, education, and other industries.
Since the risks are so high, VCs expect the majority of their investments to fail.
But if they find the next Google, Facebook, or Uber, they could earn exceptional overall returns even if 90% of their portfolio companies fail.
Here’s some data on U.S. venture returns over 10 years assembled by Correlation Ventures:
Yes, you’re reading this graph correctly: a full 65% of VC deals lose money or merely break even.
Technically, venture capital is an “investing” or “buy-side” role.
But it’s also a sales profession where you compete for capital and access to the best startups.
There’s so much capital chasing so few truly promising startups that gaining access is often the biggest challenge – which is why returns are highly concentrated among the top few VC firms.
Why Venture Capital?
Venture capital is a “get rich slowly” job where the potential upside lies decades into the future.
Annual compensation is a significant discount to private equity compensation or investment banker salaries, so if “becoming wealthy ASAP” is your main life goal, cross venture capital off your list of possible careers.
Junior-level venture capital jobs rarely lead to Partner-track positions, so you will probably not work your way up into a senior role if you join after ~2 years of banking or consulting.
Deals are simpler than in IB or PE, there’s less financial modeling and number crunching, and you spend more time on “sourcing” (finding companies) and industry research.
So, there’s only one great reason to aim for junior-level VC roles: because you are extremely passionate about startups and you want to use the role to learn, build a network, and leverage it to win other startup-related roles in the future.
Venture Capital Recruiting: Who Wins Interviews and Offers?
The three main entry points into venture capital are:
- Pre-MBA: You graduated from university and then worked in investment banking, management consulting, or business development, sales, or product management at a startup for a few years.
- Post-MBA: You did something to gain a background in tech, healthcare, or finance for a few years before business school (e.g., engineering or sales at an enterprise software company), and then you went to a top business school.
- Senior Level / Operating Partner: You successfully founded and exited a startup, or you were a high-level executive (VP or C-level) at a large company that operates in an industry of interest to VCs.
We focus on the pre-MBA path here since you’re most likely in that category, but most of the tips here are relevant to the post-MBA path as well.
It’s very difficult to break into venture capital directly out of undergrad, and even if you have the background for it – i.e., you went to Stanford or Berkeley, majored in CS, and completed multiple startup and finance internships – it’s not necessarily a great idea to do it.
To be useful to a VC firm, you need some full-time, real-world experience and at least the beginnings of a professional network.
Venture capital internships during undergrad are more plausible and are often a useful way to win investment banking roles later on.
It also tends to be difficult to move directly from a pure engineering role into VC because market and customer analysis matter more than coding prowess or technical skills.
Yes, we’ve featured readers who have done it, but it’s quite rare.
Management consultants may have a bit of an advantage over bankers in venture capital recruiting, but it depends on their background: advising on HR policies for insurance firms is far less relevant than advising on strategy for tech companies.
Overall, pedigree and prestige still matter quite a bit for VC roles, and firms tend to favor candidates with brand-name firms and universities on their resumes.
Life Science Venture Capital Recruiting: The Exception That Proves the Rule
One final note: life science venture capital (biotech, pharmaceuticals, medical devices, etc.) is different from tech venture capital, and at early-stage life science VC funds, academic prowess counts for a lot.
They often recruit Ph.D.’s from top institutions who are specialists in an area of interest for the firm, and they don’t necessarily require banking or consulting experience or an MBA to get in.
However, you still need some business/finance knowledge, normally gained by starting your own business, taking courses, or completing relevant internships.
Also, they want advanced scientific knowledge: an undergraduate or Master’s degree in biology is not sufficient unless you have other, highly relevant experience, such as founding a biotech startup or working in healthcare investment banking or equity research.
Late-stage life science VC funds tend to care more about finance experience, so if you’re more of a finance person with some knowledge of science, late-stage funds might be a better fit.
What Qualities Do Venture Capitalists Seek in Recruits?
Junior-level VC roles (“Associates”) differ based on the firm’s investing stage, industry focus, and strategy:
- Investing Stage: Early stage? Late stage? Closer to growth equity?
- Industry Focus: Technology? Life sciences? Cleantech? A specific sector within one of those? Something else?
- Strategy: Does the firm spend more time on portfolio company operations, finding new investments, doing industry research, or something else? Does it find new investments via outbound marketing, referrals, or a more data-driven approach?
