Starting in MM PE soon

Hi. I have prior experience as a DCM Analyst and I'm starting at a MM PE shop this month. I saw the post on how to transition to VP in PE so thought I'd ask: never done PE, any advice

 

umm, you've got a long way to go and you havent given any information so its basically impossible to help you. In general, you have to be a rockstar associate, demonstrate that you can take on more than your title, and earn the trust and confidence of the partners that you can ultimately lead and close your own deals that will be beneficial to the firm.

 

I would recommend the following resources, which I found helpful early on in the process:

1) Scoop Books - Practitioner's Guide to Investment Banking and M&A (this company should probably compensate me considering how often I plug them) 2) TTS - Training the Street Valuation Techniques

Depending on your level of experience or lack thereof these two resources are faily comprehensive and cost approximately $300.

I would also purchase a subscription to the WSJ (and do not forget to use your student discount).

I would also set up an online brokerage account (in the event that you do not have one) and begin trading real money.

I would say the biggest rookie mistakes involve not understanding the links between the fin statements and being completely unfamiliar with common finance verbiage.

Oh yea one final mistake is talking way too much...you will benefit greatly by simply listening and askin pertinent questions good luck

 
junkbondswap:
I would recommend the following resources, which I found helpful early on in the process:

1) Scoop Books - Practitioner's Guide to Investment Banking and M&A (this company should probably compensate me considering how often I plug them) 2) TTS - Training the Street Valuation Techniques

junkbondswap, it sounds like you really swear by this book. how did you hear about this book? would you say it's more relevant to banking or to PE? just wondering exactly how applicable it's been to your PE experience.

in the meantime, another book on private equity came out recently, entitled "Private Equity as an Asset Class." have you seen or heard about this? the reviews on amazon.com seem pretty positive. however, based on the table of contents, it looks like it's more about how to invest in PE funds instead of deal execution itself...anyway, i was just curious, since there seems to be a real dearth of good books specifically dedicated to PE. i might end up picking up the practitioner's guide, if it really is as good as you make it sound.

​* http://www.linkedin.com/in/numicareerconsulting
 

Ok I have slightly different advice. I agree with TTS/Dealmaven...that definitely helped me.

  1. Gain a deep understanding of the kinds of companies your fund is interested in.

You need to tap into your MDs head at a very early stage and understand what makes him/her tick. What sectors is he interested in? What is his professional background? How much deal experience does he have? What portfolio companies does he advise? Is he an active or passive board member? What is his degree of influence within the global investment committee? I know that's a lot of questions. But you need to start understanding internal company dynamics quickly in order to succeed. That way you can cater to each senior professionals demands in a customized fashion. If one person has the right to veto (i.e. the managing partner) an investment, MAKE SURE you learn what kind of companies he or she is interested in. Don't be afraid to bring this up at social events.

  1. Originate deals using a focused and disciplined process

When you present an interesting investment opportunity to your MD, have a very clear understanding of the industry beyond "erm...well McKinsey and Frost & Sullivan said this would be a $1B market in 10 years". Talk to as many people in the sector as you can. Read relevant trade magazines. Devise your own 2x2 matrix for picking out the "category winners" in advance and bounce these ideas of your MD. Visualize what strategic issues the company will face as it goes out to sell to clients. Devise your own market estimates using raw data from the Census Bureau and other govt agencies. If you can't think of any relevant metrics, just say "this is a highly speculative industry, it's not clear who has the technological dominance or operational scale to succeed, so the only way to pick the winner is to look for a history of continuous top line growth that indicates a winning product or strategy". We make these kinds of assumptions all the time in VC because we get lied to from engineers and CEOs.

  1. Study past due diligence documentation to understand how your firm analyzes deals.

Every firm is unique in how they assess a market. Read historical deal documents carefully to see what excites the investment committee. Not only will this increase your own personal knowledge, it will also help you "sell" your ideas or analysis to a real deal team. Also, you will learn how to spot bullshit and re-engineer numbers to make more sense. When you get pitched by investment banks on private placement deals, this skill will be key to your success. If you don't have access to this info, ASK FOR IT and read it over the weekend. No one will have an issue with this.

