Venture Capital
LBO
Alternative Assets
100

What is the typical lifespan of a VC fund?

Around 10 years (sometimes up to 12).

100

What does LBO stand for?

Leveraged Buyout.

100

Name three types of alternative assets besides private equity.

Real assets, hedge funds, structured products.

200

Who invests earlier, Angel Investors or Venture Capital firms?

Angel Investors

200

In a typical LBO, what proportion of the deal is funded with debt?

60–90% debt, 10–40% equity.

200

What is the main difference in transparency between traditional mutual funds and alternative assets?

Mutual funds are highly regulated and disclose info regularly; alternatives provide minimal info only to investors.

300

If a VC invests $5M at a 10x target multiple, what ownership % is required if exit valuation is $500M?

10%

300

Why do private equity firms use so much debt in LBOs?

Debt amplifies returns on equity and enforces financial discipline on the company.

300

What is a typical minimum investment required to access hedge funds or private equity funds?

Between $500,000 and $1,000,000; investors must also meet “accredited” status (e.g., $1M net worth excluding house).

400

Explain what “carried interest” means in VC and how it differs from management fees.

GP’s share of profits (usually 20%), only if fund is profitable. Management fees = annual fee (usually 2%) for operations.

400

What is meant by “debt discipline” in an LBO, and why is it central to the strategy?

The heavy debt burden forces managers to run the company more efficiently, cut costs, and sell non-core assets to meet obligations.

400

Why are alternative assets considered illiquid, and what mechanisms are used to enforce this?

They impose lock-up periods (often years), and redemptions require advance notice — limiting the ability to quickly withdraw capital.

500

Why are venture capital investments typically structured with staged financing, and how does this relate to the high risk and long investment horizon discussed in alternative assets?

Staged financing reduces risk because VCs can stop funding if milestones aren’t met. It also provides ongoing control over the startup’s direction, which is important given the high uncertainty and long exit horizon (often 7–10 years)

500

Why do private equity funds often pay an acquisition premium of 15–50% above market price in leveraged buyouts, and how do they justify this despite the heavy debt burden?

The premium is necessary to convince public shareholders to sell.

500

What was the significance of the 1979 ERISA clarification for the growth of alternative assets, and why is it seen as a turning point?

Before 1979, the “prudent man rule” discouraged pensions from investing in risky assets like VC or hedge funds. The clarification allowed pension funds to diversify into alternatives as part of a broader portfolio, which unleashed massive institutional capital into the sector and fueled its exponential growth.

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