Venture Capital interview preparation

Questions

100

Traced to a firm

31

Firms

12

Updated

September 2026

Asked at

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

Topic

All topicsSourcing and deal flow5Market sizing and estimation8Founders and teams5Unit economics and cohorts11Term sheets12Cap table and dilution7Early-stage valuation7Portfolio construction6Board and governance4Down rounds and secondaries4Exits and liquidity4Fund economics5Sector theses and markets6India venture market6Fit and motivation10

Level

AnyCoreIntermediateHard

Type

AnyTechnicalFitCaseMarket viewBrainteaser

1. 032A fund invests twenty million dollars for thirty percent with a 2x participating preference. The company sells for sixty million. Who gets what?Term sheetsHardtechnicalGrowth equityLate-stage VC

   Say this

   The fund takes $46m and the common holders share $14m. The 2x preference pays $40m off the top, then participation gives the fund its 30 percent of the remaining $20m, which is another $6m. So a 2.3x for the fund, and the people who own 70 percent of the equity take under a quarter of the proceeds.

   Then walk it

   1. Step one, the preference: 2 times $20m is $40m, paid before common sees anything. Exit is $60m, so there is $20m left.
   2. Step two, participation: because it participates, the fund also takes its equity share of the residual. Thirty percent of $20m is $6m.
   3. So the fund takes $46m on a $20m investment, a 2.3x. Common — founders and employees — splits $14m, which on a $60m exit is 23 percent of the proceeds for people who own 70 percent of the equity.
   4. Now the check the interviewer wants: would the fund ever convert instead? Converting gives 30 percent of $60m, which is $18m. Far worse than $46m, so no. The preference dominates all the way up to the point where 30 percent of the exit exceeds $40m plus participation, which never happens with uncapped participation.
   5. That is the real insight to state: uncapped participating preferred means the investor always prefers the preference route, so the structure never converts and the common is permanently subordinated. This is why participation caps exist — typically at 2x or 3x of invested capital, after which the investor must convert.
   6. And the behavioural consequence, which is why founders fight this term: at a $60m exit the founding team gets very little, so they would rather roll the dice on a bigger outcome. Heavy structure creates exactly the misalignment that kills reasonable M&A.

   Where candidates lose it

   Fumbling the arithmetic under pressure, and forgetting to check the conversion alternative. Do it in two clean steps out loud — preference first, then participation on the residual — and always state the convert-versus-preference comparison, because that is the part that shows you understand the option rather than the formula.

   Expect next

   • At what exit value would the fund prefer to convert?
   • How would a 3x participation cap change the answer?
   • What does this structure do to the founders' incentive to sell?
2. 033Explain full ratchet versus broad-based weighted average anti-dilution.Term sheetsHardtechnicalEarly-stage VCGrowth equity

   Say this

   Both reprice an earlier investor's shares if a later round is cheaper. Full ratchet reprices them all the way down to the new price regardless of how small the new round is. Weighted average reprices partially, in proportion to how much cheap stock was actually issued. Weighted average is market; full ratchet is punitive.

   Then walk it

   1. Full ratchet: you paid $10 a share, the next round is at $5, so your conversion price becomes $5 and your share count doubles. It does not matter whether the new round raised $1m or $50m. One cheap share resets everything.
   2. Broad-based weighted average: the new conversion price is a blend of the old price and the new one, weighted by the number of shares outstanding versus the number newly issued. A small down round moves your price a little; a large one moves it a lot. That is the economically sensible version.
   3. 'Broad-based' refers to the denominator: it includes options and all convertible securities, which makes the adjustment smaller and is better for founders. 'Narrow-based' counts only outstanding preferred, which makes the ratchet bite harder.
   4. Why this matters so much: the entire cost of a full ratchet is borne by the common and by any investor without the protection. In a serious down round, a full ratchet can take founders from 45 percent to the low twenties in one financing, which usually means they stop caring and the new investor has bought a management problem.
   5. Where you see it: distressed rounds, bridge financings from a position of weakness, and some late-stage structured deals where the investor accepted a high headline valuation in exchange for hard protection. The 2021 crossover vintage is full of it.
   6. And the standard carve-outs that stop it firing on trivia: issuances under the option pool, shares for acquisitions, and shares issued on conversion of existing securities are excluded. Without those carve-outs, granting employee options would trigger anti-dilution, which nobody wants.