  1. Stay on top of portfolio company events

Self-explanatory, this will help you understand what is going on in the firm. If one of your portfolio companies is a MONSTER success, try to become friends with the MD in charge of it. Ask him how the firm added value to create a $500M+ exit. Ask him if you can sit on board meetings as an observer (my fund allows me to do this). While you're not allowed to open your mouth, if you're sitting in a board meeting while high-level strategic issues are being discussed or you are being pitched by various investment banks...trust me you will learn a lot about the deal process that you won't anywhere else.

  1. When participating in PHYSICAL (not phone, try to keep your mouth closed on conference calls) meetings, always ask clarifying questions

Use examples you read about in the news or from general knowledge to clarify. For example: I read through the financial model and I can see that projected revenues are $200M in year 5, could you please explain how this is possible since their main established competitor is struggling to break $100M? Doesn't business have significant sales cycles that preclude this kind of organic growth? It's good to tap into his thinking, but of course, use tact and don't come across as offensive.

  1. Make your MD look like a superstar

This is critical. Pre-empt his desires. Prepare notes and research for him when he has a board call. Package materials in a very concise and easy to understand format that helps him understand key strategic issues when meeting new potential investment leads. Send him intelligence on competitor companies and their strategies. It's OK if he takes your work and presents it as his own (this happens to me all the time). He'll remember that some kid has prepared information that is good enough to pass on to his PE colleagues. But do not overload him with information as he is probably sitting on 5+ boards and does not have time to answer your petty emails or concerns.

 
VCmonkey:
Ok I have slightly different advice. I agree with TTS/Dealmaven...that definitely helped me.
  1. Gain a deep understanding of the kinds of companies your fund is interested in.

You need to tap into your MDs head at a very early stage and understand what makes him/her tick. What sectors is he interested in? What is his professional background? How much deal experience does he have? What portfolio companies does he advise? Is he an active or passive board member? What is his degree of influence within the global investment committee? I know that's a lot of questions. But you need to start understanding internal company dynamics quickly in order to succeed. That way you can cater to each senior professionals demands in a customized fashion. If one person has the right to veto (i.e. the managing partner) an investment, MAKE SURE you learn what kind of companies he or she is interested in. Don't be afraid to bring this up at social events.

  1. Originate deals using a focused and disciplined process

When you present an interesting investment opportunity to your MD, have a very clear understanding of the industry beyond "erm...well McKinsey and Frost & Sullivan said this would be a $1B market in 10 years". Talk to as many people in the sector as you can. Read relevant trade magazines. Devise your own 2x2 matrix for picking out the "category winners" in advance and bounce these ideas of your MD. Visualize what strategic issues the company will face as it goes out to sell to clients. Devise your own market estimates using raw data from the Census Bureau and other govt agencies. If you can't think of any relevant metrics, just say "this is a highly speculative industry, it's not clear who has the technological dominance or operational scale to succeed, so the only way to pick the winner is to look for a history of continuous top line growth that indicates a winning product or strategy". We make these kinds of assumptions all the time in VC because we get lied to from engineers and CEOs.

  1. Study past due diligence documentation to understand how your firm analyzes deals.

Every firm is unique in how they assess a market. Read historical deal documents carefully to see what excites the investment committee. Not only will this increase your own personal knowledge, it will also help you "sell" your ideas or analysis to a real deal team. Also, you will learn how to spot bullshit and re-engineer numbers to make more sense. When you get pitched by investment banks on private placement deals, this skill will be key to your success. If you don't have access to this info, ASK FOR IT and read it over the weekend. No one will have an issue with this.

  1. Stay on top of portfolio company events

Self-explanatory, this will help you understand what is going on in the firm. If one of your portfolio companies is a MONSTER success, try to become friends with the MD in charge of it. Ask him how the firm added value to create a $500M+ exit. Ask him if you can sit on board meetings as an observer (my fund allows me to do this). While you're not allowed to open your mouth, if you're sitting in a board meeting while high-level strategic issues are being discussed or you are being pitched by various investment banks...trust me you will learn a lot about the deal process that you won't anywhere else.

  1. When participating in PHYSICAL (not phone, try to keep your mouth closed on conference calls) meetings, always ask clarifying questions

Use examples you read about in the news or from general knowledge to clarify. For example: I read through the financial model and I can see that projected revenues are $200M in year 5, could you please explain how this is possible since their main established competitor is struggling to break $100M? Doesn't business have significant sales cycles that preclude this kind of organic growth? It's good to tap into his thinking, but of course, use tact and don't come across as offensive.

