This sounds like a tough situation, but I think you can get around it. When we were interviewing bankers, there were a few that were in the same situation you will be. The expectation was that they would move up through the ranks and talk about exit ops just didn't happen. The solution that seemed to work for them was this:

As you go through your analyst stint, you will inevitably be spending a lot of time with your co-workers. As a result, it is very likely that you'll develop relationships with a few more senior guys that you can trust. While the institutional culture may be one of "promote from within," there will still be senior guys who will be willing to help you out. I'd recommend that you make a point to find and develop relationships with those types of individuals, whether they are associates, VPs, or D/MDs.

When the time comes to give references, you'll finally need to let the people who know you best into the loop. Don't get me wrong, this will be tough, and the culture at your future bank will definitely hinder the recruiting process, but that doesn't mean you have to give up on outplacement.

Besides the above, my advice to you would be to talk to the 2nd year analysts when PE recruiting starts to kick off. They will know better than anyone about how you should go about it and methods that were successful for them. It sounds like you've gotten a high level answer from them so far, but I'm sure they'll have more details to share. On top of that, after a year on the job, you'll have a much better idea of the culture that you're in and will likely be able to navigate the recruiting process on your own.

1) See above answer to a prior question.

2) I really don't know the answer to this question. My assumption would be that someone with MM IB experience and MM PE experience would unlikely be successful obtaining a job at a megafund. The reason I say this is that the roles are extremely different. Megafunds place a heavy emphasis on modeling, something that MM funds care less about. As a result, your experience in MM PE, while definitely relevant, does not give you as many directly transferable skills as a megafund would. I would also guess that if you did BB IB and MM PE, you'd still potentially be qualified. Honestly, again, this would just be a guess, so don't put that much weight on my advice.

3) Most Private Equity shops are generalist shops. The vast majority of the deals that come in house are general manufacturers and business services. I'd say that you absolutely don't need to focus on any particular industry to be successful, either long term or short term.

See my post in the PE forums regarding the actual interview questions asked (link below). I can't answer for BB PE recruiting, but I imagine it is somewhat similar.

http://www.wallstreetoasis.com/forums/deal-discussion-in-pe-interview

I went through all my interviews with almost no "prep." The most I ever prepped for was for questions such as "Why PE" and "Why our shop." Outside of that, I kinda winged it. I did spend 1 saturday building LBO models from scratch, but I only built 4 models total and probably spent 6-7 hours max. By the time your second year rolls around, you'll likely be in a position to spend a few hours to do any prep necessary. If you're asking if you can take 2 days off work to "study," then absolutely not. You'll just have to find the time on your own.

I won't go into too much detail, but the majority of my time is spent evaluating new deal opportunities (60%), and portfolio company management (25%). The remainder is internal initiatives whether it be recruiting, fundraising, quarterly reporting, etc. I also sometimes do meetings with bankers or other professionals that come through our office looking to offer their services. I'll give you an overview of evaluating new deals, as that should answer your question.

New Deal Opportunities:
The majority of new deals that come in house come through investment banks in the form of a nice, lengthy, overly-repetitive offering memorandum ("OM"). For every new deal that I'm assigned, I need to read the OM. At some point before initial indications are due, our team will get together and discuss the opportunity to decide if its worth pursuing. If we decide its worth pursuing, we will do additional research, run a basic LBO with very high level assumptions, pull together materials into a presentation to the rest of the organization, and sometimes get on the phone with the bankers to answer any clarifying questions. After enough of these, this becomes a fairly quick process. However, I usually have a number of new deals on my plate at any given time (I once had 3-4 OMs dropped on my desk in a single day). This is generally pretty fun though as you get to learn about a new company and industry without putting in much effort (the banker has compiled the whole thing nicely). If there is no banker in the process, you're doing your research from ground zero, and this generally takes much more time and produces less cohesive results, but it's more or less the same.

