Q&A: I’ve held Pre-MBA MM LBO, Growth Equity and Venture Capital investment roles for funds with $500M+ AUM to $5B+ AUM
Hi All - I'm ~5 or so years out of college. I did not do a formal 2 years of investment banking and was instead hired out of undergrad as an analyst at a fund. I've worked at several firms in several major US cities. I've worked at one smaller regional firm with $500M - $1B AUM and have since worked for larger firms with $3B+ and $5B+ AUM, both of which are well known and respected in the investment community. In terms of deal experience I've worked on 10-20 deals so far in my career that have ranged from $10M Series A investments to $20M-$50M minority growth equity investments in unprofitable and profitable businesses to majority recaps/LBOs of businesses with $5M - $100M of EBITDA. My career path was not normal and in 99% of instances is likely not replicable. I got help from connections, caught some lucky breaks and am not too interested in answering how to jump straight to the buyside or from VC to PE. I 100% advise you do banking or possibly consulting and then recruit for whatever interests you most afterwards. Happy to answer questions on the following topics: Venture Capital vs. Growth Equity vs. LBO Differences in investing style and junior job role What you will learn at each type of firm / most important hard skill experience Recruiting from lesser known firms to better firms Networking Etc. Anything else that you might find personally helpful Thanks for all the help over the years WSO. Hoping I can be helpful back now. I may not actually get to answering questions for 24 - 48 hours but promise replies to everyone. Bambino
Well look what we have here, Mr. kick ass over achiever. Fuck you op
BankerBanter
Thanks. I don't feel held back. However if I did it again I'd have done banking. I think there is immense value in it. When you think about Private Equity, there are few things that prepare you for it like banking, both from a process management and capabilities perspective. Also, there are a lot of times in a deal where you can just see through the banker BS based on how deals ran why in banking.
I started really networking for PE ~6 months after I started my first job. Mind you I didn't know until then I really disliked VC. I would encourage you to start talking with head hunters/firms earlier. I reached out to a lot of people and asked if they could introduce me to ppl in PE so I could get their advice given my situation. I ended up getting some amazing meetings with MDs/VPs at firms like TPG/General Atlantic/Etc. All I asked them was "how do I work at your firm in the next 5 years?". They often laughed and basically just said we hire from these groups at these banks, good luck otherwise and encouraged me to lateral to a bulge bracket bank. So I went down that path until I luckily landed a PE associate job at a well known MM LBO firm that hires a number of consultants and basically on-boarded me like I had been a consultant previously.
I knew I wasn't going to get a job from one of the huge famous firms and likely never would so I really just went into every meetings/call trying to learn. What has been most effective is most people I talked to I kept up with every ~6 months and they have always responded and been nice to me. They will still talk to me and some will meetup. None have ever hired me though, even after I asked some last year when I was trying to lateral. However, I'm pretty happy with the firm I ended up at so it worked out.
@laymen
It's not always a straight 6 months. but typically it revolves around me trying to find a reason I could follow up. These include: 1. Being direct and asking if they have time to meet and provide career advice as I'm thinking through some things 2. I've been working in a relevant sector/space and say it would be great to catch up and talk shop to share what we're each seeing 3. Reach out when I see something relevant to that person I think they might find interesting (congratualte them on their latest deal, share an article, etc.) and say at the end that it would be great to grab coffee or catch up sometime
The higher the seniority of value the person could have for me (like MDs are successful funds) I really only catch up with them if I have a rock solid reason to. If it's a more friendly person or more junior (like associates or VPs as good funds, I just try and catch up semi-regularly.
VCbabymonkey
1) Hard / later stage specific skills that come to mind (not comprehensive) - Strong accounting and finance knowledge - Understanding the core aspects that make a company a strong LBO candidate - Understanding debt / capital structure - Strong excel and financial modeling abilities, from different aspects --> Format and time efficiency --> Large data sets analysis --> Proper LBO, financials statements modeling - Ability to condense large amounts of information and data into digestible summaries in short periods of time that are very accurate - Understanding how a traditional banked LBO deal process works - Understanding the managerial nuances that occur with larger companies vs. startups - etc.
2) I respect VC and have no problems with it. I personally prefer traditional profitable companies where you are focused more on business strategy and execution. I would rather take a business that is performing at mediocre efficiency, buy it for a decent price, augment the strategy, operations, management team, M&A strategy and capital allocation efficiency to improve margins, growth, reputation and overall performance in order to realize a respectable return (20%+ IRR). I like knowing that if you gave me $10M I believe I could buy a small business (say $3M - $5M EBITDA) with debt and successfully double it in ~5 years based on what I've worked on. I also personally like the public markets and value investing. The mentality + the technical and fundamental skill sets I developed are much more applicable to this asset class than most VC skill sets.
3) Yes. Nearly all didn't give me job offers and told me to go do IB. You should realize that most prominent VCs even tend to hire mostly BB tech IB analysts or the alike as well. I got a job offer from a BB banking group first but luckily ended up not having to do it. I then got lucky with staffing and worked my but off and ended up being right on par with other associates after a few months. If I had to do it again I would say do not try and lateral from a VC oriented group to a PE oriented group - it's really just not common and there are reasons for this.
