In the aftermath of the financial crisis, federal and state legislators and regulators have been considering ways to monitor the private equity, venture capital and hedge fund industries. I just spent a week in Washington, D.C. and streets and buildings around the Capital were crowded with lobbyists and policy-makers working to push legislation through. While all these bills do not specifically concern private equity firms, many affect their portfolio companies and the industries they compete in.
With President Obama in the White House and the Democratic majority in Congress, private equity firms are bracing for major changes in areas outside of finance such as labor unions, health care, economic policy and energy. Changes on any of these fronts will inevitably effect some private equity firms and the companies they are invested in, according to panelists at a recent Private Equity Analyst Conference.
In economic policy, the recovery of the financial system and the stimulus packages are important in reviving consumption in portfolio companies from retail to manufacturers. The drastic revamping of the health care industry could have significant effects on the medical and bio firms that venture capital firms hold. The energy sector may benefit from a Democratic government hoping to “go green” and give some of these environmental startups a chance. With Obama and Congress taking on so many issues in the last few months, private equity firms and venture capitalists are unsure of what to expect.
“Policy does impact the bottom line of portfolio companies,” said Mark Heesen, president of the National Venture Capital Association. He added that venture investors have been moving more heavily to doing deals in life sciences and clean technology, both areas that are heavily regulated.
Private-equity firms are also intently focused on broad financial system reform, even the portions of it that don’t appear directly related to their business. Bryan Corbett, a principal with the Carlyle Group, mentioned as one example the impact that higher reserve requirements at banks are likely to have on private-equity firms.
Speakers were also concerned about the regulation that is specifically targeting the private-equity industry, especially legislation that would require all private-equity and venture capital managers to register with the Securities and Exchange Commission, and new proposed rules that might ban the use of placement agents in soliciting capital from public pension funds. Source
Tags: private equity, private equity policy, venture capital, government policy, venture capital association, concerns, government regulation of private equity, government regulation buyouts
Venture buyout is a relatively new term (apparently coined by Harvard Management Company’s Peter Dolan) which describes what some consider an emerging new asset class that combines elements of venture capital and private equity buyouts. A venture buyout firm seeks to fill a void by investing in middle-stage companies that traditional buyout funds and venture capitalists pass over.
Venture buyouts can be seen as an alternative to venture capital that is invested in startup companies trying to expand because a venture buyout somewhat sidesteps the early stage of a business and takes over an existing small company. This is also an alternative to traditional large buyouts because it requires less capital and targets more entrepreneurial companies.
A venture buyout fund typically collects capital from limited partners to buyout a small later-stage company. The targets are similar to the firms that venture capitalists invest in but the venture buyout is unique because it seeks to “carve out” a startup business like a private equity buyout while maintaining the entrepreneurial aspect of venture capital. The venture buyout may buy up a smaller company and try to increase its value and to turn it around by fixing management or operations problems.
Some venture capitalists have turned to the buyout model to diversify their portfolio with a more established middle-stage company, to counter its high-risk entrepreneurial ventures. While buyouts typically hold a company for about 5-7 years, a venture buyout would try to improve the business in a much shorter time. Although the venture aspect means that venture buyouts have some risk, the funds typically use less leverage than a large buyout because the buyout targets are smaller companies. Also, venture buyouts groups–because they are relatively small compared to the large buyout firms– will usually take on less companies in their portfolios than larger private equity buyout firms would.
Here is a video from Yahoo Finance about venture buyouts:
Private Equity Lost More Value than Venture Capital
According to Cambridge Associates new fund performance indices, private equity firms lost more value for their investors than venture capital firms did in the first three quarters of last year. Non-venture capital private equity firms fell 8.9% through the third quarter of 2008, while venture capital firms lost nearly half that, losing 4.26%. More from peHUB:
Cambridge Associates has released new fund performance data, which shows that private equity firms (buyout, growth equity, mezz) lost more value for limited partners than did VC firms, during the first three quarters of 2008. Not just actual dollars — of which buyouts simply has more — but in terms of percentage (net of fees, carried interest and other expenses). And given what we know about Q4, it’s a reversal of fortune that can be expected to accelerate.
