Tech Investment Banking - How do I really know my shit?

In case still relevant after all the drama ;)

In my humble opinion, having worked on TMT deals for quite a while, and along the often-quoted ‘stack’, you don’t have to understand every detail of a product to be able to position it well — and sell it.    The industrials guy doesn’t know every in-and-out of how the turbine is working /manufactured /maintained and how each production step looks in most granular detail — if so, good for him, doesn’t matter in 99.5% of discussions other than impressing the CEO. 
 

Nobody expects you to be on the same level as your group head either. Focus on high-level understanding. What is actually important to quickly assess / position an asset?   What are things you would want to anticipate before buy-side rips your case apart?   Some thoughts below: 

TMT stack: loose definition of entire ecosystem and what is “stacked” on which element — far from set in stone but roughly (bottom-up):

data center // infrastructure where everything else is hosted 

hardware components // servers etc.

software components // product — however, here are again numerous sub-divisions, e.g. infrastructure software (cyber sec, programming tech etc.), or the “usual” B2B/B2C/B2X products 

Software tech stack: similar but only focused on build-up of the software — what is used on frontend / backend to make it work (open source vs 3rd party), where is it hosted/deployed (cloud native or on premise) etc.

in line with this, you have different groups of investors looking at these — not going into detail here, but it’s fairly obvious that a 1 billion data center attracts an entirely different group of investors than a 1b software company, although many of the large groups have raised dedicated funds to address this via infra or growth/buyout groups.

Focusing on software, since this was your initial point — some basic stuff:

ARR snowball (as mentioned above) — know the components, know what “new logo wins” means, get a feeling for what good ratios actually mean — this should be high level / general since the ratios can be quite different depending on the vertical you are analyzing.   A profile of 25% growth via new logo with no/limited churn is strong in established B2B verticals, while a new B2C solution with such growth will likely struggle given much higher churn.

Get a feeling for overall sense-checks:

NRR > 120% / top performer 

NRR 100% / red flag 

Churn 5% p.a. / strong (usually)

Churn > 20% / weak (but entirely different tolerance between B2B and B2C and subject to new logo wins and NRR)

This is mostly for SaaS, but there’s still plenty of on-prem, especially in smaller / more focused verticals (industrial software, for example), so first thing is to check the status of the SaaS transition and how much on-prem is left — can this be migrated and at which uplift factor? Etc… the point here is quite simple: we pay a ton more for SaaS than perpetual licenses (take your Netflix/Spotify/Office365 as examples and compare to old office license costs) which a usual uptick of 2-3x $ for $. The product is also stickier and has huge visibility contrary to large one-off sales of perpetual licenses.   Summa summarum, SaaS eats the world, so it helps to understand the top 10 SaaS metrics.

Size of addressable market — at least back of envelope sense check, is the market even big enough to support the exit to PE and another one in 5y?

Plenty of other stuff but first and foremost focus on the basics. The details will follow. Also summarize which metrics really matter from an analytical perspective and which ones are those frequently discussed. Ask your co-workers, esp. VP/asso, for a quick chat / guidance when you feel a bit better prepared — they will likely appreciate the chat and you give you good insights. 

Fingers crossed