PE vs. Banking - Boy was I in for a Surprise...
Hey guys – I’m back to more of a practical post today. I’ve just hit the three week mark at my new job in Private Equity, and I have some observations that I’d like to share now that I have a moment to catch my breath! The time has absolutely flown by, and needless to say I’ve been working my brains out. In a nutshell, I’m doing 1000x more work than I ever did in banking, but the work is 1000x more engaging. Read on to find out more…
So let me say to begin with that I had no idea what to expect going into PE other than what I had read online (WSO, M&I, etc.) and what my friends already in the industry had explained to me. All the explanations basically boiled down to something along the lines of, “you source and evaluate investment opportunities as well as work with portfolio companies.” Seemed easy enough. I knew about direct sourcing (ie: cold calling – I had done a fair amount of this in my previous job), and I figured it would be easy enough to learn about indirect sourcing (ie: working through business brokers to generate dealflow). Piece o’ cake. My head hit the pillow Sunday night before I started, and I felt ready to tackle anything.
Come Monday morning, boy was I in for a surprise – not so much a rude awakening as achieving a total and complete sense of clarity. The profound realization went something like this: in sell-side M&A, “you” (your firm) are essentially a salesman propping up your client to make them look as pretty as possible. It could be a stellar company that you want to make seem like a no-brainer investment, or it could be a complete turd that you are just trying to polish to resemble some semblance of a going concern (happens more often than not in the middle market). You are the bitch – at the mercy not only of the client but also of any interested parties. It’s not the place you wanna be – at least this was MY takeaway.
Enter the buyside. As a member of the investment team, I found myself wielding a level of power that I was wholly unfamiliar with. In evaluating any given investment opportunity, I had complete control in deciding whether to escalate the opportunity to the partners. The CIMs I had worked so diligently on in banking are now a dime a dozen across my desk. No longer am I trying to tell the story of why a company is awesome but rather questioning the story presented to me and attempting to poke holes in it wherever possible. I mean this in both a conceptual as well as a functional sense. I have complete control and discretion regarding how to go about evaluating an opportunity. I don’t buy management’s projections? I build out a pro forma with my own growth drivers, and I challenge the assumptions on my calls with the banker. I need a better understanding of the eCommerce market? I draft a list of eCommerce bankers/experts and call them up to learn about it. The banker hasn’t provided a breakdown of revenue by client over time? I send a data request. Me – the 23 year old dealing with senior bankers. Partners don’t get involved until it passes the sniff test and gets the nod at the Monday morning meeting. It was daunting at first, but I’m gradually coming to embrace the challenge. The point is this – I thought I had a modicum of responsibility on the sell side. I had squat. I’m having to rewire my brain, and frankly I’m loving it. I’m working more than I was in banking, but that’s more a function of being provided a laptop/cell phone and being available to do work any time.
Looking to the coming months, I’m slowly getting accustomed to the flow of the firm, building out my own network of brokers, and reading CIM after CIM after CIM. To any monkeys wanting to know more, feel free to PM me. All in all, I couldn’t be happier to have made the move.
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Completely unrelated shameless plug: a good friend of mine, Meredith Perry, just got seed funding for her company uBeam in the order of $750k. She rocks!
http://pandodaily.com/2012/07/10/ubeam-raises-750k...
If there is interest, I could potentially get her to do an interview. Let me know!
Comments
I totally agree. I did a
I totally agree. I did a 5-month secondment at a PE fund related to my IBD. It puts you in an entirely different mindset. You actually start using your brain.. looking at everything with a critical eye.
While bankers might spend an all nighter trying to polish off a bullshit company for some sell-side teaser or IM, you can just toss it off after an afternoon of looking through it and come up with the conclusion it is not an interesting investment, and that's it. We had a 3 hour call with a mid market investment bank once during which 3 senior bankers took turns pitching us on three different companies they were working on. the end result was that we were not interested in any of them.
PE (if you are mid-market) is also much more entreprenuerial on the origination side as you are not just executing the deals of other people, but are really going out there and trying to find good investments and put them forward to the seniors yourself.
After returning to IBD from the secondment at the PE fund, i am so jaded with what i am doing with my days, knowing what it was like at PE. About a month ago, i tendered my resignation and am currently serving my notice period. in September, i move to Hong Kong and will try to find a mid-mkt PE position there or otherwise exit finance all together.
Sounds good, Similar to the
Sounds good, Similar to the investment management, it seems as if these guys disect every investment opportunity down to the smallest details before jumping the gun.
Just a sophomore looking for an opportunity to start up this dream of mine.
Asia_i_Banker: I totally
I totally agree. I did a 5-month secondment at a PE fund related to my IBD. It puts you in an entirely different mindset. You actually start using your brain.. looking at everything with a critical eye.