Specifically, non-VC private equity firms were down 8.9% through Q3 2008, compared to a negative 4.26% mark for VC funds. The gap is even more pronounced for one-year performance (Q3 07-Q3 08), where buyout firms are at -5.5% compared to -0.9% for VC funds. They both suck, of course, but VC sucks less.
Things flip around once you begin looking at three-year and five-year performance. Venture has the lead on 10-year, but expect that to disappear once the tin mark signifies the dotcom bust rather than the dotcom boom.
The Cambridge Associates data is based on a sample of 748 private equity firms raised between 1986-2008, and 1,238 VC funds raised between 1981-2008. Also worth noting that Cambridge’s results are more favorable to the VC industry than are Venture Economics’ results. Not in terms of this specific issue of YTD buyouts vs. VC, but just in terms of overall VC benchmarks.
Boston is a center for private equity in the U.S., especially in the private equity boom over the last few years private equity has established itself in the Boston business community. Through big local buyouts like that of Toy’s R Us by a Boston private equity group, Bain Capital, and an expanding Boston market for those bigger buyouts but also smaller venture capital deals, Boston’s private equity market has grown substantially.
While New York remains a relatively unchallenged hub for private equity activity, Boston is certainly among the top private equity cities in the country. Although the major private equity groups in Boston compete amongst themselves, they also work together on large deals. This is evident in the recent acquisition of Warner Music Co that was led by two Boston private equity firms, Bain Capital and Thomas H. Lee Partners.
The growth of private equity in Boston has been largely accelerated by the success of large Boston private equity firms like Bain Capital, Thomas H. Lee Partners, TA Associates, Berkshire Partners and Summit Partners. In addition to the more well-known Boston Private equity firms, here is a list of Boston private equity firms that will be updated in hopes of creating a very comprehensive resource for those interested in Boston private equity.
If you represent a Boston private equity firm and would like to be added to the list or you know of a Boston private equity group that is not listed please send an e-mail to Theo@peoblogger.com
Tags: Boston Private Equity, Boston Private Equity Firms, Boston Private Equity Groups, Private Equity in Boston, Venture Capital Boston, Boston Venture Capital, Private Equity Boston
This question of why private equity firms are not blogging at the same pace as the rest of the business world was originally by Private Equity Database’s Blog and it led to the rather long response that follows:
First, I agree that there is a certain amount of limitation placed on private equity firms because they aren’t promoting or offering a product as well as just how vast private equity investing ranges by industry, size etc. So the nature of the business kind of inhibits blogging.
Second, private equity initially spent a great deal of effort trying to escape the public attention rather than attract it. So opening a blog about a firm is a little counter-intuitive to the industry, especially with so much negative scrutiny by the media and the public in general.
But to that I argue that it would benefit private equity firms to start a blog too, and it may outweigh the aforementioned negatives.
First, to the problem of how private equity is not really designed for blogging, look at the venture capital blogs. As you mentioned, there are a lot of VCs blogging. Many VCs aren’t even blogging strictly on venture capital, they offer tips and strategies or just talk about their life. I remember a news story that talked about venture capital bloggers talking about everything…except venture capital. While I don’t know how that translates to business for the specific VC, I do know that the ones blogging are making contacts and familiarizing the public with venture capital. So while private equity is not automatically geared for blogging there are other avenues that the firm could use that would help draw awareness for the firm and potentially expand their contacts.
This leads to my second argument for the benefits of private equity firms blogging: creating a firm blog enhances the accessibility for the firm to the public. The industry has attracted criticism for its lack of transparency with investors but more so with the public, who want to know more about the firm that is acquiring familiar public companies. Even a small effort like a blog is a step in the right direction for the private equity industry as it works to transform its bad public image.
