Venture Capital interview preparation

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September 2026

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All firmsGeneral Atlantic9Insight Partners7Silver Lake6Vista Equity Partners4Bessemer Venture Partners3ACAccel2Advent International2Battery Ventures2Andreessen Horowitz1Coatue Management1Sequoia Capital1WPWarburg Pincus1

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1. 053What is an LBO?Early-stage valuationCorephone / first roundAdvent InternationalTechnology, Media and Telecom · Palo Alto · 2020

   Say this

   Buying a company using mostly borrowed money, where the target's own cash flows service the debt. You put in a slice of equity, pay down debt over the hold with the company's cash generation, then sell — and your return comes from deleveraging, EBITDA growth and any multiple expansion.

   Then walk it

   1. Structure: a typical deal is 40 to 60 percent equity today, the rest debt, secured against the target's assets and cash flows. The debt sits on the company, not the fund.
   2. The three return drivers, and you should always name all three. Deleveraging: every rupee of debt repaid converts directly into equity value at a constant enterprise value. EBITDA growth: revenue growth plus margin improvement. Multiple expansion: exiting at a higher multiple than you paid, which is the least controllable and the one you should never underwrite.
   3. Worked version. Buy at 10x $50m of EBITDA, so $500m, with $200m equity and $300m debt. Five years later EBITDA is $75m, debt is down to $150m. Exit at 10x is $750m, less $150m of debt, so $600m of equity on $200m in. That is 3x, roughly a 25 percent IRR, with no multiple expansion assumed at all.
   4. What makes a good LBO candidate: stable, predictable cash flows, low capital intensity, a defensible market position, hard assets or contracted revenue to lend against, and an identifiable operational improvement. Cyclical, capex-heavy or pre-profit businesses are bad candidates.
   5. Why a venture investor should know this: it is increasingly the exit path. Software companies at $50m of ARR with slowing growth and positive cash flow are now bought by software-focused buyout funds rather than IPO'ing, so the LBO maths sets the floor price for a lot of venture-backed companies. Vista and Thoma Bravo have taken dozens of them private.
   6. The obvious limitation: leverage magnifies both directions. The same structure that turns a 10 percent EBITDA gain into a 30 percent equity gain turns a modest miss into a covenant breach, and it is the reason buyout funds will not touch a business whose revenue can fall 30 percent in a quarter.

   Where candidates lose it

   Describing the debt and stopping. Name the three return drivers explicitly — deleveraging, EBITDA growth, multiple expansion — because that is what the question is checking. And in a venture or growth interview, connect it to the exit path for software companies, which is why they are asking a VC candidate about LBOs at all.

   Expect next

   • What makes a good LBO candidate?
   • Which of the three return drivers matters most?
   • Why does an early-stage investor need to understand this?

   Reported by candidates at Advent International (Technology, Media and Telecom, Palo Alto, 2020). Source: Wall Street Oasis.

Firm tags come from public, anonymous candidate reports on Wall Street Oasis: strong signal, not sworn testimony. Firms are named as the places a question was reported, not as partners of Fin Maverick. Answers are written for this page to show how to think out loud; they are not scripts to recite.