TOP Venture Capital Internship/Analyst interview answers

Following my previous article about Top VC Internship/Analyst interview questions, I wanted to give you some material, answers, examples in order to be successful during these interviews. I will use the same structure, so that you can easily match Q/A. For VC specific questions, I will try to go a bit deeper and for the others, I will just give basic recommendations. Here we go!

Bonus: checkout my new articles about Jack, a day in the life of a Venture Capitalist and Jack remote VC analyst in lockdown.

Last update 09/2019

About you

1. Draw a red line that makes sense with your CV, tell your story with links between chapters.
2. In order to present an experience, you can use the STAR method which is a structured way to introduce an achievement (stands for Situation, Task, Action, Result).
3. Regarding KPI, you should think about something that was measurable and had or could have a big impact on the business. Ideally you identified/ created this KPI yourself.
4. Regarding your future, be consistent with your story, your red line.
5. I cannot be the one who plans your future… but as a generic advice, you should have some kind of plan for your future (even if it is not fixed). Actually, VC are hiring different backgrounds, from PE to entrepreneurs to ops people. There is not one typical profile like for consulting or investment banking. Backgrounds tend to be really more diverse in VCs and I think this is one of the industry treasure. It is good for the fund because it can handle more topics and be more helpful for its portfolio but it is also more interesting in terms of learning curve for its employees.
6. Even if you sent batches of emails to all VCs on earth, there is at least one reason that pushes YOU to join THIS VC (investment thesis, success stories, geo coverage, industry coverage, stage, etc).
7. It is better if the industries you like are targeted by the VC. Otherwise, you need to show that you can master an industry and know the whys and wherefores. If you say you are interested in this particular industry, you need to have a deep understanding of what is going on, otherwise choose something else. Tip: Industries to watch: EdTech, InsurTech, Autonomous Cars, LegalTech and SpaceTech.