  1. Make your MD look like a superstar

This is critical. Pre-empt his desires. Prepare notes and research for him when he has a board call. Package materials in a very concise and easy to understand format that helps him understand key strategic issues when meeting new potential investment leads. Send him intelligence on competitor companies and their strategies. It's OK if he takes your work and presents it as his own (this happens to me all the time). He'll remember that some kid has prepared information that is good enough to pass on to his PE colleagues. But do not overload him with information as he is probably sitting on 5+ boards and does not have time to answer your petty emails or concerns.

Really, really helpful post. Hopefully not much has changed since '08 in this regard.

 

I keep a binder for each company/deal I work on. I divide each binder into sections: industry research, company basics, financials, operations, key documents, etc. most of the company's i deal with are private, but if we work with a public company, i'll have the latest 10-k on hand. i think it comes down to your own personal style though, and i'm sure you'll pick up ideas when you see what others in your firm do.

in terms of resources, i use equity research, financial platforms (ie, capiq), and management financials. you can also do a bottoms-up revenue build to have a more granular look and keep you away from flatlining projections, although once you get to a certain point in the future, I don't think it makes much of a difference what you do.

Capitalist
 

Usually management case and a top-down conservative case to start with, then equity research and/or market size/market share triangulation, then bottoms-up revenue model. Don't think I've seen a final bid without a very detailed model, even if the actual top line doesn't differ much from the other methods; it's pretty much the only way to run sensitivities around any operational risks or real world scenarios that don't keep margins constant.

 
signposts:
Usually management case and a top-down conservative case to start with, then equity research and/or market size/market share triangulation, then bottoms-up revenue model. Don't think I've seen a final bid without a very detailed model, even if the actual top line doesn't differ much from the other methods; it's pretty much the only way to run sensitivities around any operational risks or real world scenarios that don't keep margins constant.

What if you don't have access to management projections...like if your firm makes hostile bids or plays in loan-to-own?

 

I'd start with really understanding how the 3-Statement model works basically, understanding of how to create/project the IS, BS [Depreciation + NWC schedules], and SCF. I think once you know how to do the basic 3-Statement w/ projections/forecasts you actually know 3/4 of a high-level LBO or even DCF. From there you basically have to create accompanying schedules that reconcile the transaction effects (potential tax implications etc .), account for leverage (Debt schedule), and returns analysis.

This is essentially how I learned to build LBO's over this past summer, it was a lot of trial and error in terms of how I was going about and building the models and linking the schedules as I built a new LBO w/ out a template for every transaction, but it becomes second nature. The way I mentioned though, is definitely not the most in-depth LBO and mine was essentially the starting point for a deal and it evolved as the deal made it through various stages in the investment process. However, I think my situation is closely linked to yours where I started off with virtually no modeling etc. so understanding these basic/large components help immensely.

I think you can find additional complexity in linking in more historicals and blending periods, tax accounting implications for deal structure, running various cases etc.

'Before you enter... be willing to pay the price'
 

Financial modeling training courses are also good. We are affiliated with Wall St Prep, so if you click on any of these hyperlinks or the banner below you can get 15% off a self study package, just from coming from WSO. Or if you are in the area and have a .edu address, you can get 35% off live training.

Most of these courses cover LBO modeling in depth and will give you a good base to work off of.

This along with other WSO discounts are listed here: //www.wallstreetoasis.com/wall-street-oasis-discounts

Either way, good luck with your new position and keep us updated on how you're doing.

Thanks, Patrick

 

Like all new things, there is learning curve associated with making the transition. It obviously depends on fund (some are much more keen on hand holding while others assume that you can hit the ground running). At the end of the day, being autonomous is probably the most helpful. The problem is, however, you do need at least a few months to figure out how things work. I haven't seen any associates at my shop come in and be a rockstar right away. It takes time to figure out how certain people like things, what your role is on each specific deal, etc.

You'll figure out pretty quickly if your shop requires face-time or not (mostly from when people, especially junior ones, leave). In starting out, I'd recommend erring on the side of caution.

 
HerSerendipity:
Like all new things, there is learning curve associated with making the transition. It obviously depends on fund (some are much more keen on hand holding while others assume that you can hit the ground running). At the end of the day, being autonomous is probably the most helpful. The problem is, however, you do need at least a few months to figure out how things work. I haven't seen any associates at my shop come in and be a rockstar right away. It takes time to figure out how certain people like things, what your role is on each specific deal, etc.