While bankers might spend an all nighter trying to polish off a bullshit company for some sell-side teaser or IM, you can just toss it off after an afternoon of looking through it and come up with the conclusion it is not an interesting investment, and that's it. We had a 3 hour call with a mid market investment bank once during which 3 senior bankers took turns pitching us on three different companies they were working on. the end result was that we were not interested in any of them.
PE (if you are mid-market) is also much more entreprenuerial on the origination side as you are not just executing the deals of other people, but are really going out there and trying to find good investments and put them forward to the seniors yourself.
After returning to IBD from the secondment at the PE fund, i am so jaded with what i am doing with my days, knowing what it was like at PE. About a month ago, i tendered my resignation and am currently serving my notice period. in September, i move to Hong Kong and will try to find a mid-mkt PE position there or otherwise exit finance all together.
You resigned without securing an offer? Very ballsy move in this market. I can tell you that current PE opportunities in HK (at the analyst/associate level) can be tallied in one hand. The action is in Mainland China, hope you can 1). speak Mandarin and 2) willing to settle there.
I agree with the bullshit we do in sellside, wish everyone can see through it and move on to better things.
Californicated88: I’m
I’m working more than I was in banking, but that’s more a function of being provided a laptop/cell phone and being available to do work any time.
Nice post, keep us posted on the buyside experience.
About this comment above, do you mean you're working more hours now? Also, did you not have a laptop and phone before with your sell-side banking firm??
I find the prospect of jumping to the buy-side a little scary because I generally like my work now in banking and I really don't know how much I'd like the buy-side work. Some previous buy-side posters have painted a ugly picture of the buy-side being 24/7 due diligence work which sounds awful, but others like yourself have made it seem interesting, albeit you're 3 weeks into the job.
Anyway good luck and keep us posted.
One of the issues I've harped
One of the issues I've harped on a bit on here about PE is that due diligence can truly be soul crushing.
With that said, one of my bigger issues, and this is probably just a personal thing here, but is that I feel like it's way too easy to just sit back and pick apart a business. It's all too simple to be hyper-critical of companies that come your way via teasers and CIMs. Especially in the middle market. Honestly, I don't like that mentality.
While I understand it's important to be skeptical and dig into the details as an investor, it's just so easy to be critical and overlook the sweat-equity that went in to building a company up to the point where it's salable to PE.
This mainly applies to the middle market and founder-operated businesses, obviously, but it's an issue I have generally.
The flip-side is that you definitely do learn a ton about how different companies operate at a pretty deep level. In fact, I've found that a lot of what the due diligence process is about isn't so much trying to find reasons to kill the deal, but it's about understanding the business inside and out. After all, your firm will own it as soon as the funds hit the wire, so you'd better know it inside and out to best be prepared to work with management going forward.
TL:DR - It's too easy to be overly critical and trash companies, but you learn a lot from all the digging in you do.
Check out my WSO Blog
Californicated88: I knew
I knew about direct sourcing (ie: cold calling – I had done a fair amount of this in my previous job),
TheKing: One of the issues
One of the issues I've harped on a bit on here about PE is that due diligence can truly be soul crushing.
With that said, one of my bigger issues, and this is probably just a personal thing here, but is that I feel like it's way too easy to just sit back and pick apart a business. It's all too simple to be hyper-critical of companies that come your way via teasers and CIMs. Especially in the middle market. Honestly, I don't like that mentality.
While I understand it's important to be skeptical and dig into the details as an investor, it's just so easy to be critical and overlook the sweat-equity that went in to building a company up to the point where it's salable to PE.
This mainly applies to the middle market and founder-operated businesses, obviously, but it's an issue I have generally.
The flip-side is that you definitely do learn a ton about how different companies operate at a pretty deep level. In fact, I've found that a lot of what the due diligence process is about isn't so much trying to find reasons to kill the deal, but it's about understanding the business inside and out. After all, your firm will own it as soon as the funds hit the wire, so you'd better know it inside and out to best be prepared to work with management going forward.
TL:DR - It's too easy to be overly critical and trash companies, but you learn a lot from all the digging in you do.
Thanks for the clarification... if you don't mind me asking, did you work in banking before PE and at what level and firm size and also what type of PE fund do you work for? Are the hours any better in your PE experience?
adapt or die: Thanks for the
Thanks for the clarification... if you don't mind me asking, did you work in banking before PE and at what level and firm size and also what type of PE fund do you work for? Are the hours any better in your PE experience?
