Equity Investments BOARD EVALUATION
2026 GUARANTEED PASS ANSWERS
GRADED A+
● How does private equity differ from public markets? Answer: Private
equity investments are not freely tradable and require long-term capital
commitment, unlike public markets.
● Who are the main parties in a private equity fund? Answer: Limited
Partners (LPs) and General Partners (GPs). LPs provide capital, while
GPs manage the fund and make investment decisions.
● What is the lifecycle of a private equity fund? Answer: It includes
fundraising, investment period, holding period, and divestment period.
● What is the J-curve in private equity cash flows? Answer: A pattern
where early cash flows are negative due to investments and fees, but
become positive later as portfolio companies are sold.
● How do management fees and carried interest work in private equity?
Answer: Management fees are charged as a percentage of committed
capital, while carried interest is a share of profits earned by the GP after
thresholds are met.
, ● Why are incentives important between GPs and LPs? Answer:
Incentives align GP behavior with LP objectives, encouraging long-term
value maximization.
● What do venture capital funds primarily invest in? Answer: Early-
stage companies that may not yet be profitable, facing high uncertainty
and risk.
● Why are VC returns described as tail-heavy? Answer: Most
investments generate little or no return, while a few successful
companies generate the majority of profits.
● Why do VCs invest in stages? Answer: To manage risk by evaluating
progress before committing further capital.
● What is a term sheet in venture capital? Answer: A document
outlining the key economic and control terms of a venture capital
investment.
● Why are preferred shares used in venture capital? Answer: Preferred
shares provide protections like liquidation preference and additional
rights not available to common shareholders.
● What is the difference between economic rights and control rights?
Answer: Economic rights relate to financial outcomes, while control
rights pertain to governance and decision-making power.
2026 GUARANTEED PASS ANSWERS
GRADED A+
● How does private equity differ from public markets? Answer: Private
equity investments are not freely tradable and require long-term capital
commitment, unlike public markets.
● Who are the main parties in a private equity fund? Answer: Limited
Partners (LPs) and General Partners (GPs). LPs provide capital, while
GPs manage the fund and make investment decisions.
● What is the lifecycle of a private equity fund? Answer: It includes
fundraising, investment period, holding period, and divestment period.
● What is the J-curve in private equity cash flows? Answer: A pattern
where early cash flows are negative due to investments and fees, but
become positive later as portfolio companies are sold.
● How do management fees and carried interest work in private equity?
Answer: Management fees are charged as a percentage of committed
capital, while carried interest is a share of profits earned by the GP after
thresholds are met.
, ● Why are incentives important between GPs and LPs? Answer:
Incentives align GP behavior with LP objectives, encouraging long-term
value maximization.
● What do venture capital funds primarily invest in? Answer: Early-
stage companies that may not yet be profitable, facing high uncertainty
and risk.
● Why are VC returns described as tail-heavy? Answer: Most
investments generate little or no return, while a few successful
companies generate the majority of profits.
● Why do VCs invest in stages? Answer: To manage risk by evaluating
progress before committing further capital.
● What is a term sheet in venture capital? Answer: A document
outlining the key economic and control terms of a venture capital
investment.
● Why are preferred shares used in venture capital? Answer: Preferred
shares provide protections like liquidation preference and additional
rights not available to common shareholders.
● What is the difference between economic rights and control rights?
Answer: Economic rights relate to financial outcomes, while control
rights pertain to governance and decision-making power.
