Tips for a first-year PE analyst?
(Senior Baboon, 234
Points)
on 12/22/07 at 12:26am
Hey guys,
I'll be joining a small MM PE firm next year and I was wondering what I should do to prepare myself for the job? Anything I can do while still in college?
I know that the level of responsibility is a bit higher since mistakes are more costly, both in terms of reputation and (potential) financial impact. I guess I just want to do the best job possible and not stick out like a sore thumb, especially since I'll be working with ex-bankers and consultants who have much more experience than I do, while I'll be the only one without any experience.
So, PE veterans, what are some of the rookie mistakes you (or others working with you) made during the first year?
Thanks.
attention to detail
check your work 10 times before handing it to someone above you. either its 100% correct or it's useless.
I would recommend the
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
practitioner's guide to investment banking?
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.
Ok I have slightly different
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.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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
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.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.
great
great