Venture Capital
Early-stage private capital invested in startups in exchange for equity, expecting most positions to fail and a few to return the fund.
The exam’s favorite VC question hands you a fund’s individual deal outcomes and asks what drives the result — the answer hinges on recognizing that the few winners, not the average, carry the fund, so never apply normal-distribution or mean-reversion logic. Watch for the “tell”: valuations are pre-money vs post-money (post-money = pre-money + the new investment), and a wrong choice usually swaps the two or forgets that the investor’s ownership % equals their check ÷ post-money value (e.g., $3M into an $18M post-money = 16.7%). Also expect diversification math — more, smaller bets raise the odds of catching a home run.
The classic trap is blending VC with its siblings. Buyout targets mature, cash-generative firms and relies on leverage and debt paydown; VC backs cash-burning startups with little or no debt, so its risk is operational, not financial. Private equity is the umbrella term — VC and buyout are both forms of it, so don’t treat them as mutually exclusive. Memory hook: VC swings for fences, not singles — power-law, not bell curve.
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