The biggest problem, I think, is that private equity firms are so large and impersonal by definition, so having a blog would mean either using a willing member of management that is authoritative for the entire firm or hiring an impersonal writer that is limited to press releases and firm/industry data. The first is pretty unlikely, the latter wouldn’t be very popular.
So while I agree that this could strongly benefit whatever private equity firm takes the lead and starts blogging, I don’t see it happening anytime soon.
Watching private equity videos can be a great way to keep up with industry news, watch great private equity lectures or just take a break from reading text articles. I’ve created a collection of the private equity video blog posts, the following private equity videos have been made into blog posts:
While the majority of my private equity research for this blog is through reading articles, reports and white papers; I do watch a lot of private equity videos. Some of these videos make it into posts but a lot are never included in the blog. Here are the private equity videos that are not included in posts:
Lehman Brothers Holdings is a finance giant that has dominated the news this week with speculation that the firm would file for bankruptcy. This rumor was confirmed when Lehman Brothers filed for Chapter 11 bankruptcy protection on the morning of September 15, 2008.
In response, Lehman Brothers’ shares plummeted bringing the Dow Jones to its largest drop since the wake of September 11, 2001. Aside from the broader economic implications, what does this mean for Lehman Brothers’ substantial private equity business?
Since entering private equity in 1984, Lehman Brothers has been a major player in private equity by investing in merchant banking, venture capital, real estate, credit related investments, infrastructure and private fund investments. The private equity department of Lehman Brothers has amassed $30 billion in assets under management, according to the firm’s website. With a dim future for the company, the future of the private equity department is in jeopardy.
The only hope is to seek out potential buyers that would absorb the private equity branch. According to the Street Insider, the top firms that may buy the investment management division are limited to Bain Capital, Hellman & Friedman and Clayton Dubilier & Rice. Lehman Brothers will likely take its time searching out potential buyers and selling off the remaining assets of the company. The fall of Lehman Brothers Holdings is only the latest in a series of major blows to the market, following the government takeover of mortgage giants Freddie Mac and Fannie Mae. Ultimately, the impending purchase of the Lehman Brothers’ investment management division will decide how private equity is directly effected.
The elevator pitch is the situation in which a person with a business opportunity or idea has a chance opportunity to attract a potential investor–like a short elevator ride with a wealthy investor. Unlike formal meetings where you are able to show data, slides or videos and give a lengthy proposal to investors, the elevator pitch is a brief oral presentation that will hopefully interest the investor enough that he will want to hear more through a full presentation.
Be Brief and Interesting The key to a successful elevator pitch is brevity. While you don’t want to appear unprofessional by not listing enough real details, a quick outline of your business idea will leave your audience interested. Too often, great opportunities with investors are squandered by a boring, drawn-out presentation which would be better suited for an office than whatever casual setting. Remember, elevator pitches take the investor’s time and if it isn’t short and interesting, the investor may immediately reject your idea.
Try For a Full Meeting If the potential investors seems interested in your idea–and most investors make it very clear when they are not–then try to arrange for a full meeting to discuss your idea, or at least offer to send the investor a more detailed business plan. The point of the elevator pitch is not to immediately secure an investment, it is to court potential investors and spark interest in your idea.
Explain Your Idea For the Investor Your idea may be really exciting to you, but investors are mostly interested in making money from your idea. So explain your idea in terms of benefiting the investor, like how your idea will prevail over your competitors and how that will translate to profits. The point is to not get too wrapped up in your idea that you forget to highlight incentives for the investor too.
The elevator pitch is a great tool for conveying your idea simply to potential investors, and while it may not always work for you, when it does work it can be really great, just ask Joe Luciano. He understands the power of the pitch, Luciano is the owner of Motion Golf, and in 2006 he made an incredibly successful pitch to a roomful of investors. Using the elevator pitch method he gave a short speech of how his use of business idea for sophisticated video technology in golf could make the investors rich. One of the investors liked his pitch so much that he invested $600,000 and has since invested more than $2 million in Luciano’s company. As success stories like this show, developing a good elevator pitch is critical for entrepreneurs looking for capital.