4) Fund size won't dictate partner personalities. It's just deal type, etc. VC partners and LBO partners just look at the world differently. I'm not sure how to describe it to be honest. When you compare a LBO MD who was previously the CFO or a fortune 100 financial services company to a VC who was previously the head of product at a fortune technology or eCommerce company their checklist for what creates an interesting investment opportunity is just different.
5) Source an investment opportunity. Know how to network. Information is king. Merge your social and work life (aka associates at other VCs should be actual friends and in your social circle), really learn how your MDs think about the world and what they believe results in good investments -- apply that to your thought framework, learn how to identify a thesis, map an industry and segment companies, learn how to assess the validity of a business model and it's long term durability. And a million other things.
fallensyrup
First, definition of growth: Minimum of $3M EBITDA and up (can be substantially higher) and growing revenue 20%+ YoY.
All in all here is how I see core differences between growth and LBO shops:
In VC you are really just networking and thinking smart. You are placing strategic bets. You are becoming extremely smart in specific industries, what is most valued in the space, what allows companies to ramp the most efficiently, what will let companies maintain competitive advantages, etc. At the end of the day you are developing a strong network and betting on companies that match a thesis you believe in, seem to have a good product and business model, and hopefully is something a strategic would want to acquire down the road, either for your novel business or strong management.
In LBO you are doing one thing: trying to identify and structure a good return. This is much more technical. You will spend most of you week reading through CIMs, making a proposal if you should spend more time on it based on your beliefs that the company and the market are attractive, etc. If your VP agrees then you will usually build a mini-lbo model to make sure the math can work, present to your IC and submit an IOI. If that goes well you will dive into the company in excruciating detail. You can't lose money here and you need to be very positive you're making a decent return no matter what. This is more technical and time consuming. You need to be strong at accounting, capital structure and debt markets, deal process, legal and tax structure, etc. These independent knowledge sets build over time with reps but once you get good at them all it's pretty powerful. Furthermore, you are then the owners of a business. You are the final decision maker on what is the best use of cash flow. Is it M&A, growth initiatives, paying down debt, doing a dividend? All in all your job is to understand how to derive good decisions from a financial mindset.
Growth, as defined above, is a bit of a blend of both but with a PE/LBO mindset. We're not making moonshot bets, we're security type and structure flexible investors that try to yield high returns. You are doing a mix of cold calling/sourcing and reviewing bank CIMs. The big difference from VC from the sourcing perspective if often he companies don't what to talk with you and you have to convince them 1) to answer the phone, 2) to want outside capital and 3) not use a banker. You may be doing a traditional LBO or you may be doing a minority ownership investment with structure. Because of the less formal structure of this asset class vs. LBO it can be less technical. You may not be building intensive 3 statement models and because you are able to grow organically at a 20%+ revenue basis you're often not doing max leverage so the facilities and the nuances can be less technical. On the flip side, you may be getting a better sense for how to operate a business at the granular level, you may be learning how to evaluate a small business (such as a $3M rev / $500k EBITDA add on) that is doing cash accounting and using quick books. All in all you will be less technical than a LBO shop but its still a fairly robust and financially talented group of professionals.
Regarding your specific question, I think you can learn a lot in both growth and LBO, it's more a factor of what your firm will let an associate do. I feel like growth groups give a bit more autonomy. However, when it comes to getting hands on with growth strategy, etc. I guess I'll say this. In my LBO job after we did a deal we hired Bain & Company to evaluate and help pick 2/10 $1-5M growth investment initiatives. In my growth job we bought a company, got 2 really successful industry executives to join the board and I work with them + our CEO/CFO to help implement changes across the company.
Firstly, congrats on your success. Apologies for the slightly blunt thoughts below. Just know you're further then most on this forum and asking the questions I did not figure out until 1 year post-undergrad.
In my personal opinion, if you have a 3rd option to do BB or elite boutique banking I would probably take that over either. You state your goal may be to eventually end up at a larger fund or even a mega fund. In my opinion, neither of these offers would get you there.
I would personally say never go to a secondaries fund no matter what if you want to do PE. I've literally had one of the head MDs at a Bain/KKR/Carlyle firm tell my friend who had a secondaries offer at Blackstone that "secondaries is where you go to die. Do banking and recruit for PE afterwards". My friend turned down the Blackstone offer, did banking and now he is a MM PE associate at a solid firm.
On the growth fund the issue is you will likely only be a sourcing analyst. This experience won't be looked on highly by any PE fund, especially the larger ones. You would most likely get the opportunity to move into an operational role at a really solid company after 2-3 years at the fund. Perhaps you could lateral to a more prominent growth fund as an associate but I know my firm wouldn't consider a growth sourcing analyst out of understand vs. a 2nd year BB analyst.
If these are your options, I'd probably recommend you really make your goal to get into a top BB banking class after 1-2 years at either job (probably the growth fund because at least you'll get exposure to PE).
Sorry to be bleak. Serious congrats on the offers if you get them. It's just very tough to move up to larger funds from smaller funds and into a transaction role vs. sourcing or secondaries role.