VCs prefer to recruit presentable, highly articulate professionals with a passion for startups over number crunchers with limited interest in startups.
This is especially the case at early-stage firms, which focus on sourcing, building networks, and setting up meetings to win deals and raise capital.
At late-stage firms, deal execution and due diligence become more important, but even there, the analysis is fairly simple compared with the average IB/PE deal.
Venture capitalists want professionals who hold strong views on different industries and companies and who can justify their views based on market and customer analysis, not the product/technical details (maybe not as true in life sciences).
If you’re more of a finance person or number cruncher, then you should focus on late-stage firms or growth equity firms.
The Venture Capital Recruiting Process
There are not that many junior-level VC jobs, and the available jobs tend to be concentrated in specific regions, such as the coasts of the U.S.
It’s difficult to win these roles because:
- Similar to other buy-side roles, VCs do not “need” an army of junior employees to churn endless documents to close deals.
- VC firms are flat partnerships with fixed budgets based on assets under management, so each new hire directly reduces the earnings of the Partners. Closing deals does not result in more revenue or a higher budget in the near term.
- Demand far exceeds supply because everyone thinks venture capital “sounds cool,” without necessarily understanding the job in detail.
As a result of these factors, the venture capital recruiting process is unstructured and similar to the off-cycle private equity recruiting process.
Some of the bigger firms, like Sequoia, New Enterprise Associates, and Accel, may use headhunters, and the list of names is familiar: in the U.S., CPI, Oxbridge, and Glocap tend to have a steady stream of roles.
In Europe, KEA Consultants and PE Recruitment (PER) offer many VC roles.
Unlike in private equity recruitment, these headhunters will not necessarily contact you proactively years before the job start date.
You’ll have to be more proactive with getting referrals, contacting them, and asking specifically about venture capital – or, you can do the networking yourself and go around headhunters.
You should start by narrowing down the types of funds you want to work at, searching for professionals on LinkedIn, and then emailing them to ask for advice on getting into VC.
As always, asking for advice about getting into the industry tends to be more effective than asking directly for a job.
The recruiting process can drag on for months if the firm has no urgent hiring needs, or it can be over quickly – in a month or less – if they need to replace someone right away.
You’ll start with phone interviews, but you should expect to meet everyone at the firm, or everyone in the group at the large firms, multiple times before winning an offer.
Interviews are casual and conversational, and VC interviewers put a laser focus on “fit.”
Case studies and short modeling tests are possible, but they’re far less likely than in private equity interviews (where they’re guaranteed to come up).
Venture Capital Interview Questions and Answers
Venture capital interviewers ask questions that are similar to ones you’d receive in corporate development, investment banking, or private equity interviews…
…but the focus and distribution of the questions are far different.
Technical questions could still come up, but VCs care far more about your market views and investment ideas and your fit with their team.
So, in rough order of importance, here are the question categories you can expect:
- “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 in the IB deals you’ve worked on? If you worked at a startup, how did you win more customers or partners in a sales or BD role?
- Technical Questions – You could get standard questions about accounting and valuation, as well as VC-specific questions about cap tables, key metrics in your industry, and how to value startups and size markets.
- Formal Case Studies and Modeling Tests – These are less likely, but you could get a short investment recommendation or a market/company analysis.
Here are example questions and answers in each category:
Venture Capital Behavioral Interview Questions and Answers
Walk me through your resume.
Why venture capital?
Because you are passionate about working with a variety of startups, helping them grow, and finding promising new companies – and you’d prefer that to starting your own company or a pure deal-execution role.
Where do you see yourself in 5 or 10 years?
The answer depends on whether or not you’re interviewing for a Partner-track position, which usually means “post-MBA role.”
If you are, then the only correct answer is “I want to continue in venture capital, advance, and make a long-term career of it.”
If not, then you can say that you want to work with start-ups 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 tech startup, and then say that in the longer term, you want to return to VC at a higher level.
What are your strengths and weaknesses?
See our walk-through, guide, and examples. For VC, your strengths should include points like “communication/presentation skills” and “networking ability.”
For weaknesses, it might be acceptable to say that you don’t have the best number-crunching skills or that you don’t know accounting in as much depth as other candidates.