Tags: Private Equity Elevator Pitch, Elevator Pitch, Venture Capital Elevator Pitch, Elevator Pitch for Venture Capitalists, Angel Investors Elevator Pitch
Private equity is expanding past the traditional major financial regions like the UK and United States to the recently booming economies in the East. One of these newly emerging private equity markets is India.
Private Equity Private equity has exploded in India, in terms of both the volume and the size of deals. Last year was a big year for India domestically, with the number of total mergers and acquisitions and private equity deals increasing from 697 in 2006 to 867. The more impressive increase from 2006 to 2007 is in the size of deals which rose by 82%. The following chart represents the private equity deals in India:
The United States accounts for a very large part of the private equity investment in India. In 2007 it was estimated that the U.S. is responsible for 45% of the private equity investment into India. Asian countries, excluding India, account for 18% and Europe only 12%. These numbers will likely change in 2008 as the U.S. private equity deals have declined this year and China is predicted to rapidly increase its investing abroad.
Venture Capital As for venture capital, India has seen a similar boom with a strong start to 2008. In the second quarter of 2008, India attracted $238 million in venture capital investment, a 120% increase over an already impressive last year. Over all of 2007, venture capitalists invested $928 million in 80 deals in entreprenuerial companies based in India. Led by large venture capital investments in marketing/advertising companies, this year promises to be another big year for India’s venture capital sector.
India has secured its place as a top destination for private equity investment. Last year, for the first time, India surpassed China in terms of the value of private equity deals over a 12-month period. Private equity funds focused in India are expected to raise at least $5 billion in the last two quarters of 2008, more than double the amount raised between June and December of last year. If this prediction comes true, 2008 will be an incredible year for India private equity. Permanent Link: Private Equity India
Tags: Private Equity India, India Private Equity, Private Equity in India, Private Equity Investment in India, Private Equity Funds in India, Venture Capital India
New Private Equity Report on Germany Venture Capital
German private equity hit its stride in 2000 when the number of new private investments jumped from about €500m to €4.5billion. Much of this success can be attributed to venture capital investment; Germany was awarded the European Venture Capital success story of 2000 for its remarkable growth. The major growth in the German technology sector necessitated new forms of financing, venture capital funding provided the necessary capital and reaped huge profits from technology investments.
Germany is one of the most attractive locations for venture capital firms according to a new survey conducted by the National Venture Capital Association. The surveyed limited partners rank Germany second globally on their venture wishlists, the United States continues to be the favored location for venture capitalists. Germany earned this high spot by impressing investors with clean energy and medical devices and equipment.
While the NVCA survey shows Germany ahead of the UK, from 2006 to 2008 the UK has had a higher venture capital investment volume but that lead seems to be slipping. German venture capital volume has remained strong increasing while the rest of Europe and the UK venture investment has declined.
As larger buyout deals slow following the global credit crunch many limited partners have turned to smaller venture capital deals. However the credit crunch has also presented problems for venture capital; venture capital firms are struggling in exit strategies so fewer venture capital-backed companies are reaching IPO’s. The emerging “cleantech” sector is expected to provide many new investment opportunities to counter most adverse effects from the credit crunch.
German venture capital has stayed strong through the worst times of the economic slowdown and the horizon appears bright as Germany attracts global venture capital investment through clean technologies and an impressive medical sector.
For the full German Private Equity report and more reports from private equity insight click here.
Tags: Germany venture capital, venture capital in Germany, German venture capital, venture capital firms in Germany, venture capital outlook in Germany, German private equity, Germany Private Equity
This is part of our ever-expanding geographical private equity guide providing you with information on the industry world-wide. If you have something you would like to add to this guide–a PowerPoint, white paper, news article, survey, etc.–please send me an e-mail to Theo@PEBlogger.com
List of Minnesota Private Equity Firms and Venture Capital Firms
Resource #1: Private Equity Firms Bidding for Failing Minnesota Banks
(8.17.2009) Minnesota’s strapped community banks have been turning to their existing shareholders to pony up more money to weather the economic maelstrom — a sort of pass-the-hat strategy, as one industry player said. But now outside investors, including wealthy individuals, private equity firms and investment groups, are buying in.
