PS#014: The Interview Series – Portfolio Question(s)
The most frequent questions I receive are about the VC interview process.
More specifically, how to handle certain questions.
With that said, I’m launching a series of emails on the most common VC interview questions in what I will be calling – The Interview Series.
If you have any questions that you’ve encountered or struggled with in this process, please respond to this email (or other emails) with the questions attached. I’ll add them to my growing list of content requests.
Today, I’m going to be discussing what I call the Portfolio Question(s).
Before we begin, if you’re just starting your interview preparation, I recommend reading my 3-Step Guide to VC Interviews. This will offer an introduction into the mindset required to separate yourself in the interview process.
This was the mental switch that helped me go from rejections to offers.
Alright, let’s get started.
Portfolio questions come in two forms.
Venture capitalist will often ask some version of these two question in their interview process:
Are there any investments in our portfolio that you like?
Are there any investments in our portfolio that you don’t like?
On the surface, this may seem a bit tricky, but let’s unpack it a bit more.
Investors are asking you about their own portfolio, where they have a significant information advantage against you.
They sourced the opportunity, worked through the diligence process, and ultimately made the investment. They have already thought through the merits of the business.
So what are you supposed to do?
Well, first, we need to understand the point of the question.
These questions are designed to test your thought process against their diligence process.
This isn’t about having the “right answer” in regards to an investment.
It’s about having a good process.
We won’t know the outcome of these investments for many years, but each investor and/or firm has a structured diligence process that they use to make their investments.
This is about testing your thought process against that diligence process.
So how do we answer these questions?
By doing the work.
Let’s go through this step-by-step.
Step #1: Pick two investments for each of the questions.
Choose two investments for each of the questions.
Two that you like and two that you don’t like.
Picking two for each gives you a bit more flexibility in the interview process.
If possible, I’d recommend picking spaces where you’ve already built a thesis or have some expertise. This can make some of the later work a bit easier.
Step #2: Build the investment case for each.
Take some time to research and learn about the company/investment.
Use my 6-Step Guide to Building an Investment Thesis and think through the argument for each of the four investments.
Even for the ones that you dislike, you want to understand the case for making the investment.
Step #3: Outline the key risks for each investment.
As with all investments, there will be some key risks that could potentially kill the company.
Outline these risks, focusing on your top concerns. I recommend trying to build an exhaustive list and then choosing the most impactful ones.
Your comfort-level with these risks will help you decide whether you’re positive or negative on the investment.
Step #4: Build a plan to test these assumptions.
For both the investment case and the key risks, you will have to make assumptions.
The reality is that you just won’t have access to the same level of information as the investor.
That’s OK.
You want to show the investor that you can think critically (i.e., the investment case and key risks) AND understand how to test these assumptions (i.e., your diligence plan).
Remember, it’s about the process.
BONUS: If you can, do some of the work…
Do thorough research on the company, industry, and market.
Speak with ecosystem contacts and subject matter experts.
Build out the details of your diligence request list.
etc.
Step #5: Put it all together.
You can now take each deal and show your thought process…
Investment case
Key risks
Diligence plan
Whether you have a negative or positive perspective on the deal, follow the same outline.
You want to have a clear opinion, but at the same time acknowledge that you’re making assumptions and would need to test those assumptions in diligence.
Alright, there it is. A 5-Step Approach to the Portfolio Question(s):
Pick two investments for each of the questions.
Build the investment case for each.
Outline the key risks for each investment.
Build a plan to test these assumptions.
Put it all together.
