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. 049Why is it difficult to value a first-year company?Early-stage valuationIntermediatefirst roundSequoia CapitalVenture Capital · San Francisco · 2021

   Say this

   Because every valuation technique needs either cash flows or comparable multiples, and a first-year company has neither. There is no history to extrapolate, the distribution of outcomes is bimodal rather than a range, and the discount rate that would compensate for the risk is so high that a DCF produces nonsense.

   Then walk it

   1. No cash flows to discount. A DCF on a company with $200k of revenue puts 98 percent of the value in a terminal value ten years out, which means you are not valuing anything — you are writing down a guess and discounting it.
   2. No usable comparables. The company may be the first of its kind, and where comparables exist, a revenue multiple on a base of $200k gives you a number that moves by millions if the revenue moves by a rounding error.
   3. The outcome distribution is the deeper problem. A mature company's value is a range around a central case. A seed company is mostly zero with a small chance of being enormous, and an expected value calculated across a bimodal distribution does not describe any world that will actually happen.
   4. Risk is unpriceable in the normal way. The implied discount rate on seed-stage capital is somewhere between 40 and 80 percent a year. Nobody can defend a specific number in that band, and the valuation output is entirely determined by which one you pick.
   5. So what actually sets the price is not valuation at all: it is the amount the company needs for eighteen to twenty-four months, divided by the dilution the founder will accept, cross-checked against what similar rounds are clearing at this quarter. Price follows round size, not the other way round.
   6. And the investor's genuine frame is the reverse question: forget what it is worth, what does it need to become for this cheque to return the fund? At a $5m post-money for 20 percent, a $200m fund needs an exit near $1bn. Whether that is plausible is the actual decision, and it is answerable in a way that 'what is it worth' is not.

   Where candidates lose it

   Answering only 'there's no financial history'. True and shallow. The strong answer names the bimodal outcome distribution, the indefensible discount rate, and then flips to how seed prices are actually set — by round size and market convention, not by valuation technique. Then close with the fund-return test.

   Expect next

   • So how do you actually set the price?
   • What is the venture method?
   • What would you need to believe for a $5m post-money to be a good deal?

   Reported by candidates at Sequoia Capital (Venture Capital, San Francisco, 2021). Source: Wall Street Oasis.

2. 050How do you value a pre-revenue company?Early-stage valuationIntermediatetechnicalEarly-stage VCSeed funds

   Say this

   Backwards from the exit, not forwards from the fundamentals. Pick a plausible exit value and multiple, work out the ownership you need at exit to make the return your fund requires, gross that up for future dilution, and that tells you the entry price you can pay.

   Then walk it

   1. This is the venture method. Say a plausible exit is $500m in eight years. My fund needs this position to return $100m, so I need 20 percent at exit.
   2. Gross up for dilution. Three more rounds at 20 percent each means my position shrinks by a factor of about 0.51, so I need roughly 39 percent today to hold 20 percent at exit — or I need pro rata rights and reserves to defend it, which is usually the more realistic path.
   3. If 39 percent is unbuyable, which it normally is, then either the exit assumption is too small for the cheque size, or I write a smaller cheque, or I pass. That is a useful, disciplined conclusion and it is what the method is for.
   4. Cross-check against three market anchors: what comparable rounds at this stage and geography are clearing at this quarter, the last round price if there was one, and replacement cost — what it would cost to build this team and product from scratch, which sets a rough floor for an acquihire.
   5. Then the qualitative adjustments that actually move seed prices: team pedigree, competitive tension in the round, and whether a brand-name fund is circling. A seed round with two term sheets prices 40 percent higher than the same company with one, and pretending otherwise is dishonest about how the market works.
   6. And say the limitation plainly: this produces a range, not a number, and the range is wide. The honest version is that seed valuation is a negotiation anchored on round size and convention, and the venture method is a discipline for knowing when to walk away rather than a pricing model.

   Where candidates lose it

   Reaching for a DCF. With no revenue, a DCF is a terminal value with a decorative forecast in front of it. And building the venture method without grossing up for future dilution — that step is what makes the answer usable, and skipping it is the most common error.

   Expect next

   • How much dilution would you assume between now and exit?
   • How does the answer change for a deep tech company with a ten-year horizon?
   • What if a competitor is bidding and the price is 50 percent higher?
3. 051How do you value a company on ARR multiples, and when does that break?Early-stage valuationIntermediatetechnicalGrowth equitySaaS-focused funds

   Say this

   Enterprise value divided by annual recurring revenue, benchmarked against public comparables and recent private rounds, then adjusted for growth and retention. It breaks the moment the revenue is not actually recurring, and it breaks completely as a cross-sectional comparison because the multiple is a function of growth.