The nascent interest in local banks comes after national mega-deals to rescue insolvent banks earlier this year. Private equity groups bought Miami’s BankUnited Financial Corp. in May, and Pasadena, Calif.-based IndyMac Bancorp in January, after the Federal Deposit Insurance Corp. (FDIC), struggling with a wave of bank failures, opened the door last fall for nonbank buyers to bid for the failed banks.
That pattern may soon change. Private investors view the bank industry as undervalued now, Grandstrand said.
She said she’s handling a half-dozen equity deals where outside private investors — not existing bank shareholders — are taking minority or controlling stakes in local community banks and, in at least one deal, are planning to buy the bank outright. Grandstrand won’t name names, but she said the deals range from $200,000 to $25 million and involve local and out-of-town investors.
What Venture Capital Investors Want in a Term Sheet
A term sheet is a document outlining the basic conditions and material guidelines for a business agreement. The venture capital term sheet is key because it establishes the venture capital firm’s involvement in the company and covers the shares and expected returns for the investors. This short venture capital video covers some of what venture capitalists want and do not want in a term sheet:
The first speaker, an angel investor, talks about the control issue. He says that the most important thing he looks for in a term sheet is some kind of control through either a board position or observer rights. A venture capitalist says that valuation is most important because he primarily wants to make good returns on his investments. The second venture capitalist shares a structural problem that he does not want to see in a term sheet. He does not want convertible differed with a discount to the next round because it hopes that the company does not do too well too early.
Permanent Link: Venture Capital Term Sheet
Tags: Venture capital, venture capital term sheet, venture capital investors, venture capital terms, VC term sheet, venture capitalists discuss term sheet
Building an effective company board is crucial, especially for early stage development. Fred Wilson shares some great tips on building a good early stage company board:
Have at least one founder on the board. Many VCs like to move the founders out of the way. They think they will be difficult and meddle. That’s always a risk, but the benefit of having founders on the board vastly outweighs any downside in my mind. Having too many founders on the board is bad too. You want a diverse set of people on your board, not any one concentrated group.
Keep the number of VCs on the board to two or three. The number of VCs on the board is in inverse proportion to the success of the deal.
Local board members are better. They will come to the meetings. Avoid too many board members who live elsewhere. They’ll call into the meetings. Trust me. And that sucks.
Have at least one and ideally two industry insiders on the board who are independent of the founders and the VCs. They should bring operating experience. They should be mentors to the CEO. They should be local so they come to the meetings.
Do the meetings first thing in the morning when people are fresh. No laptops and no blackberries other than the laptop that drives the presentation if one is needed.
Bring the senior management to the board meetings. They should know the board and the board should know them.
Try to do a dinner the night before at least four times a year with all the directors attending. Don’t bring senior management to these dinners. They should be for board bonding which is key to a well functioning board.
Always send the agenda and board materials at least one day in advance of the meeting and expect/demand that the members read it before coming to the meeting.
Do not spend the meeting going through the materials slide by slide. People can read, expect that they will.
Do spend the meeting reviewing where the business is, where it needs to go, and what strategic decisions need to be made to get there.
Remember that the board works for the Company as much as the management works for the board. Expect board members to do what you need from them and manage them to make sure they do.
Keep your board to seven members or less. Five is ideal in my experience but sometimes you need seven to get the right diversity. Two insiders, one to three VCs, and one to two industry people is ideal once the company gets to a certain scale. (A VC)
Tags: Venture Capital Fundraising, Venture Capital, Venture Capital Fundraising Jobs, Venture Capital Sales, Venture Capital Marketing, Capital Raising for Venture Capital
The Forbes annual Midas 100 list is the definitive collection of the top venture capitalists focused in technology. The Midas List is comprised of venture capitalists who use venture capital to create wealth for their investors and build valuable, enduring companies. Here are first 10 of the 100 top venture capitalists. Click here for the full list.