--I worked at a top middle market bank for three years as an Analyst doing M&A before PE
--Lower middle market PE (~$300M in AUM)
--Hours are way better than banking for the most part and all weekend work is done at home on my laptop. Hours get pretty nuts during the heart of deals, though. I've done my fair share of late nights and grueling weeks. Even if you're working at home on the weekend, it can still be shitty to spend 10 hours on a Saturday working on a model or whatever. Still, though, better hours than IBD.
Check out my WSO Blog
TheKing: adapt or
Thanks for the clarification... if you don't mind me asking, did you work in banking before PE and at what level and firm size and also what type of PE fund do you work for? Are the hours any better in your PE experience?
--I worked at a top middle market bank for three years as an Analyst doing M&A before PE
--Lower middle market PE (~$300M in AUM)
--Hours are way better than banking for the most part and all weekend work is done at home on my laptop. Hours get pretty nuts during the heart of deals, though. I've done my fair share of late nights and grueling weeks. Even if you're working at home on the weekend, it can still be shitty to spend 10 hours on a Saturday working on a model or whatever. Still, though, better hours than IBD.
Great info, thank you. Last question: How does the comp compare?
Comp is similar to what I got
Comp is similar to what I got in banking. Salary is a little higher, bonus is comparable. I took a slight pay cut, truth be told, but the trade off for better hours and diversifying my experience was worth it.
Check out my WSO Blog
Echoing what TheKing said and
Echoing what TheKing said and also responding to adapt or die, yes it feels like I'm "working" more, but the work is more rewarding and it all feels like it has a "purpose." I didn't have a cell/laptop at my sell-side gig. The nature of the extra work involves getting something reading before the meeting on Monday, etc.
See my WSO Blog
what top middle market banks
what top middle market banks makes their analysts cold-call?
Haha I never said it was a
Haha I never said it was a "top" MM bank. Cold calling was a component of the role though in terms generating deal flow for the firm. For me it was roughly a 60/40 split between execution/sourcing at my previous firm. OMS, seeing you work in VC and to use an analogy, we basically applied the sourcing model to banking and flipped it on its head.
My role now is far less of that (in fact none so far), and instead far more deal exposure akin to what I was describing above.
See my WSO Blog
TheKing: With that said, one
With that said, one of my bigger issues, and this is probably just a personal thing here, but is that I feel like it's way too easy to just sit back and pick apart a business. It's all too simple to be hyper-critical of companies that come your way via teasers and CIMs. Especially in the middle market. Honestly, I don't like that mentality.
While I understand it's important to be skeptical and dig into the details as an investor, it's just so easy to be critical and overlook the sweat-equity that went in to building a company up to the point where it's salable to PE.
This mainly applies to the middle market and founder-operated businesses, obviously, but it's an issue I have generally.
I understand what you mean, but in mid market PE, you just see so many opportunities, you can't spend a significant amount of time to look into each one. Also, when you have to think ahead to when you have to justify the investment to the (in my case, very conservative) IC, you have to be overly critical to not waste everyones time. If there are issues immediately apparent that may take a while to feel comfortable with, it seems better just closing the file and moving onto one of the targets with "cleaner" stories, as even the companies with easier stories to accept may still not make in through the IC due to some problem buried deeper.
TheKing: Comp is similar to
Comp is similar to what I got in banking. Salary is a little higher, bonus is comparable. I took a slight pay cut, truth be told, but the trade off for better hours and diversifying my experience was worth it.
What path do people typically take after the IB -> PE route (assuming MBA is already done)? People here never focus on the topic of retirement but I'm curious until what age do you work and call it quits?
slightly OT, but in your last
Asia_i_Banker: I understand
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Slightly off topic, but I
orangejulius: TheKing: Comp
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TheKing: One of the issues
I am wise because I know that I know nothing -Socrates
ThunderRoad: Awesome post, I
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TheKing: For me, to be truly
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ThunderRoad: TheKing: One
Californicated88: No longer
...well, he's no use to us if Detroit is his idea of a small town!
TheKing: And on board
I am wise because I know that I know nothing -Socrates
A very well-written post. My
"A strong man cannot help a weaker unless that weaker is willing to be helped, and even the weak man must become strong of himself; he must, by his own efforts, develop the strength which he admires in another. None but himself can alter his condition."
This side is so much more
"Jesus, he's like a gremlin; comes with instructions and shit"
TheKing: I just think that a
labanker: TheKing: I just
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TheKing: labanker: TheKin
labanker: (3) The whole
labanker: (3) The whole
...well, he's no use to us if Detroit is his idea of a small town!
How long before you realise
relinquis... Killing the GMAT this December; Over/Under set at: 725 GMATs.
Relinquis: How long before
melvvvar: Relinquis: How
Turbo leverage for capital explosion -- BD Capital
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