   Then walk it

   1. The mechanics: take ARR, not trailing revenue — the annualised value of contracted subscriptions at a point in time. Apply a multiple from public SaaS comparables, discount it for private illiquidity and scale, then adjust up or down for growth and net retention.
   2. Growth is what the multiple is really pricing. Public software has historically traded at roughly 4 to 8 times forward revenue for 20 percent growers and 12 to 20 times for 40 percent-plus growers with good retention. Those bands have moved violently — in 2021 the top decile traded above 30 times, and the same companies traded under 10 times eighteen months later with unchanged fundamentals.
   3. That volatility is the first thing that breaks it: the multiple is a market-sentiment variable, so an ARR multiple set at the top of a cycle is not a valuation, it is a timestamp.
   4. Second break: the recurring claim. Usage-based revenue, services revenue dressed up as subscription, annual contracts with no auto-renewal, or a revenue base where the top ten customers are on pilots — none of these are ARR, and companies routinely present them as such. Ask for contracted, auto-renewing revenue only.
   5. Third break: it ignores the cost of getting the revenue. Two companies at $20m of ARR growing 50 percent are the same on this metric and completely different if one has a burn multiple of 1.2 and the other 4. That is why the multiple always has to be read against efficiency and retention.
   6. So how I would actually use it: as a sanity check and a market-clearing reference, never as the primary output. The primary work is the growth durability and retention case, and the multiple is what translates that into a price the market will accept this quarter.

   Where candidates lose it

   Quoting a multiple band without saying that it is a function of growth and retention, and without acknowledging how far those bands moved between 2021 and 2023. Also accepting the company's ARR definition — interrogating what is actually recurring is most of the real work.

   Expect next

   • What would you accept as ARR and what would you strip out?
   • Would you pay a higher multiple for 40 percent growth or 130 percent net retention?
   • How do you value a usage-based pricing model?
4. 052What discount rate would you use for a Series A company, and can you defend it?Early-stage valuationHardtechnicalEarly-stage VC

   Say this

   Practitioners use 30 to 50 percent at Series A, and honestly I cannot defend a specific number inside that band. What I can defend is the logic: the rate has to reflect the probability of total loss, and it is doing the job that a proper probability-weighted scenario model should be doing instead.

   Then walk it

   1. The conventional ladder: seed 50 to 80 percent, Series A 40 to 60, Series B 30 to 50, growth stage 20 to 35, late-stage pre-IPO 15 to 25. Those come from practitioner convention and rough realised-return data, not from CAPM.
   2. Why not CAPM: there is no observable beta for a private company with no revenue, the cash flows are not a range around a central case, and the risk is overwhelmingly idiosyncratic rather than systematic. CAPM would give you something like 12 percent, which is absurd here.
   3. What the high rate is actually doing: it is a crude substitute for the probability of zero. A 50 percent discount rate applied to a success-case forecast is another way of saying most of these companies fail.
   4. Which is why the better technique is to separate the two: forecast the success case explicitly, then probability-weight it, and discount at something closer to a normal equity rate. A 60 percent chance of failure plus a 20 percent discount rate is far more defensible and far more debatable than a single 50 percent rate with a hockey stick behind it.
   5. The practical consequence to name: at these rates, cash flows beyond year seven are worth almost nothing, so any early-stage DCF is essentially a bet on a terminal value. Discounting $100m of year-ten value at 45 percent gives you about $3m. The output is whatever you assume the terminal value is.
   6. So my honest answer is that I would not run a DCF at Series A. I would use the venture method and comparable round pricing, and I would keep the discount rate discussion for a growth-stage asset where the cash flows are real enough to discount.

   Where candidates lose it

   Producing a confident single number with a CAPM build-up behind it. An experienced interviewer will take that apart in two questions. The strong answer gives the convention, explains what the rate is standing in for, and proposes the probability-weighted alternative — then says plainly that a DCF is the wrong tool at this stage.

   Expect next

   • So would you ever run a DCF on an early-stage company?
   • How would you probability-weight the scenarios instead?
   • What rate would you use for a growth-stage company with $80m of ARR?
5. 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.