   Where candidates lose it

   Getting the direction of broad versus narrow wrong. Broad-based is founder-friendly because the larger share count dilutes the adjustment. Also treating anti-dilution as a general dilution protection — it is not. It fires only on a lower-priced issuance, and it does nothing about ordinary dilution from a priced-up round.

   Expect next

   • Would you ever ask for a full ratchet?
   • What are the standard carve-outs from anti-dilution?
   • Who actually bears the cost of the adjustment?
3. 035What is a pay-to-play provision, and when does it show up?Term sheetsHardtechnicalEarly-stage VCGrowth equity

   Say this

   It forces existing investors to participate in a new round pro rata or lose something — usually their preferred shares convert to common, stripping their liquidation preference and protective rights. It shows up in down rounds and rescue financings, when the company needs the existing syndicate to show up.

   Then walk it

   1. The mechanic: participate in full, or your preferred converts to common. The harshest version converts at a punitive ratio, so you lose share count as well as preference.
   2. Why the new lead wants it: if the company is being rescued, the lead does not want to put money in while dead-weight investors from an earlier vintage keep their senior preference and ride along for free. Pay-to-play forces everyone to either fund or step down the stack.
   3. Who it hurts: funds at the end of their investment period with no reserves, angels who cannot write another cheque, and corporate investors with a slow approval process. In practice it quietly cleans the cap table of investors who are out of capital or out of interest.
   4. Who it helps beyond the lead: the founders, sometimes substantially. Converting a heavy preference stack to common can be the difference between an exit where the team gets nothing and one where they get something.
   5. The softer variants that actually get signed: pay-to-play on a partial basis, where participating at 50 percent preserves half your preference; or a shadow-preferred structure where non-participants keep economics but lose voting and information rights.
   6. As a signal, it tells you a lot about the round. A pay-to-play means the existing syndicate is not unanimously supportive, which is itself information. If I were the new investor I would want to know which fund is refusing to fund and why, before I take comfort from the term.

   Where candidates lose it

   Confusing pay-to-play with anti-dilution. Anti-dilution reprices your shares automatically; pay-to-play punishes you for not writing a new cheque. They often appear in the same down-round term sheet and do completely different things. Getting this distinction crisp is the whole question.

   Expect next

   • How is this different from anti-dilution protection?
   • Would you sign a pay-to-play as an existing investor with no reserves?
   • What does a pay-to-play tell you about the syndicate?
4. 037A founder has raised four million dollars of SAFEs at caps of eight, twelve and twenty million, and now raises a twenty-five million dollar post-money Series A at eighty million. What happens?Term sheetsHardsuperdayEarly-stage VCSeed funds

   Say this

   All three tranches convert at their caps, which sit far below the round price, so they buy a much larger share than the founder expects. Roughly: the SAFEs take about 36 percent of the company before the round, the Series A takes 31 percent, and after conversion and a pool top-up the founders are left around a third rather than the sixty percent they assumed.

   Then walk it

   1. Work each tranche at its cap. Say $1.5m at an $8m cap, $1.5m at $12m, $1m at $20m. Treating each cap as a post-money valuation, that is roughly 18.75 percent, 12.5 percent and 5 percent of the pre-round company.
   2. That sums to about 36 percent of the company from $4m of money — before the Series A has put in a rupee. That number is the shock, and it is the point of the question.
   3. Then the Series A: $25m at $80m post-money is 31.25 percent, which dilutes everyone else by about 31 percent. So the SAFE holders land near 25 percent post-round and the founders plus pool share the remaining 44 percent.
   4. Take a 12 percent pool top-up out of the pre-money and the founders are down to roughly a third. A founder tracking only the headline caps would have assumed well over half. This is the standard SAFE-stacking accident.
   5. Note who bears the conversion dilution: with post-money SAFEs, the SAFE holders' percentages are struck after all SAFEs convert, so the cost of the cheap paper lands on the founders rather than being shared with the incoming Series A. Pre-money SAFEs shared it.
   6. Two second-order mechanics that matter in practice. If a most-favoured-nation clause sits in any of the SAFEs, that holder may take the best terms in the stack, making the $20m-cap holder convert at $8m. And the option pool top-up usually comes out of the pre-money too, which compounds it.
   7. What I would actually do as the incoming lead: build the full conversion waterfall before agreeing a price, quote my ownership on a fully converted, fully diluted basis including the new pool, and if the founders are left too thin, restructure — either more pool, a founder top-up grant, or renegotiating caps with the SAFE holders who all want the round to happen.

