Growth Equity vs. LBO Shops

Ive worked in both. LBO shops have fundamentally different work than growth. Growth equity firms like summit have you just cold calling if youre an associate - usually growth equity is of a much smaller investment, which necessitates targeting smaller companies as opposed to lbos which typically just go through a bidding process where the relationships are managed by the principals. LBO shops have a much more technical basis for their associates. Im presuming you mean for associate roles. At the higher levels, I think the firms are respected more on their ROA rather than the strategy.

You mention that LBO shops have a much more technical basis for their associates, could you elaborate? What is modeling like at a growth and LBO shops?

Also seabird, after working in both environments, which did you enjoy more? What was the pay and promotion potential like in both?

Modeling at growth places is done by the vice presidents typically where as that would generally be handled by the associates at growth places.

Modeling is the same at most places. Nothing new. Just the associates at growth places are telemarketers.

I enjoyed the lbo place more but that was probably because of the people. In terms of growth potential for the individual, it just depends on how hard they work - lots of guys at summit go to harvard and do well for themselves - same as lbo places.

Pay is higher at lbo places. They typically will only take stars who come from i banking jobs. Growth places may pay comparable but theyre highly based on how much you do/how many calls you make.

Thanks a lot!

Yeah thanks for the info, this is super interesting as a sell-side IB monkey

what's the point of growth equity if you're a telemarketer...

Like, I understand you're developing soft skills, but you're not so much a "financier" as you are a phone monkey instead of an excel monkey, right?

At least in IBD you have something to show for it (i.e. you learn how to value and analyze companies).

What do you get from growth equity? I don't see the value proposition...

To directly answer the OP's question, among the IBD analyst community which is generally recruited by both growth equity and LBO shops, LBO is considered the more "respected" exit opportunity.

This doesn't necessarily make it a better career, but as prior posts have alluded, LBO funds are seen as hiring IBD analysts for skill at valuing and structuring a complex deal whereas growth equity is sometimes seen as hiring IBD analysts to maintain an army of well-heeled cold-callers with good resumes to put online so prospective recipients of investment capital pick up the phone.

Growth equity does not automatically imply a sourcing model. Let's be clear.

I agree with the above, both buyout and growth equity shops can be sourcing heavy, although neither are exclusively so. There are plenty of buyout shops where the principals avoid the bidding process and therefore utilise their associates for proactvie deal sourcing. There are also numerous growth/expansion shops which will source through their network/connections, sell-side etc.

Not to mention there are a lot of late stage growth / LBO hybrids. Even LBO/buyout shops require a "growth" story to every deal they do now, financial engineering no longer cuts it in this market.

There are a lot of growth shops that don't have a sourcing model and are merely buyout shops that require majority control of companies with great growth stories. Everything else concerning the deal is the same as a traditional LBO (leverage of 50-70%, strong FCF generation, etc.)

Still laughing at the guy who put down growth equity PE and said "At least in IBD you have something to show for it (i.e. you learn how to value and analyze companies)"

^ yes good one

Sorry to revisit an older thread. There are a lot of lists on this site of growth equity shops that have sourcing models. What growth equity/hybrid firms have a more traditional model?

Do you know if Great Hill Partners, Weston Presidio, TPG Growth or Accel-KKR have sourcing models?

All growth equity shops have a semblance of a sourcing model, simply because check sizes are smaller and bankers aren't usually queuing up in front of companies to take mandates for $50MM growth equity deals.

They need sourcing to generate deal flow. Also growth equity shops tend to spend less time evaluating a deal till they get very serious about it (no complicated structures, no debt modelling and lender discussions), so the junior folk usually has more time to actively source deals. I know guys at TPG Growth, Carlyle Growth, GA all spend time sourcing and executing deals just like the guys at traditional sourcing heavy shops like TA.

Summit, however is a whole different ball game since its a 100% sourcing model.

^ Growth and LBO are not mutually exclusive, but when one says "growth equity" on WSO, it usually refers to 5 or so sourcing model shops that usually take minority equity stakes, in which case I agree with your assessment.

Agree Sanity. All of the growth equity funds we work with are buyout groups that take a majority in higher growth companies (10-30% Rev growth)

Thanks for the response. I guess my question was do you know if these funds source through associates' telemarketing efforts or through going to industry conferences, meeting with entrepreneurs, etc in addition to being on the phone. The latter sounds a lot more interesting to me.