Does buyout PE offer better learning opportunities than VC for Pre-MBA associates?

Happy New Year everyone!

Currently a senior beginning to evaluate opportunities for after 2-3 years at an MBB. In regards to PE, it seems like the vast majority of people considering this path tend to focus on buyout PE versus Venture/Growth stage PE (based on what I have seen).

Can anyone shed some light on why this may be? Does buyout PE offer better learning opportunities for someone just beginning to experience the buyside? Are skills more transferable to other careers? Both options seem extremely interesting to me and I want to understand the pros and cons from both sides.

Thanks!

 

Don't think one is necessarily better than the other because PE and VC offer very different learning opportunities. VC is a lot more about in person meetings with entrepreneurs, attending events, relationship building, etc. You won't spend a ton of time on models because the companies you'll be looking at simply don't have enough financial history. PE allows you to build your fundamental technical skills further but also extends to a decent amount of operational exposure depending on the firm, and because of that will offer more transferable skills in my opinion.

The other thing to think about is that most VC partners have significant operational experience. As a result, it's extremely hard to get past the associate level coming from a pure finance/consulting background.

 
JustADude:

Don't think one is necessarily better than the other because PE and VC offer very different learning opportunities. VC is a lot more about in person meetings with entrepreneurs, attending events, relationship building, etc. You won't spend a ton of time on models because the companies you'll be looking at simply don't have enough financial history. PE allows you to build your fundamental technical skills further but also extends to a decent amount of operational exposure depending on the firm, and because of that will offer more transferable skills in my opinion.

The other thing to think about is that most VC partners have significant operational experience. As a result, it's extremely hard to get past the associate level coming from a pure finance/consulting background.

This post is by far one of the most insightful and accurate I've read on this site. I've worked in both PE and VC and have found PE to be far more rewarding. I would add, it's easier to go from PE to VC than the reverse, so in terms of providing yourself maximum flexibility... I would say PE offers a better experience. However, in VC you typically have more responsibility for sourcing deals, which is typically a more senior responsibility.

Play the long game - give back, help out, mentor - just don't ever forget where you came from. #Bootstrapped
 

Thanks to both of you for your responses.

If either of you know, what opportunities exist for someone after VC at the pre-MBA level? If switching to PE or making it past the associate level in VC is difficult without operational experience, it sounds like those that pursue VC early on don't plan on staying on the buyside for a career.

 
Best Response

This isn't an inflexible rule. It is possible to be promoted internally without direct operational experience. What matters is the attitude of the partners at the fund you're at, whether AUM is scaling notably between funds (i.e. $100m > $150 > $225 > $375 > $550 is a very different type of place than $150 > $150 > $150), and whether you source well.

Look at this year's 30 Under 30 in VC. There are a number of people who have been promoted from analyst to associate to principal (or from associate to partner) at a variety of firms on both the venture and growth side. Ignore Morgan at A16Z as that's one of the wonky firms that hands every single employee the 'partner' title under the delusion that it makes an entrepreneur take them more seriously.

Previous years tell you the same story. If you get into good deals, you will get promoted. It's that simple. Granted, a ton of it is luck, but you need to be finding the deals that at least have the right factors to blow up wildly. Jonathan and Justin raised their first fund at Binary in about six months (press was wrong saying it was three months, they were on the market longer than that) and hit their hard cap out of the gate. How? They were in Snapchat, Instagram, Whisper and TaskRabbit and could point both to dealflow, to their ability to filter for the best opportunities, and to their access to win allocation in rounds that were competitive.

You also don't need an MBA. If you go directly out of undergrad, you can easily be promoted. Of all the guys I personally know in their 20s, I'd ballpark it as under 25% with an MBA. Nearly all of those with one started in VC after b-school. It isn't nearly as rigid as PE. VC firms don't recruit strictly out of IBD or MBB analyst programs, they don't have a rigid up-or-out mentality to push you to b-school, and there's no 'right answer' for the best background in VC.

Interestingly enough, if you analyze the background of everyone on the Midas List since it was started, there is no meaningful correlation between prior background and investment success. Some were serial entrepreneurs with multiple low or mid nine-figure exits. Others were entrepreneurs with one monster ten-figure exit. Others were senior executives at a series of high-profile giant tech firms. Others (fewest of all) were direct promotes at their firm. Others (also fewest) were former consultants or bankers/PE guys who moved over at a senior level.

If you're looking at VC simply as a stepping-stone to your next career opportunity, it probably isn't the right role for you. You need to be deeply passionate about supporting entrepreneurs, to be investigative in studying the market and technological trends that create massive opportunity, and to have conviction in the theses you develop. That's hard to plug into a 24 or 36-month role.

I am permanently behind on PMs, it's not personal.
 
JustADude:

Don't think one is necessarily better than the other because PE and VC offer very different learning opportunities. VC is a lot more about in person meetings with entrepreneurs, attending events, relationship building, etc. You won't spend a ton of time on models because the companies you'll be looking at simply don't have enough financial history. PE allows you to build your fundamental technical skills further but also extends to a decent amount of operational exposure depending on the firm, and because of that will offer more transferable skills in my opinion.

The other thing to think about is that most VC partners have significant operational experience. As a result, it's extremely hard to get past the associate level coming from a pure finance/consulting background.

Would reiterate some of the points in here, which I think are all very strong.

My firm does a mix of both (some pretty early stage VC type of stuff as well as more traditional PE). From a technical angle, the traditional LBO / PE offers a lot more to learn -- think of it as IB part 2, with generally more complex models and more room to actually make judgement and change the model in a way you see fit (as a PE associate vs. IB analyst, where you don't have a lot of freedom). In VC the modeling aspect is pretty simple -- generally we're valuing companies that have little to no debt and valuing them off a multiple of revenue (or some other very top line metric). Granted a lot of research goes into making those projections, but the financial aspect of it is pretty simple. More time is spent learning about the industry and creating a thesis around why the product/company/service will catch on and penetrate to an extent in line with management projections (or some other amount that makes the investment attractive). Hope this is somewhat useful.

 

OP, I know it's only been two years, but have you decided on either of these paths? I'm in a pretty similar boat and was curious to see what a couple of years at MBB has done to your thought process

 

Wow - I'm surprised to see this bumped. I only come to WSO ~2-3 times a year now...

I accepted a PE offer for a 2019 start, but my priorities have changed since this initial post.

I ultimately decided to optimize for culture and lifestyle, rather than prestige / perceived brand. This led me to a LMM fund in a tier 2 city for Finance (e.g., NOT NYC, SF, LA, Chi, etc.). They're more aligned to the growth equity strategy than buyout, but they do both.

That being said, there's a wide range of variation in buyside recruiting outcomes for Bain. I just got back from our 3rd year analyst training and chatted with people who were planning to leave for Megafunds all the way down to tiny ~2-3 shops.

If you have any specific questions, happy to answer them.

 

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