PE vs. Banking - Boy was I in for a Surprise...PE
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.
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!
If there is interest, I could potentially get her to do an interview. Let me know!