(2nd round interview) Commercial Software PE case

Prior IB/ER experience and am interviewing with a software focused PE fund for an investment associate role.

Right after the first round they informed me that they would like to invite me to the 2nd round, which is a software focused business case (fund only does software PE so it was fine to tell me) where they would like to understand how I think about investing into companies.

No modelling test will be involved in this round, but its apperantly important to understand the case. (I assume its due to recording unearned revenue from a subscription-based software or due to the CCC)

The investment Manager I interviewed with told me I should know all relevant software KPI's by heart and be able to apply them. 

now to my questions:

- what is a PE business case? Do they hand me a CIM and then ask me my opinion of the company and whether or not I would invest?

- how should I structure such a case? Is this a good way?

Introduction (executive summary)

Quality ( Porter 5 forces)

Growth 

Valuation

Key Risks

- what are the important software KPI?

2 Comments
 
Most Helpful

Hard to say exactly what the case will look like - some firms start out with "would you invest in this business if I told you it does $X revenue at Y% growth with Z% margins? Or what else do you want to know?" while some feed you a lot more info at the beginning. Regardless, a few things you should hit on (not comprehensive):

  • Understanding how business makes money; what customer profile it serves, use case, competitive dynamics, etc. 
  • Pricing model 
  • Retention metrics (both gross and net) to get a sense for how sticky product is, upsell from pricing as well as cross-sell opportunities 
  • Any non-software revenue (software companies often have some amount of services revenue; good to understand margin on this)
  • Cloud vs. on-premise hosting?
  • Gross margins on software
  • Sales efficiency metrics to get a sense for how much money the org needs to drive revenue growth you've seen (LTV / CAC, payback period, etc.)
 

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