If the banker accepts our initial indication, myself and my deal team then go to meet with management and typically tour the facility. We are then given access to the company's dataroom with all sorts of data on the company -- data ranging from corporate minutes to detailed financials to tax returns. I'll sift through the entire datasite and try to learn as much as I can. This includes things such as reading customer contracts, evaluating operational metrics (backlog, efficiency stats, whatever -- it depends on the type of company), and of course, modeling the financials. Overall, modeling the financials is just one little piece within the broader picture. Also, during this time, our lawyers are generally marking up the stock purchase agreement. In conjunction with my team, I'm reading the stock purchase agreement and giving my feedback to the lawyers (usually our team will get together and discuss our feedback internally so we don't have multiple people giving conflicting feedback to the lawyers). In addition to dealing with the lawyers, I'm also on the phone with lenders trying to get them excited about the deal. We'll share our internal materials with them and they will have access to the datasite. Frequently they will barrage us with questions which we will either answer, or turn to the management team to answer if we don't know. While all this is going on, I'm preparing documentation for our deal team to present to the investment committee to gain approval to submit a letter of intent ("LOI") to acquire the company. If all goes well and everything checks out, we'll submit the LOI.

If the LOI is accepted by the banker, at this point we'll enter into exclusivity (aka force them to cut off all negotiations with other parties and work exclusively with us) and work towards completing our due diligence. This involves continued digging into the data, but also hiring a large number of third parties to conduct diligence on our behalf. Diligence areas typically include tax and accounting, legal review, an industry study, background checks on key members of management, a review of the company's IT system, insurance, and, depending on the type of company, an environmental review. Each of these areas of due diligence are conducted by a separate vendor, so it takes a lot of management to make sure everyone is getting the information and access that they need. Generally myself and an individual 1 level senior to me will do 100% of the management of the 3rd parties, and between the two of us, we both act as the point person for the different groups. I spend a lot of time going through the materials they produce, and at this stage of the deal, spend a LOT of time onsite at the company conducting my own diligence, overseeing 3rd party diligence, and just spending the time with management. Also, all the while, we're continuing to talk to lenders and I am putting together a final presentation, catered towards the lenders, to enable them to have a day on site with management and hear the story first hand. If all of this diligence goes over well, there are additional responsibilities involved in the closing (preparing the funds flow documentation, reviewing lender Term Sheets and credit agreements, finalizing the stock purchase agreement, etc. etc. etc.).

Obviously this is just a quick and dirty overview of the deal evaluation process, but as you can see, modeling, while very crucial, is not a major aspect of my job. Given I work in an extremely small and flat organization, I am generally the #1 or #2 guy responsible for all of the activities above. A good deal of the time I'm the only one on the phone with the 3rd parties, the bankers, or the lenders, and I simply report out to the team afterwards. Note that I am on multiple deals at once, though most of them are not extremely active, otherwise I'd be working around the clock.

As you can tell from my above post about my work in PE, you can see that associates in MM PE care far less about modeling and more about your ability to understand the deal process and companies. In this way, the modeling exposure gained at the BBs actually hinders you rather than helps you. However, you're right, the megafunds (and there aren't that many of them), need model monkeys. As a result, analysts coming from MM IB are at an extreme disadvantage compared to BB IB analysts given their lack of exposure to modeling. They are simply two entirely different skill sets. As such, don't expect an analyst who laterals to a BB after having spent a year at an MM to have the same productivity level of a 2nd year at a BB, and vice versa is also true (yes -- it's true, we had someone from a BB lateral to my MM).

In terms of lateraling, you're absolutely right that there is significant upside to restarting at a BB after a year at an MM (the majority of my downsides were if you lateraled during your first year and didn't reset). However, DO NOT underestimate the impact of starting over as a first year. Working 100 hours a week is absolutely and inexplicably painful, and every analyst I knew dreaded it and day dreamed about falling into a 1 year coma so they could wake up and it could all be over. By the end of my first year, I would have gladly forgone my bonus simply to fast forward through year two, it was so bad. Analysts who decided to stay on a 3rd year were ridiculed and laughed at endlessly, because they actually volunteered to stay on an extra year. Typically, very few people stayed on a third year, despite the large number of third year offers, and those who did were the ones who were unsuccessful in PE recruiting and didn't want to go unemployed in a terrible market (although some did choose unemployment).