You'll figure out pretty quickly if your shop requires face-time or not (mostly from when people, especially junior ones, leave). In starting out, I'd recommend erring on the side of caution.

I think sounding absolutely bad-ass and volunteering to present as much as possible @ investment committee meetings during transaction presentations to partners will go a long way. Being able to field questions and sound like you 110% know your shit when some VP rips into your model/IRR / tries to one-up you in front of a partner is also pretty key. There is a fine line between eager-ness and douchebaggery but walking that line is pretty key in a politically intensive environment

 

Thanks HerSerendipity - I'm just conscious of being more assertive on the new job (which, being older and more experienced now, I feel is both deserved and expected from me) while still having a great attitude and proving myself. When I get put on my first deal, do I pull late nights immediately to learn (and show that I am learning) as much as I can - there will certainly be more than enough to keep all 24 hours of the next several days occupied when I get my first CIM, etc. - or can I still take the lead of other junior people and leave when they do? It's subtle things like this that I am thinking about as I make the transition to PE.

Looking back on my 2 years in banking, its clear how an analyst's reputation can get established very quickly. Those who came in and played the face-time game and did everything they were told with a happy face were certainly getting good reviews, but also found themselves more miserable than their peers and being walked all over more. I have found that it is hard to change one's reputation once it is already starting to crystallize. And what I mean by that is that an analyst who comes in initially as a pushover - expecting that he will become more assertive in due time - encounters a lot more obstacles when/if he does try to be more assertive later on than someone who comes in "with an edge" from the get-go - that right blend of entitlement and ability. I have seen and heard this from associates firsthand - i.e. "oh, Analyst A has always been like that" vs. "Analyst B used to be so good and now he's pushing back on everything..." Analyst A wins out. So while I agree that I will play it by ear to some extent when I arrive, as with anything new, I do want to have some ideas in mind for how I will behave from the beginning. I want to make sure to build my brand from Day 1 and not find myself struggling to change an image later on while others potentially reap the benefits of taking more risks - risks that we've all been told are part of the benefit of the great exit opps of the buyside.

And @Durban, clearly any job will have its level of BS and monkey work at any level, but I don't think I'm naive when I say that I won't be getting treated like an IB analyst in PE (or ever again in my career for that matter)...

 
HireUp212:
And @Durban, clearly any job will have its level of BS and monkey work at any level, but I don't think I'm naive when I say that I won't be getting treated like an IB analyst in PE (or ever again in my career for that matter)...

Will you be the lowest on the totem pole, yes or no?

 

I'd agree about being friendly. Don't pass up going out for drinks/lunch/whatever, even if you don't feel like it. If you keep turning people down, they'll stop inviting you.

Definitely speak up but only if you have something worthwhile to add. Most of the time (at least from my experience), the VPs/Principals/MDs are extremely prepared for investment committee meetings, internal reviews, etc. You often don't get a word in because they've already said it all (and most of the time, even more things that you didn't think of originally). As an associate, above all, you should know the numbers cold, how you got there, what happens if a major lever is pulled or 'pushed', etc.

Most places will not hand you a deal once you start. They'll probably put you on a team, maybe with a more senior associate or junior VP, so you can follow along internal/external processes and the like. Sure, the senior associate might ask you to help with some modeling or putting together an investment memo or something. The idea here is get the general bearings of a deal and figure out the process. Each shop will have their own system of how deals get screened and ultimately approved.

At the end of the day, whether you like it or not, you're going to be the junior person. The work is a lot more interesting than banking and if you're lucky and at a "flatter' shop comparatively (in terms of hierarchy), you'll get to do a lot more and take on more responsibility. Of course, great upside has great downside as well. From personal experience, I'd say that PE is much more stressful than banking in that I end up taking much more ownership of my work, especially as I've become more 'senior'.

 

Do you lack the basic social skills to start a new job without brainstorming how you are going to act? If you've done banking for two years, one would think you've learned how to balance work/life.

Furthermore why are you posting this before you've even started? It's either going to be banking 2.0 or not. Why don't you relax and wait to find out.

 
Devil88:
Do you lack the basic social skills to start a new job without brainstorming how you are going to act? If you've done banking for two years, one would think you've learned how to balance work/life.

Furthermore why are you posting this before you've even started? It's either going to be banking 2.0 or not. Why don't you relax and wait to find out.