About VC

1. There is not ONE answer. You should keep up to date with VC industry in general. To do so you can subscribe to Crunchbase newsletter and read some reports, but I would definitely recommend you to talk to some people working for VCs (of course do not target Partner, but you can easily get in touch with interns, analysts and associates). Here you’ll find very valuable insights! One current trend is digitalisation, automatisation and revamping their branding strategy.
2. When assessing a startup, 6 criteria are really important: (a) Team: serial entrepreneur, background, commitment, complementarity, vision, etc, (b) Market: ideally VCs are looking for a billion market, (c) Product (or problem solved), (d) Competitive Advantage(s) or how the startup can protect itself against competition (patent, code, speed, brand, etc), what are the barriers to entry (tech, reputation, mass effect, etc), (e) Business model and its scalability, ie, SaaS, marketplace, etc. How the startup plans to sell its product: is the sale process scalable? (=if you put x more money, you get xxx more customers) (f) Exit opportunity(ies), is there any financial or strategic buyers that might be interested in buying this company in 4–5 years? (IPOs are rare compared to M&A).
3. When assessing an early-stage startup (let’s simplify and consider Seed/Series A), the VC will focus on (a) & (c) but also (c),(d), mostly because the company has just started to generate revenues and therefore the reliability of data is pretty low. Then for later stage startups, financial data, metrics and long term strategy will have a lot more importance.
4. There are 3 ways basically to source new companies: (x) referral, (y) unsolicited and (z) top down. The split in % between those 3 is different between VCs but generally the best opportunities come from top down research, then network or referrals and at the end the unsolicited ones. (z) you are actively looking to find new startups (events, listings, crunching data and rounds, etc), (y) you let startups come to you (for example on LinkedIn or with a form on your website, etc), (x) the startup is introduced by someone from your network. Of course some VCs has such an extended network that they tend to have more deals through this channel but it is only true for a couple of top tier.
5. There are two ways to understand “KPI for VC”, either for startup analysis (so we could say Unit Economics and Churn) or for the fund itself (here we could say ROI of course, but also capital efficiency, ie, with x amount invested how much the company generated in value, revenues, etc).
6. The Customer Acquisition Cost aka CAC is very simple: all the money you will spend to acquire a new customer, ie, all the marketing, advertising and sales expenses. Let’s take Netflix. Imagine it spent 200k to acquire 10k new customers. Here the CAC would be Sum of Expenses / Nb of new customers, ie CAC = 20.
7. The LifeTime Value aka LTV is very simple (too). Split the concept in two categories, time and value. First, time. How long do you think the customer will stay with you (aka keep his subscription or take a starbucks every morning)? For their calculations, VCs consider generally periods between 3–5 years, but when we look at actual cohorts, the results might be lower (it is also common to count in months). Then value. How much your customer will spend for your service (aka monthly or yearly subscription) or what is his average basket and how many times does he order (something like 1 starbucks every working day). So let’s take again Netflix. Considering a $10 subscription (I know they raised prices … but Apple TV+ is coming) and a Lifetime of 3 years, the LTV will be 10($)x12(months)x3(years) so $360. Conclusion, a customer will bring $360 to Netflix during his stay.
8. The LTV/CAC ratio aka Unit Economics (UE) is one of the most important metric. Indeed it tells you basically how much you earned for every penny spent. For example if you have a LTV/CAC = 8, it means that if you spend $1 you will get $8. Therefore the higher, the better. This metric is very important because it shows the profitability and scalability of a business. It enables also to see if the startup is a “VC case” or not. VCs will usually not consider a company with a UE < 3 and ideally funds are looking for UE between 5–10. If you can give them more, the GP will handover the TermSheet after the first call! In our Netflix case the result would be UE = 360/20 = 18 so let’s put some pennies on NFLX (it is a joke of course, I am not a financial advisor and competition is coming with Apple TV+ and Disney+).
9. The churn rate is basically the percentage of customers (subscribers or recurring clients) who discontinues their payment to the service within a given time period. For example, if 3 out of every 60 subscribers to Netflix discontinued their subscription in 2018, the annual churn rate for 2018 would be 5%. The formula is quite straight forward: (Customers at the beginning of the period — Customers at the end)/Customers at the beginning… It is also useful to build the famous cohorts. (There are a lot of ressources online about building cohorts, but you should learn this during your time in the VC).
10. Find the most interesting IPO in an industry focus? Please do your homework and it will be easy. In 2018, Spotify’s IPO was quite interesting because it was a rare direct listing (Slack did the same and it is becoming trendy). Indeed, the Swedish company was both direct listed and offered shares for the first time without the banks’ help.
11. Pre money vs Post money. Very easy question, pre-money valuation is the valuation of the company that does not include the last funding round and therefore post money valuation includes the last funding round. For example, if the entrepreneur and the VC agree on a 5M pre money valuation and the VC invests 1M, post money will be 6M. But if they agree on a 5M post money, pre money will be 4M, very easy I told you!
12. The question should be what are the differenceS between PE and VC because there are numerous. Here are the 3 major ones. First the type of company, PE invest typically in stable but inefficient companies while VC invest in unproved and unprofitable businesses with a high growth potential. Second, the industry, while VC are focusing on tech industry (whether it is foodtech or adtech), PE can invest in everything like a chocolate family business. Third, VC take a minority stake in a company (5–20%) whereas PE take a majority stake (>50%) or even 100% in case of buyout. You can mention that the lines between both are getting blurrier because venture funds are becoming bigger and bigger and tend to be involved in later stages (cf SoftBank vision fund I and II). Further details here.
13. The most important thing in VC is to make deals (good ones of course). You can spent years before making your first deal while your colleague will close his first deal in a couple of weeks. Yes, chance and timing. VC is not the kind of job where the more you work, the more reward you get. You need to me smart… and lucky.

About startups

1. To follow startups and tech news, you can read/follow/like/… Emerging Tech Brew, TechCrunch, Business Insider, Crunchbase, Hacker News, VentureBeat, etc
2. It is up to you, you do not have to take a “big” one, just develop your argumentation, a bit like if you were the CEO pitching the VC.
3. In other words, how does it plan to (or how does it) make money? See just below for different business models with examples.
4. Here are the most common business models: (1) OneShot: you are supposed to pay only once like for a Starbucks or an Iphone, (2) Marketplace: a place that connects buyers and sellers and where the owner of the place takes a fee on each transaction like Amazon (3) Subscription: like Netflix — the VC’s favorite, as it is the most predictable BM, (4) Freemium: you can access a basic free version but then need to pay for adds on, generally on a subscription basis too, (5) Commission: you earn a commission on each transaction like PiggyBee, (6) Franchise: like McDonald’s, subject to agreement but usually you take a cut on revenues. 90% of startups will fit here, but if you want more, you can have a look at this article.
5. Execution! Everyone has great ideas to change the world… iPhone was not the first smartphone by the way!
6. Both, it depends on the goal of the startup. Growth and profitability are justifiable. But generally, startups will focus more on growth first > Short article mentionning this little dilemma for BlaBlaCar.