Tags: Top venture capitalists, top ten venture capitalists, top venture capitalists in technology, top 10 venture capitalists technology, top tech venture capitalists
A new report reveals that despite a rough first quarter, European private equity recovered in a small way during the second quarter of 2008. The improvements in Q2 are increases in both volume and value of 9% and 15% over the first quarter.
However, this quarter’s success is overshadowed by the heavy losses endured last quarter. YTD estimates show a drops in volume (9%) and value (53%) from last year. Although the European private equity market is much weaker than last year, there is hope in the completion of two deals worth in excess of EUR 2bn during the second quarter.
Buyouts
The value of buyouts in the second quarter stayed pretty steady remaining above the EUR 24bn level, with only a very slight decrease. The number of buyouts had a minor increase from 160 to 173 deals.
The trend toward small-cap continues as the volume of deals in the smallest bracket increased 3% and value rose considerably from 143m to EUR 6bn.
On the other hand, the mid-market sector declined over the second quarter, volume dropped 18% and value fell 28%.
Positively, the largest bracket has jumped in terms of value by 58% above the first quarter. The UK remains the leader in European buyouts with 36% of the overall total.
Growth Capital
Two major deals that were collectively worth EUR 3.5bn led to huge success in growth capital in the last three months. The growth capital segment increased in terms of value by 238% from EUR 1.8bn to 6bn. Growth capital also improved in terms of volume, increasing 17% in the second quarter.
Also, six of the top ten growth capital transactions were over EUR 100m. This is a significant leap from the first quarter’s biggest deal of only EUR 88m.
Early Stage
So far, in terms of volume this has been a good year for early stage private equity. The second quarter exactly mirrored the first, with 89 early stage deals made. This is a 24% increase in volume over last year’s first two quarters.
It is a different story for early stage, in terms of value. The value of early stage deals fell 37% from the first quarter; at only EUR 278m, this is the lowest total for early stage in 18 months.
Germany and the UK continued to perform very well in the second quarter.
For the full European Private Equity report and more reports from private equity insight click here.
This is a really good video on raising venture capital. Two venture capital professionals discuss what it takes to find receive venture capital and how a startup should look for it.
They offer seven tips for entrepreneurs seeking venture capital:
Make sure your idea is unique, and marketable.
Focus on a simple, concise business plan.
Be honest and realistic with investors.
Be patient, raising capital takes time and lots of it.
Set goals beyond development stage, consider costs after first-round financing such as infrastructure and marketing.
Learn from experienced people in the industry.
Interview the interviewer as much as they interview you. You will be working with the venture capital firm for a long time, so make sure their style works for you rather than grabbing the first offer.
A private equity associate is the typical entry-level position for MBA graduates. An associate candidate should be able to perform at all stages of the deal, from making the deal to operations and even fund raising.
A worthy candidate should possess three core skills:
Technical skills- Firms often specialize in a certain sector or domain. An associate’s responsibility is to gain expertize in that area.
Analytical skills- Associates must be able to understand business models, research and collect relevant data, and conduct an extensive analysis on potential investments. Most MBA programs should prepare candidates for this area of the job to a small extent, but further self-preparation is recommended.
Interpersonal skills- Not only are interpersonal skills important for succeeding in the firm, a large part of a private equity associate’s job is networking with contacts–from investors to service providers. Interpersonal skills are essential for success in the private equity industry.
Private equity associates are expected to interpret data rapidly, interpret it effectively and come up with a conclusion. Although an associate’s duties vary by firm, that any associate should possess.