   Where candidates lose it

   Quoting your ownership off the headline post-money without converting the SAFEs first. Your 31 percent is not 31 percent once $4m of cheap paper lands. Every real term sheet is priced on a fully converted, fully diluted basis, and getting this wrong in an interview is the clearest possible signal you have never seen a cap table.

   Expect next

   • What if one of those SAFEs has an MFN clause?
   • How would you fix a cap table where the founders are down to 25 percent at Series A?
   • Would you rather the company had done a priced seed instead?
5. 039Which terms would you give up to win a competitive deal, and which would you never give up?Term sheetsHardsuperdayEarly-stage VCGrowth equity

   Say this

   I would give up price, protective provisions beyond the essentials, and the board seat before I gave up pro rata rights, standard 1x non-participating preference, founder vesting, and information rights. Price is recoverable in a power-law outcome; access to the winner's next round is not.

   Then walk it

   1. Give on price first, within reason. Paying 20 percent more on entry costs you 20 percent of your return; missing the company costs you 100 percent of it. In a portfolio where one investment produces most of the return, entry-price discipline on the best company is the most expensive discipline there is.
   2. Give on the board seat if you must, and take an observer seat instead. You lose formal control you were never going to exercise and you keep the information flow, which is what actually lets you help.
   3. Give on protective provisions beyond the core. Keep consent on issuing senior securities, on a sale, and on changing the size of the board. Let go of the long tail of consents that just slow the company down and make you the investor founders warn each other about.
   4. Never give pro rata. That is the one term whose value is highest in the outcome you care most about, and it is the cheapest for the founder to grant.
   5. Never give founder vesting, and never go above 1x non-participating or accept a structured preference just to justify a high price. Paying up with a clean structure is a decision; paying up with structure is pretending you did not pay up.
   6. And never give up on the diligence you would do anyway. Competitive processes are designed to compress your timeline, and 'we had 48 hours' is the most common explanation for a bad investment. If speed is the only way to win, that is information about the round.

   Where candidates lose it

   Answering as if every term is negotiable equally, or refusing to concede anything, which signals you have never been in a competitive process. Interviewers want a ranked trade-off with a reason attached to the ranking, and they want to hear that pro rata and clean structure sit on the non-negotiable side.

   Expect next

   • How much would you overpay for a company you really believed in?
   • How do you do diligence in 48 hours without cutting corners?
   • When is losing a deal the right outcome?
6. 041Which protective provisions do you actually need, and which are just friction?Term sheetsHardtechnicalGrowth equity

   Say this

   You need consent on anything that changes the value of your security or takes the company out from under you: a sale, issuing a senior security, changing the preferred terms, taking on material debt, and changing the size of the board. Almost everything else is friction that makes you a slow investor and costs you deals.

   Then walk it

   1. The genuinely necessary five: sale or liquidation of the company, amendment of the preferred rights, authorising a security senior or pari passu to yours, incurring debt above a threshold, and changing the board's size or composition.
   2. Why those five and not others: each one either strips your economics directly or changes who controls the outcome. A new senior preference above you can render your preference worthless, and no amount of information rights protects against it.
   3. The friction list: consent on individual hires, on annual budgets, on any capital expenditure over a low threshold, on entering new markets, on all related-party transactions regardless of size. Each one sounds prudent and collectively they mean the CEO is running the company through a committee.
   4. The cost of over-asking is real and it is not just relational. A long consent list means every subsequent financing requires you to sign, which gives you leverage you did not pay for and which later investors will make you give up anyway.
   5. Set thresholds rather than absolutes. Debt above $2m needs consent; a working capital facility does not. Related-party transactions above a de minimis amount need consent; reimbursing the founder's laptop does not. Thresholds are how you get protection without becoming an obstacle.
   6. And be clear about what protective provisions are not: they are veto rights, not direction rights. They let you stop something, never start it. If you want the company to do something, that is board influence and relationship, and no term sheet gives it to you.

   Where candidates lose it

   Asking for everything because it is in the template. The sophisticated answer names a short necessary list, explains the mechanism each one protects against, and says out loud that a long list costs you deals and makes you the investor founders route around. And distinguish veto from direction — candidates routinely describe protective provisions as if they let the investor run the company.

   Expect next

   • What is the difference between a protective provision and a board seat?
   • What debt threshold would you set for a Series A company?
   • Which of these would a later investor make you give up?

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.