Why Private Equity over Venture Capital?
Friend got asked this in an interview so I feel like I would too. Many of the same concepts of buyside apply, and venture is arguably more interesting to some since you're working with entrepreneurs. What's a good answer when a PE shop asks why PE not VC? I really just want to say cuz the pay is so much better, but since I can't say that (or shouldn't for my own good), what are other good reasons?
VC is a form of PE therefore you probably mean buyouts.
in my opinion, unless it is a more blurred field like growth equity, you will always be exposed to the operational side to some degree as there are less transactions (also less complicated etc.) and the value is not created by some financial magic (as in LBOs) but by growth, strategy, market niche etc. Identifying the latter factors is a total different skillset then the former.
No matter how often they tell that you have operational exposure in PE, you are just a number cruncher and it will only be true for a fraction of MM shops.
Say that you prefer the risk/return style of PE over VC. VC has a distribution where most deals lose money, but is balanced out by a few home run deals. PE return distributions are usually more consistent, without as many home runs as in venture.
IMO, a lot of VC is built around hype. The asset class is saturated with capital and all firms are chasing the same deals. Everybody's looking for the next facebook, twitter, etc, and they're willing to lose a lot of money to take that risk. Its liken to an options trader who only buys calls.
This is similar to the risk/return answer above, which is good, but you can also focus on stage and industry. You can say that you find VC to be a bit arbitrary in terms of trying to place a bet on an emerging company that may or may not be able to capitalize on emerging trends. The companies aren't proven out enough and often don't have real revenue. You may prefer to work with entrepreneurs that have already built an established, sustainable business and help them work through execution/production issues versus product development and branding.
VCs tend to focus on tech, telecom, new media and biotech so if you are more interested in stable brick and mortar companies that can be your answer. If you don't have an engineering background, you can say that the intricacies of various technology platforms are not your area of expertise or interest.
You might also explain that buyouts provide more opportunities to generate investment returns ( leverage, dividends, top line growth, operational improvements, acquisitions, etc.) while simultaneously providing a greater level of investor control, all of which appeals to you.
VC is dead. The National Venture Capital Association (NVCA) showed that the industry isn't making any money and their model is broken.
If you wanted to impress interviewers I'd look more into why the VC model sucks and how it differs from a traditional PE model and why you think working for a PE shop is better blah blah.
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