You are a tool, well done.

OP my advice is to be incredibly enthusiastic and try and transfer over the diligence and a-t-d that you have almost certainly developed in banking. Demonstrating the ability to think for yourself, take inititative and add value to deals will be noticed and appreciated - as will fitting in, join in with chat about sports, movies, weekends etc

Most important factor is to be enthusiastic, dont spend weeks cowering at your desk to nervous to speak, you'll very quickly develop a poor rep!!

 
samoanboy:
Devil88:
Do you lack the basic social skills to start a new job without brainstorming how you are going to act? If you've done banking for two years, one would think you've learned how to balance work/life.

Furthermore why are you posting this before you've even started? It's either going to be banking 2.0 or not. Why don't you relax and wait to find out.

You are a tool, well done.OP my advice is to be incredibly enthusiastic and try and transfer over the diligence and a-t-d that you have almost certainly developed in banking. Demonstrating the ability to think for yourself, take inititative and add value to deals will be noticed and appreciated - as will fitting in, join in with chat about sports, movies, weekends etcMost important factor is to be enthusiastic, dont spend weeks cowering at your desk to nervous to speak, you'll very quickly develop a poor rep!!

I completely agree. Example - You will have the opportunity to craft due diligence lists that are highly tailored to the deal, the company, the industry...to show that you can think on your own and not always build off some template. This is valued and if it is not it's the wrong shop. These preliminary DD lists may serve as conversation starters with your sr. assoc / VPs -- scheduling time to chat about how you are thinking about key deal points that will drive structure and planning (to samoan's point "speaking up") is valuable to breaking the ice professionally and again to samoan's point shows enthusiasm.
 

Did this make anyone else think of the Leveraged Sell-Out about leaving banking for PE?

"I may go through the motions of seeing a couple sites, but the experience is more so that when I do start work and people ask me what I did during my time off, I’ll be able to casually say: “Oh…I was traveling.” And then, we’ll bask in 15 minutes of stimulating conversation about the insanely high prices of Icelandic beer and the rich body of Turkish tobacco. After a few days, I’ll start circulating some lavish sex stories involving me, an excess of HRK, and several runway models with broken English—just so the word gets out that I’m “’bout it.” The message will disseminate, and I’ll be set up well"

http://www.leveragedsellout.com/2007/07/breaks-in-the-track/

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.
 

[quote=Kenny_Powers_CFA]Did this make anyone else think of the Leveraged Sell-Out about leaving banking for PE?"I may go through the motions of seeing a couple sites, but the experience is more so that when I do start work and people ask me what I did during my time off, I’ll be able to casually say: “Oh…I was traveling.” And then, we’ll bask in 15 minutes of stimulating conversation about the insanely high prices of Icelandic beer and the rich body of Turkish tobacco. After a few days, I’ll start circulating some lavish sex stories involving me, an excess of HRK, and several runway models with broken English—just so the word gets out that I’m “’bout it.” The message will disseminate, and I’ll be set up well"http://www.leveragedsellout.com/2007/07/breaks-in-the-track/[/quote] Even if this was fiction it's incredibly boring. I think the author consistently undervalued that people truly don't give a flying fuck about how colorful another's life experiences are. People just aren't that into other people. In fact, the vehement articulation of rare occurrences suggesting one's infinetly more unique than others -- comes off as self-serving douchebaggery. The protagonist is not "bout it" anyone can have those things if you have $, there are no barriers to entry to models, turkish tobacco, or icelanding beers. lmfao. Easton Ellis wannabe.

 

Dude it's complete parody making fun of the people who act like the narrator (so was Easton-Ellis, but that's for another thread). Have you read the site to give that paragraph its true context? It's hilarious and all the characters he's making fun of are too, too real.

Here are some other quotes from the same article: "I’ll admit, I’m rather enjoying waking up whenever the hell and going to the gym 2x a day. Just this week, I watched Transformers in the theater at 3 in the afternoon after lifting. Halfway through that exceptionally manly movie, I felt like a meathead trader I was so jacked up on testosterone. I almost picked a fight with the dude in front of me, but instead of absolutely destroying the 85 year old, handicapped Asian man, I went home and stood in front of my full-length mirror and watched myself rapidly change from my street clothes into my Banker clothes."

"While it is fun living this jobless lifestyle, I’m glad I’ll be back at work in a few short weeks—the economy needs me."

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.
 

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