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Growth Equity vs. LBO Shops
 

ryanmonkey86's picture
IB
(Monkey, 43
 
Points)
 on 6/14/12 at 12:00pm

which is more interesting and respected? growth equity or LBO shops? why?

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seabird's picture

Ive worked in both. LBO shops

PE
(King Kong, 1,473
 
Points)
 on 6/14/12 at 12:22pm

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.

“...all truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.”

- Schopenhauer

ryanmonkey86's picture

You mention that LBO shops

IB
(Monkey, 43
 
Points)
 on 6/14/12 at 12:24pm

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?

ryanmonkey86's picture

Also seabird, after working

IB
(Monkey, 43
 
Points)
 on 6/14/12 at 12:25pm

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

seabird's picture

Modeling at growth places is

PE
(King Kong, 1,473
 
Points)
 on 6/14/12 at 12:37pm

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.

“...all truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.”

- Schopenhauer

ryanmonkey86's picture

Thanks a lot!

IB
(Monkey, 43
 
Points)
 on 6/14/12 at 12:42pm

Thanks a lot!

adapt or die's picture

Yeah thanks for the info,

(King Kong, 1,230
 
Points)
 on 6/14/12 at 1:07pm

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

kidflash's picture

what's the point of growth

IB
(Gorilla, 667
 
Points)
 on 6/14/12 at 4:57pm

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...

re-ib-ny's picture

To directly answer the OP's

PE
(Gorilla, 688
 
Points)
 on 6/14/12 at 6:42pm

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.

Clever Name's picture

Growth equity does not

IB
(Baboon, 137
 
Points)
 on 6/15/12 at 2:10am

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

When one man, for whatever reason, has an opportunity to lead an extraordinary life, he has no right to keep it to himself.

samoanboy's picture

I agree with the above, both

PE
(Gorilla, 505
 
Points)
 on 6/15/12 at 4:05am

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.

couchy's picture

kidflash: what's the point of

(King Kong, 1,364
 
Points)
 on 6/15/12 at 4:27am
kidflash:

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...

you're missing the big picture. First, not every growth equity firm makes you a telemarketer. Summit is famous growth PE firm known for its sourcing model for associates, but not every firm is set up that way.

Second, sourcing is the important skill in the end. If you ever want to be a bigshot MD, you need to bring in deals. Sourcing isn't just mindless telemarketing. You don't just randomly call companies, you need to strategize how to manage your time so you'll actually land a deal and close it. You need to have the eye to see which companies can yield a favorable investment return. You need to know how to talk to CEOs as an associate (which some CEOs find offensive). And of course, even if the VP takes over the deal eventually, you'll still do some analysis before you hand it off.

Third, modeling is not as useful for growth PE as growth is speculative - which means the models can be complete shoot in the dark. You usually value companies based off of expected returns.

fourth, umm, you must've not done a lot of IB because most of the time you're just making powerpoints to pull in deals as well (ever heard of a bake-off?)

consultengent's picture

Couchy, I enjoyed your

(Chimp, 1
 
Points)
 on 12/13/12 at 12:50pm

Couchy, I enjoyed your comment so much it compelled me to dig up my WSO password just so I could tell you how much I enjoyed your comment.

peinvestor2012's picture

couchy: kidflash: what's

IB
(King Kong, 1,576
 
Points)
 on 12/17/12 at 5:08pm
couchy:
kidflash:

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...

you're missing the big picture. First, not every growth equity firm makes you a telemarketer. Summit is famous growth PE firm known for its sourcing model for associates, but not every firm is set up that way.

Second, sourcing is the important skill in the end. If you ever want to be a bigshot MD, you need to bring in deals. Sourcing isn't just mindless telemarketing. You don't just randomly call companies, you need to strategize how to manage your time so you'll actually land a deal and close it. You need to have the eye to see which companies can yield a favorable investment return. You need to know how to talk to CEOs as an associate (which some CEOs find offensive). And of course, even if the VP takes over the deal eventually, you'll still do some analysis before you hand it off.

Third, modeling is not as useful for growth PE as growth is speculative - which means the models can be complete shoot in the dark. You usually value companies based off of expected returns.

fourth, umm, you must've not done a lot of IB because most of the time you're just making powerpoints to pull in deals as well (ever heard of a bake-off?)

This is a good reply. I'd also add that many of the IBD guys are doing nothing but cranking out powerpoints for pitching. Is that really any better than telemarketing?

I'd like to point out that growth equity isn't necessarily a "shot in the dark". The way you worded it makes it sounds like venture capital. While it is hard to quantify the projections accurately, the direction anticipated capital structure can be modeled out.

SanityCheck's picture

Not to mention there are a

PE
(Gorilla, 633
 
Points)
 on 12/17/12 at 8:37pm

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.)

See my WSO Blog

mrb87's picture

Still laughing at the guy who

PE
 
Points)
 on 12/17/12 at 9:51pm

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)"

m2's picture

^ yes good one

VC
 
Points)
 on 12/18/12 at 7:02am
peinvestor2012's picture

SanityCheck: Not to mention

IB
(King Kong, 1,576
 
Points)
 on 12/18/12 at 2:12pm
EJS123456's picture

Sorry to revisit an older

(Monkey, 33
 
Points)
 on 2/26/13 at 10:27am
randomguy's picture

All growth equity shops have

O
(Baboon, 110
 
Points)
 on 2/28/13 at 7:17am
SanityCheck's picture

^ Growth and LBO are not

PE
(Gorilla, 633
 
Points)
 on 2/28/13 at 9:06am

See my WSO Blog

peinvestor2012's picture

Agree Sanity. All of the

IB
(King Kong, 1,576
 
Points)
 on 2/28/13 at 9:09am
EJS123456's picture

Thanks for the response. I

(Monkey, 33
 
Points)
 on 2/28/13 at 10:11pm

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