Private equity investing in Italy has fallen from the global credit crunch but private equity deals have continued only with more caution and selectivity. Private equity investing in Italy has been on the rise over the last few years after coming to prominence in the mid-90s, and the impact has been generally positive. A report on the Economic Impact of Private Equity and Venture Capital in Italy shows that buyouts have positively effected both revenues and employment in acquired companies. Venture capital had a similar effect on Italy’s economy, increasing staff in venture capital-backed companies and dramatically improving performance.
Last year was big for private equity in Italy, but the crisis over bank lending has made many private equity groups wary and reduced the number of deals made this year. After banks gave huge loans without proper due diligence the market for financing in Italy has dried up somewhat and there has been a big push for greater prudence. Banks have reacted by selling off non-majority assets and turning their focus to the businesses which they can control. In what has been a highly profitable country for private equity, it is now more difficult to make big deals but not impossible.
Private equity and hedge funds have developed a strong relationship benefiting both partners. Private equity groups own many hedge funds and make long-term investments in hedge funds. Hedge funds have entered the private equity world too, joining with major players in the private equity industry to make large buyout deals. The attraction for hedge funds is the large amount of capital flowing into private equity from institutional investors and the hope that hedge funds can boost performance through buyouts. In 2006, the average hedge fund returned 13.9%, while the average buyout fund returned 25%.
Hedge funds aren’t limited to big buyouts, they have started lending capital to smaller startups and middle-market firms. The move to private equity is logical, hedge funds have always tried to capitalize on often risky opportunities to make money. However, the risk may be too great for hedge funds in private equity, because hedge funds are known for making short investments. Private equity buyouts and even smaller venture capital investments are typically longer investments. Another risk is the illiquidity in private equity, which may be a problem for hedge funds if investors want to cash out their investment. Hedge funds are not afraid of risk so the relationship between private equity and hedge funds will probably only grow stronger in the future.
Here is an interesting video from Innovation Economy about how blogging is effecting venture capital. Some of the venture capital bloggers interviewed say that they strongly prefer a VC firm that blogs because it shows that they are confident and accessible. Blogging is proving to be less of a casual trend and more of a way to get recognition for your company; something that venture capitalists should consider.
Possible Venture Capital Interview Questions-Part 3
With any interview you want to be prepared, and being prepared means understanding the industry which you are trying to enter and the type of employee that industry recruiters are searching for. Via Vault, here are some possible questions that you may encounter during a venture capital interview. This is the third and final addition to a series that is split into three areas: expertise, venture capital process and personality. If you missed them, here is Part 1 and Part 2.
Personality questions - These questions are more general and apply to most job interviews.
Where do you want to be in five years? If you are applying pre-MBA be sure to say that you hope to obtain an MBA by that time and be working in the venture capital industry.
Would you ever want to be an entrepreneur? If you are pre-MBA it’s okay to say yes because it’s pretty typical for young professionals to be more open to entrepreneurship, but it’s more tricky if you are trying to get a partner-track position. In that case it is usually better to downplay any desire to be an entrepreneur because firms hiring for a partner-track position want someone dedicated exclusively to that position and bringing in a lot of money.
What will you do if you don’t get a job here or in the venture capital industry? Express your desire to work within the venture capital industry, but if that doesn’t work out you would try elsewhere in private equity or a related field.
What did you like about your old job and why did you leave? I have been asked this question at every interview I have had, so be ready. This is a good opportunity to express your excitement for working in venture capital. Tell how other jobs just weren’t satisfying and venture capital seems like the best match for your personality (here’s an opportunity to name your strengths). Don’t complain too much about your past job, you may come off as a difficult or bitter person.
What’s the thing you are most proud of? Have some great stories that highlight your abilities, it’s okay to brag a bit here.
Possible Venture Capital Interview Questions-Part 2
With any interview you want to be prepared, and being prepared means understanding the industry which you are trying to enter and the type of employee that industry recruiters are searching for. Via Vault, here are some possible questions that you may encounter during a venture capital interview. This is the second part of a series that is split into three parts: expertise, venture capital process and personality. Click here for part 1.