About Finance

1. Of course you like finance and investing.
2. I think it is always good to have an investment portfolio, at least to understand the dynamics (even if you trade with virtual money). When I say virtual money, I mean virtual not crypto, but if you want to trade cryptos I would recommend Binance.
3. Questions about valuation methods are basics when it comes to finance interviews (IB, M&A, etc) so I do not want to develop it here. The three most common are: (1) Discounted Cash Flow (DCF) where you use future cash inflows and outflows with a discount rate to get the current value ; (2) Multiples or Comparables where you look at similar companies (generally publicly listed) in size and industry, and you look at their financial reports to build your thesis ; (3) Precedent Transactions where you look at previous acquisitions in the same industry.
4. Now it is a bit more interesting as we are back with startups. I say back because the previous questions was really more about finance. Indeed except for a few cases classical valuation methods do not apply for startups. (1) DCF cannot be applied in 99% of cases as cash outflows > cash inflows… therefore it does not make sense to use it. (2) Multiples or Comparables neither because the size is different or the startup is disrupting (yeah I did it) its industry. (3) Precedent Transactions could work with previous M&A or IPOs. On top of this method, VCs usually use a scoring method or the VC method. The scoring method is pretty straight forward. You apply a coefficient to different criteria (like 5 for the Team, 3 for the Market, etc) and you assess the startup according to these criteria to generate a valuation. For the VC method, you try to assess the company valuation at the exit according to potential next rounds and your dilution during these rounds. You can have a look at this video, there is an example included.
5. P/L. Go back to your books (or e-books) if you do not remember! You can also mention some relevant profitability ratios.
6. So generally here, the interviewer can take an example you mentioned before or a market you said your are interested in. With the example of HelloFresh vs Deliveroo, it is quite straight forward as the latter does not have so much COGS. Therefore for the same revenues, HF is going to have higher COGS and lower Gross margin, and Deliveroo lower COGS but higher gross margin.
7. EV/Sales over EV/EBITDA. To make it simple, with the first one you focus on growth and with the second one on profitability. As a startup tends to prioritise growth first as I explained before, it is more relevant to consider EV/Revenues. Not to mention that EBITDA is in 90% of cases negative for a startup (even for Uber it is still negative) so it would not make any sense to consider this ratio.
8. There are a lot of apps, newsletters, etc to follow the stock market (and therefore marketcaps) today, so it should not be the most difficult part. I would recommend to follow particularly the NASDAQ as almost all tech companies are listed here. Personally I use the app Investing (there is even a crypto edition), and Morning Brew. It is a great newsletter in general but you have also a quick overview on the stock market shape and major changes.
9. If you like startups you should be aware of recent IPOs, planned IPOs, etc. If you are not aware or if you are an IPOs fan, you can use filters on crunchbase, like this one, which gives 2019 IPOs (or another database). 2019 is one of the most interesting year regarding startup IPOs (Uber for example or Wework!) feel free to have a look.
10. Cf 8.

Case / Brain teasers

1. Market Sizing — as it is a typical interview stuff, I won’t develop it here, but this site could help. My only advice would be to structure your thought.
2. Invest or not? So first it will really depend on the case you have been introduced but I would recommend to ask questions according to the criteria mentioned before a-b-c-d-e-f. To be more precise I would ask questions about the team, the competitive advantage and competitors, the market size, the CAC/LTV ratio, the growth (YoY, MoM),…
3. Open a business — again, try to be very structured in your thoughts. Make assumptions based on real facts or your instinct, imagine KPIs, try to think about all the value chain from tech to legal to marketing, etc.

About the VC your are applying for

1. You need to have some basic knowledge (at least) about the industries your VC likes. At least try to understand the dynamics, trends and opportunities. One and only one advice, Read, Read & Read.
2. Here you have to show your critical thinking and instinct skills. Of course you need 2/3 pros/cons arguments to justify your decision. Remember, a well known startup does not provide necessarily a good return (Hello The We Company!). You should consider different things including in which stage the VC entered, etc.
3. Look up. You could say bad timing, crowded market, slow market, product sucks, etc
4. If you want to enter the VC world, on top of startups that you admire, you need to have your “babies”, these startups you are following since their births (or the founders) and on which you could put your own money. Of course, according to your VC investment thesis, you can choose one of those babies or pick up another promising one. Again, WHY is more important than WHO at this stage.
5. For the VC competitors, you can check this list from Techstars (always updated) or medium articles. There are plenty of listings based on stage/region like here for Seed in London.
6. Definitely, VC is an industry where you will learn every day, really!

Hope this helps, if you have any question, request or comment, please feel free to reach out to me, Good Luck!

And do not forget, if you want to have some fun while understanding what do an intern / analyst / associate do in a VC, checkout my new article. To know how VCs are handling the lockdown, check out this new episode.

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