6. 054An oil company loses forty million dollars of market capitalisation because of litigation, then sells an asset to pay for it. Is the share price drop justified?Early-stage valuationHardsuperdaySilver LakeTechnology, Media and Telecom · San Francisco · 2022

   Say this

   A $40m drop is justified only if the expected after-tax cash cost of the litigation is about $40m and nothing else changed. The asset sale is a separate question: if the asset was sold at fair value, the sale itself destroys no value and the share price should not move again for it.

   Then walk it

   1. First, price the liability properly. What matters is the probability-weighted, after-tax, present value of the cash outflow, plus any legal costs, less insurance recovery. A $40m headline settlement at a 25 percent tax rate and 70 percent probability is closer to $21m of economic cost.
   2. Second, ask whether the litigation revealed something. If it signals an ongoing practice that will generate more claims, or a regulatory exposure across the asset base, the drop should exceed the direct cost — the market is repricing future cash flows, not just paying a fine. That is usually the real answer for litigation-driven drops.
   3. Third, the asset sale. Selling an asset at fair value is value-neutral: you swap an asset for cash of equal value. Enterprise value falls by the asset's value, cash rises, equity value is unchanged.
   4. But sold at a discount, which is what a forced seller does, it is value-destructive twice over — once for the discount and once for the loss of an asset that may have been worth more inside the portfolio than to the buyer. A distressed sale to fund a settlement is a classic way a $40m problem becomes a $60m one.
   5. Then the tax detail worth mentioning for an oil asset: a sale can trigger a large gain against a low tax basis, so the after-tax proceeds can be materially less than the headline price, and the company may need to sell more than $40m of assets to net $40m.
   6. So the structured answer is: justified if the drop equals the after-tax expected cost and the litigation is genuinely one-off. Understated if it signals a systemic problem. Overstated if the market priced the headline number rather than the probability-weighted after-tax figure, which markets frequently do on litigation news.

   Where candidates lose it

   Answering yes or no. This is a framework question and the only wrong answer is an unconditional one. The two things you must separate are the cost of the liability and the information content of the litigation, and you must state that a fair-value asset sale is value-neutral while a forced one is not.

   Expect next

   • What if the asset was sold at a 20 percent discount to fair value?
   • How would you price the litigation if the outcome is binary?
   • Does the asset sale change enterprise value or equity value?

   Reported by candidates at Silver Lake (Technology, Media and Telecom, San Francisco, 2022). Source: Wall Street Oasis.

7. 055Would you rather buy a low quality business at a great price, or a high quality business at an okay price?Early-stage valuationHardsuperdayCoatue ManagementTechnology, Media and Telecom · New York · 2023

   Say this

   High quality at an okay price, and in venture that is barely a choice. A great business reinvests at high returns so time works for you. In a cheap bad business, intrinsic value erodes while you hold it and your entire return depends on a re-rating arriving quickly.

   Then walk it

   1. The compounding argument: a business earning 30 percent on incremental capital that can reinvest most of its cash flow converges your return on that reinvestment rate over a long hold, and a sensible entry multiple becomes second-order.
   2. The reverse for a low-return business: every year you hold, value is decaying, so you are renting a re-rating rather than owning a compounder. Get the timing wrong and a cheap asset stays cheap and gets cheaper.
   3. Horizon decides it, and say that explicitly. Over ten years, quality wins almost regardless of entry price. Over six months with a hard catalyst, the cheap asset can be the better risk-reward — that is an event-driven trade, not an investment philosophy.
   4. Why this is close to a non-question in venture specifically: entry price on the winner is nearly irrelevant to fund returns. If one company returns the fund 30 times, paying 30 percent more at entry turns 30x into 23x, which barely registers next to missing it. The cheap mediocre company returns 2x at best and consumes a partner's time for eight years.
   5. The honest counterargument, which you must give: 'high quality' is often just a description of a stock that already worked, and paying any price for quality is precisely how people lost money in the 2021 vintage. Quality at an okay price is fine; quality at any price is how you write down a fund.
   6. So my answer: quality with a valuation discipline. The error that permanently destroys capital is owning a declining business. The error of overpaying for a good one is usually survivable, given time.

   Where candidates lose it

   Giving the textbook Buffett answer with no acknowledgement of horizon or of the risk of overpaying for quality. The 2021 crossover vintage is the obvious counterexample and a good interviewer will raise it, so raise it yourself. And in a venture seat, connect it to the power law — that is the version of the answer that fits the seat you are sitting in.

   Expect next

   • When does the cheap asset win?
   • How do you avoid overpaying for quality in a hot market?
   • What does the power law do to this trade-off?

   Reported by candidates at Coatue Management (Technology, Media and Telecom, New York, 2023). 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.