Tech Growth Equity vs Tech Leveraged Buyout Firms
I am currently an incoming tech investment banking analyst at a BB Bank (non GS/MS/JP). I was looking at exit opportunities and noticed that a lot of former analysts in tech IB exit to large tech growth equity firms (Summit, TA, JMI, General Atlantic) or tech focused buyout firms (Silver Lake, Thoma Bravo...etc).
I was wondering if anyone on WSO could explain the differences between tech focused growth equity and buyout shops, specifically the differences in day-to-day work, compensation, exit ops, and recruiting process for the two firms. I couldn't really find any information on other threads.
Thanks in advance!
Large cap tech vs growth equity are worlds apart. I would say the difference is fairly similar for general growth equity vs pe which has a ton of threads on this site so that might be your best starting point
Tons of threads on this and they're super easy to find.
If you go to the search and type in "growth equity" the ~6th post down is literally "Growth Equity vs Buyouts" and it has 30+ comments and is less than a month old...
Tech growth equity: often equity-only investments for a minority stake of a profitable company that is growing very quickly (~20%+ YoY revenue growth).
Tech buyouts: often a leveraged buyout (equity + debt) for a majority stake of a profitable company that is growing quickly (but likely less quickly than the growth equity target, ~10-15%+) or generates a lot of cash and has optimization potential (even if its growing slowly, ~5%+).
Day-to-day work: There is no sourcing at Silver Lake, Thoma and Vista. Sourcing is ~60%+ of the job at Summit/JMI/GA and ~40%+ of the job at TA. Modeling will be different: for one, there will be less of it at the growth equity firms. Second, buyout firms often start with a clean cap structure (a full recap, so the previous cap structure doesn't matter) but growth equity firms will sometimes build on an existing cap structure and fund a lot more cash to the balance sheet e.g. participating in a Series E/F Round. Work at growth equity shops may be more market/commercial thesis focused (more expert calls, more reports/research about industry) whereas some tech buyout investments are pure financial engineering and you don't care as much about a thesis (although there will always be some expert calls, market research etc.).
Compensation: Usually higher at tech buyout shops than growth equity firms (which also have better hours so it makes sense). However, some growth firms tie some compensation to sourcing output, which could enable you to achieve the same or higher compensation than the buyout shop. My understanding is that GA/TA at least pay fairly in line with buyout firms of their size.
Exit opps: People from buyout shops sometimes move to another buyout, growth or venture firm. People from growth sometimes move to another growth or venture firm. Generally, moving from a pure growth equity role to a buyout role is harder because the modeling is different, but certainly possible.
Recruiting process: As a key point, TA and Thoma launched the process in tandem last year so the recruiting process for the top firms in both strategies is not that different. Silver Lake, Vista, Advent, Francisco, Permira, H&F etc. (buyout shops with pure tech or large tech focus) all follow on-cycle for their tech groups. I understand that GA also does standard on-cycle. Summit and JMI are more flexible and do more off-cycle; in fact, I think Summit deliberately skipped on-cycle (too soon for them) 1-2 years ago. In general, growth equity recruiting is less rigid.
An interesting trend: There has been a convergence of tech buyout and growth equity in recent years. (1) Buyout shops will sometimes make minority, equity-only investments from their flagship funds when the target is unwilling to sell a majority (or the firm doesn't want to buy a majority/put on debt). (2) Buyout shops have launched dedicated tech growth funds to tap into that segment and compete with TA/GA etc. e.g. CVC Tech Growth, Advent Tech Opps, Bain Cap Tech Opps, Permira Growth Opps, KKR NGT etc.
Final note: TA is more of a unique animal in this space. Although traditionally a growth equity firm, TA does plenty of majority LBOs e.g. Conservice (now co-owned with Advent), ZoomInfo (co-owned with Carlyle), MRI (TA/GI/Harvest) likely had majority/debt elements.
Wow, thank you for the in depth and detailed response. I found this extremely helpful.
I know you named a lot of the bigger funds, but do you mind describing how people think about the different tiers in GE?
Is TCV/IVP on the same level as say KKR/TPG Growth in terms of prestige for future roles/B-school? What are generally the tiers in growth - when I look at firms like JMI or even Greycroft, the associates aren't coming from super impressive backgrounds (Top Tier Banks/MF PE Analyst)?
Also where does growth start to differentiate from late stage venture? I know that a lot of VC firms don't even hire banking folks (mostly founders/people with technical backgrounds etc)?
Love your breakdown of the question asked.
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