How much thought have you really given to your list of upsides? Let's take a look at each.

1) Modeling Experience -- As mentioned earlier in this post, modeling experience is only useful if you're targeting megafunds, otherwise the MM skillset is actually going to help you get the job.
2) Larger Deal Team -- Not sure where you were going with this. Smaller deal teams generally mean more exposure to each aspect of the deal process and less likelihood that you become an expert at a single function. I know a guy who left Bear Stearns after a year because his job was to run accretion / dilution models, and that's the only thing he did for his entire year. Also, larger deal teams give you less exposure to senior folks as you're generally just another face in the crowd or name on the list. You also get limited or no exposure at all to senior management when working in large deal teams, as you're frequently the last on the list for a limited number of seats at the table.
3) Deal Size -- Again, not sure what your point is with this. Larger aggregate deal value doesn't qualify you for anything -- especially if you're only a single cog in the machine. I've never heard of anyone getting a PE job offer for having "the biggest deals." Can you clarify how bigger = better? (Serious question, this is a frequent claim, but I've never heard of good support for it.)
4) More Products -- Based on my limited understanding of the analyst role at a BB, you only get multiple product exposure if you're in an industry group. On the other hand, the product group guys don't. Also, a lot of the reputable MM shops do exclusively M&A, which is generally one of the few targeted groups by PE firms.
5) Bigger Platform -- Not sure how this benefits you. You can't work in more than one group or division at a time. I concede that it would make internal networking a lot easier and give you a larger alumni base.
6) Brand Name -- Okay, you win here. That said, I'd be willing to bet my old MM's brand name carries more weight in MM PE than the BBs, including GS. Outside of MM PE or internationally, the BBs easily trump me. Given my career objectives, this suits me well. For those with different career objectives, the BB brand name would certainly be preferable.

So, feel free to draw your own conclusions, these are simply my thoughts. Also, given the above, I'd say that your analogy of transfering from a liberal arts colleges to an Ivy league university isn't really a fair one.

It's a trade off, and you've hit on the key areas. When a deal comes from a bank, the data is usually very organized and we have a lengthy document explaining the business. This is extremely helpful for a business that I'm not familiar with. You're right in that the process runs smoother, there are set deadlines and the communication and expectations are crisp and clear. However, there is also a very high likelihood that we don't win the auction due to the competitive nature of the process, which is a major turn off. Also, bankers (and we did this too when I was a banker) like to play games, so you need to sift through any BS they might be sending you. For example, if the CEO can't articulate the growth plan because he doesn't believe in it, but the bankers forced him to put various low probability growth opportunities in the OM, it creates the headache of determining what is real and what is created by the bankers. As a result, we pay far more attention to potential acquisitions that are proprietary than we do in processes.

I'd say that this is a difficult area for a generalist, as operational metrics and customer contracts look very, very different depending on the company/service/industry etc. While I had exposure in banking, I'd still say I am relatively new in this area and rely on my seniors for guidance. Sometimes even the senior guys don't know if certain metrics are good or not for the industry. As to which are important, I'd say that once I started looking at opportunities through the lens of an investor, it's enhanced my ability to evaluate opportunities subjectively and ascertain which metrics are important without relying on management (for the most part). I wouldn't be worried if you haven't gained that exposure or that level of expertise yet.

I will note that once you have responsibilities for portfolio companies, it becomes a lot more worthwhile to familiarize yourself with things such as contract structure and operational metrics. It's nice to know that I'll be working with the same companies throughout my years as a PE associate and therefore it is very worth my time to internalize and master material relating to them. In these cases, you would be expected to be an expert regarding customer contracts, backlog, metrics, etc. (depending on the PE shops views towards associate involvement with portfolio companies).