Fund Me LP One More Time
What is the primary investment goal of a VC fund?
Achieve high-multiple returns (>10x) with the expectation that a few "home runs" will drive the majority of fund performance
What’s one structural advantage of outbound sourcing?
VCs can build trust and relationships before a founder begins fundraising, increasing conversion odds and potentially leading to less competitive deal terms
What does high gross retention suggest about a startup's product?
Implies strong customer satisfaction and low churn, indicating that the product delivers sustained value = key PMF signal
Why do investors prefer option pool expansions to be included pre-money?
It shifts dilution to existing shareholders (mainly founders), preserving the investor’s intended ownership percentage.
How does VC differ from buyout-focused private equity in terms of company stage and risk?
VC targets earlier-stage, sometimes pre-revenue companies, accepting higher failure rates in pursuit of exponential growth. Buyout PE invests in mature businesses, using leverage and operational efficiencies to generate returns.
Name and explain two specific methods for identifying stealth startups before they publicly launch.
1) Talent tracking = monitoring exits from Big Tech or academia to predict new founder formation
(2) IP surveillance
Define LTV and CAC. What’s the benchmark for a healthy LTV:CAC ratio in SaaS?
LTV: lifetime value of a customer
CAC: cost to acquire one
A healthy ratio is ~3:1 = for every $1 you spend acquiring a customer, you expect to earn $3 in gross profit from that customer over their lifetime
What are drag-along rights and why do they matter in M&A scenarios?
Drag-along rights allow majority shareholders (often VCs) to force minority shareholders to sell in an acquisition, ensuring deal execution and clean cap table alignment
In a typical 10-year closed-end VC fund, why do GPs often raise new funds every 2–4 years?
Allows firms to continuously deploy capital and collect fees across vintages / spreads exposure across market cycles, helping mitigate timing risk / ensures follow-on capacity for breakout portfolio companies
A VC scout surfaces a pre-product team from ETH Zurich building in generative bio. What three traits should the VC evaluate before engaging further?
1) Founder-market fit: academic credibility, IP ownership, relevant prior experience
2) Thesis alignment: company fits the firm’s sector/geographic strategy?
3) Pre-validation signals/traction
A startup claims to have a $5B TAM but is currently selling to a niche segment. What questions should you ask to test the realistic market accessibility?
What % of this TAM is actively buying solutions like yours today? What switching costs or regulatory hurdles exist in this segment? How fast is the addressable segment growing, and what are the main adoption blockers? How is your current GTM structured to reach even 1% of that TAM?
You are offered a term sheet with a 1x participating liquidation preference. What does this mean in a $50M exit if the investor put in $10M for 20% equity?
They receive $10M back (1x) plus 20% of the remaining $40M = $18M total
A startup raises a $3M Seed round at a $12M post-money valuation. If an investor contributes $750K, what is their ownership percentage?
Ownership = $750K / $12M = 6.25%
What is a “reverse pitch,” and when is it most effective as a sourcing tactic?
When a VC proactively pitches themselves to high-signal founders (articulating how they think about the space, what support they offer, and why the founder should choose them)
Effective when competing with top firms, when engaging founders who are skeptical of VCs, and during founder "pre-raise" exploration phase
A healthtech startup claims it owns IP from university research. What legal diligence steps must a VC take to verify clean ownership?
Review IP assignment agreements, university licensing terms, march-in rights, and confirm no reversion clauses or ongoing royalty obligations exist
Why should early-stage investors discount public company comps when valuing startups?
Public companies are larger, more stable, and liquid. Early startups are riskier, so their multiples should be lower to account for execution risk.
Describe three components of the GP-LP relationship that are non-economic but strategically critical to a successful VC fundraise.
1) Thesis alignment
2) Regular, high-quality updates
3) Reputation & brand affinity: LPs often commit based on a GP’s perceived access to elite deal flow or operational expertise
Your fund has a thesis around vertical SaaS in logistics. Public comps in the sector are down 70% YoY. How should this influence your sourcing filters and founder targeting in the next 12 months?
Target capital-efficient founders likely to avoid over-raising, focus on resilient operators and screen out those who launched in hype cycles without operational depth.
A startup shows 90% gross revenue retention and 120% net revenue retention. What diligence steps should you take to ensure these metrics are sustainable and not artificially inflated?
Look at cohort retention, ask if revenue is usage-based or contractually locked, are upsells tied to genuine customer growth or pricing games, are top accounts expanding or just not churning?
A company has raised 3 rounds: Seed (1x non-participating), Series A (2x participating), and Series B (1x participating). In a $50M exit, how should proceeds be allocated across these investors?
Series A gets 2x on $10M = $20M, plus pro-rata of remaining $30M. Series B gets 1x on $15M = $15M, plus pro-rata. Seed gets 1x on $5M = $5M. Remaining equity is divided based on ownership % after these preferences.