Process Questions - This section allows you to prove that you are a capable candidate for a position in venture capital.
How do you value an investment? Say that you would value the investment low as low as possible while still working out a deal with the entrepreneur. Using several methods you would arrive at a number and begin discussions with the entrepreneur based off that number. Figure out the ideal, realistic return that your firm could get from the investment and what is the lowest money you would need to invest to get that ideal return. Be well versed in measuring an investment’s worth because it is a critical aspect of venture capital and you can really stand out if you do your homework.
When you evaluate a business plan, what’s the most critical element you look for? A pretty safe answer is management, how well a company is operates under management is a crucial factor to consider for an investor.
Why do you want to work at a venture capital firm? This may seem obvious: do not mention money or trendiness.
Would you want to invest in companies geographically near or far from our offices? You want to keep the companies you invest in near your venture capital firm’s offices so that monitoring and support is easy and available. But although that is the ideal arrangement, you should be open to distant companies as new opportunities for expanding the firm and to be able to capitalize on companies that are being overlooked by your competitors because of the geographical challenge.
What investment areas do you find interesting? Be honest, find out what area really appeals to you then do some research on that area. It’s always better to be honest rather than just feeding the venture capitalists what they wants to hear. Many of them are able to see through this, so just be excited and well-versed in your favorite area.
Do you have any questions for me? This is a golden opportunity for you to separate yourself from other candidates, use it well. Research the history of the venture capital firm including past investments, management staff and performance. Ask about the firm’s past investments, maybe why the firm invested in ”x” investment or why they didn’t. A big theme for this section is just do your homework, understand the venture capital firm well enough that your questions reflect your knowledge.
Possible Venture Capital Interview Questions-Part 1
With any interview you want to be prepared, and being prepared means understanding the industry which you are trying to enter and the type of employee that industry recruiters are searching for. Via Vault, here are some possible questions that you may encounter during a venture capital interview. This is the first of a series that is split into three parts: expertise, venture capital process and personality.
Expertise Questions – Be prepared to answer questions about your past working experiences and things you learned from those experiences.
What are the major trends in your industry? - Start by explaining the big picture, highlighting the most apparent causes and effects showing that you can explain trends and understand market forces. Then finish with more detailed and subtle factors effecting the industry that you learned exclusively through your past positions.
Can you explain why your former company took the path they did? Give more insight to show that you were actively involved in the company.
When you did that project, did you use a certain technology? Be prepared to cover all the past jobs listed on your resume and mention specifics on how each project or company succeeded.
What companies in your industry might make interesting investments? This is a pretty standard question for venture capital interviews so be ready with detailed ideas.
A chartered alternative investment analyst (CAIA) is a designation awarded to qualified investment professionals that pass the CAIA program.
How to Become a CAIA? To become a CAIA you must satisfy three requirements:
Complete the CAIA Program which encompasses hedge funds, private equity, real estate commodities and managed futures. The course is divided into Level 1 and Level 2. Level 1 focuses more on the analytical aspect of investing and managing. Level 2 puts the skills gained from the first level into practice with decision-making exercises and risk management techniques. This is all geared toward developing a better understanding of both the technical and practical aspects of alternative investing. The program is administered by the CAIA Association.
Another requirement for becoming a CAIA is that the candidate has professional experience (full-time employment within the bank regulatory, banking and financial or related fields). This can be either: A.) One year professional experience and a bachelor’s degree OR B.) Four years professional experience.
Finally, in order to become a CAIA the candidate must complete the online Membership Agreement, provide 2 professional references, and pay membership dues.
In the aftermath of the financial crisis, federal and state legislators and regulators have been considering ways to monitor the private equity, venture capital and hedge fund industries. I just spent a week in Washington, D.C. and streets and buildings around the Capital were crowded with lobbyists and policy-makers working to push legislation through. While all these bills do not specifically concern private equity firms, many affect their portfolio companies and the industries they compete in. 