Why not private equity, hedge funds, or entrepreneurship?
Because you’re passionate about tech or life science startups, and you wouldn’t get the same opportunities to work with them in private equity or hedge funds.
You’re not interested in starting your own company because you like advising and adding value to portfolio companies and getting a bird’s-eye view of the industry rather than focusing on one idea for years.
Venture Capital Market and Investment Interview Questions and Answers
These questions are critical in venture capital recruiting – if you don’t have strong market and investment ideas, you have no business being in the industry.
Which startup would you invest in? Why?
As with hedge fund stock pitches, you need to research markets and companies and come up with 2-3 solid ideas here.
In VC, the potential upside matters a lot more than the risks because most investments fail anyway.
So, one common approach is to say that others underestimate the true size of the company’s market or how quickly it can grow – whereas you think it could expand quickly into Markets A, B, and C, which makes it worth far more than the consensus view.
You could have used this logic to pitch a company like Uber back when it started, and most people didn’t understand its true potential.
If you’re asked about a specific company, you must explain not just why its market is misunderstood, but also why this company is best positioned to take advantage of it.
Which markets are most attractive to you? Why?
See above – the only difference is that this one is more about entire markets thinking and less about specific companies.
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 will take much longer to develop.
For example, you might argue that artificial intelligence in healthcare is not a great near-term market because the technology is much further away than expected, and legal/regulatory barriers and social norms will prevent widespread adoption anytime soon.
So, if the firm is interested in AI investments, it should focus on areas that don’t have these same obstacles.
What are the different business models of software/internet startups? Which one is the most appealing?
Common models include one-time fees, marketplaces (eBay or Etsy), subscriptions (Salesforce or Netflix), freemium (Evernote and many mobile apps), commissions (Airbnb and crowdfunding sites), advertising (Facebook and Twitter), royalties/licensing, and blockchain/token economy (Bankex).
The most appealing one depends on the VC firm’s strategy and the company’s market.
For example, people often argue that subscription-based software is the best model because it offers recurring revenue.
However, that ignores cancellations, initial cash-flow challenges as the company ramps up, and the fact that not all markets lend themselves to long-term subscriptions.
If the product is a business tool used by large companies regularly, subscriptions may be the best model, but they might not work as well for a consumer product with short-term use cases (e.g., dating apps).
Firm-Specific and Process Interview Questions and Answers
These questions are also 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.
What do you think of our portfolio? Which companies would you have invested in or not invested in?
You need to research the firm’s portfolio, look up their investment thesis, and then see how closely the companies match it to answer this one.
It’s best to focus on 1-2 companies and prepare detailed thoughts on them rather than trying to cover everything.
Once you’ve selected them, this question is just another version of the “Which startup would you invest in?” one.
Who are our main competitors? How do we differentiate against them?
This one requires basic research… use Google, Pitchbook, or Capital IQ, and find similar, recent deals where other VC firms invested. Those will be the likely competitors.
How would you evaluate one of our portfolio companies? Which data would you request to do so?
You’d ask for information on the items that normally go into a VC pitch deck: team, market, product, competitive advantage, business model, and exit opportunities.
You’d want to see an experienced, qualified team in a large and fast-growing market with a clear competitive advantage and a business model that allows them to make money without depending on outside funding – and the company should have the potential to become a prime acquisition target or IPO candidate.
You would request data on users, customers, sign-up rates, cancellation rates, and financial performance, and for life sciences, clinical trial data.
Deal, Client, and Fundraising Interview Questions
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, and you should pick deals that have some applicability 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 investors.
Venture Capital Technical Interview Questions and Answers
You could still get standard accounting/valuation questions in venture capital recruiting, but they’ll often have more of a “VC spin”:
What’s the difference between pre-money and post-money valuations?
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.
Equity Value increases when new shares are issued because Total Assets increases due to the cash, and this increase in cash was attributable to the shareholders.
Enterprise Value does not change when this happens because this is just a financing activity.
So, if the company’s pre-money valuation is $10 million before it raises $5 million in equity from a VC firm, its post-money valuation is $15 million, and the VC firm owns 1/3 of it.
What are the trade-offs of a traditional equity financing vs. convertible notes?
Using convertible notes makes it easier to close deals because it lets the company and investors defer the company’s valuation (and, therefore, dilution) until a later date.
However, they also make it confusing to establish everyone’s ownership percentages because the company needs a priced equity round to do that – which can often result in surprises.
Equity financing is more straightforward because the company’s valuation must be specified, but it can be more difficult to close since both parties must agree on this valuation.
For more, see Fred Wilson’s thoughts on the issue (he’s not a fan of convertibles).
What are some of the key metrics and ratios for SaaS companies?
a16z has a good summary of SaaS metrics here.
The two most important ones are probably LTV (Lifetime Value) and CAC (Customer Acquisition Cost) and the resulting LTV / CAC ratio.
CAC must include the full costs of acquiring an “average” customer (but it often doesn’t), and the LTV must reflect that customers eventually cancel and that each customer has an average lifespan.
Sometimes, it’s better to be conservative and use a 12-month or 24-month LTV rather than making far-in-the-future assumptions about the lifespan.
How would you value a company with negative cash flows for the foreseeable future?
Either use alternative methods, such as multiples based on Daily Active Users or Monthly Active Users, or project the company until its cash flows turn positive in the distant future (common for biotech firms where the patient count and pricing are known quantities).
Suppose that our firm invests $10 million for a 20% stake in a startup. This startup later runs into huge competitive challenges and sells itself for only $30 million.
However, we do not lose money in the deal, but instead earn back our initial $10 million investment. How is this possible?
Most likely, the firm invested with a liquidation preference, which means that they receive back some multiple of their investment (often 1x) before other groups, who often hold common shares instead of preferred shares, get paid.
This term reduces the risk of VCs losing money in cases where the company is not a complete failure, but disappoints in some way and has to sell for a lower-than-expected price.
What is a cap table? How do you use it?
A “cap table,” or capitalization table, shows all the equity investors in a startup and the type and number of shares, options, and warrants they own, along with any special terms (e.g., liquidation preferences).
It includes the founders, employees, and outside investors, and sometimes it includes lenders and other groups as well.
Companies use the cap table to calculate dilution from funding rounds, employee stock options, and issuances of new securities, and to calculate the proceeds to everyone in an exit.
Venture Capital Case Studies and Modeling Tests: What to Expect
As I’ve repeatedly mentioned, formal case studies and modeling tests are not that common in VC interviews; you’re more likely to get into a deep discussion of your investment ideas.
But if you do get a written case study, it might go something like this:
“Consider Startup X. Describe the company, its market segment, its market size, and do a brief competitive analysis. Estimate the company’s future revenues, profits, and growth, and use those to determine its potential value in an IPO or M&A exit. Also, describe the biggest risks the company faces.”
You could also get a simple exercise to build a cap table and show the impact of a new equity issuance or employee stock option issuance on each group’s ownership.
Finally, you could be asked to complete a role-playing exercise where the interviewers pretend to be a startup or portfolio company, and you have to ask them the questions you need to make an investment decision.
After the Interview(s): What to Expect
If you hear back within a day or two, it’s almost always good news.
If not, follow up every week or two until you get some answer, even if it’s “Sorry, we’re delayed and we don’t know yet.”
If the VC firm is not under pressure to replace someone who suddenly left, it can be a very long process to finish interviews and get an answer.
Venture Capital Recruiting: Is It Right for You?
Before jumping into the venture capital recruiting process, you need to spend time asking yourself whether or not you truly want to be in VC.
If you go into interviews without much conviction, it will be very apparent that it’s your “Plan B” after private equity and hedge funds didn’t work out.
You don’t need to memorize hundreds of pages of technical questions or be an Excel/VBA wizard or be a programming demigod to get into VC….
…but you do need an extreme passion for startups, which you can’t “learn” by reading interview guides.
Venture Capital Recruiting: For Further Learning
If you want to learn more about venture capital and stay apprised of industry trends, I recommend:
- Brad Feld’s books on Venture Capital (especially Venture Deals)
- Dan Primack’s articles on Axios
- StrictlyVC – Daily VC-related newsletters
- PitchBook’s VC News
- Benedict Evans’ blog
- Fred Wilson’s blog
- S3 Cap Table Template
- Playing “Fake VC” or the “Portfolio Approach” to Getting a Job in Venture Capital by Matt Turck
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