Can I become good at modeling?
Hi guys:
For those of you who broke into PE without IBD, how did you get better at modeling? When I recruited, I built models for case studies etc - that was all fine. What I find challenging on the job is when things are non-standard - ie. , missing certain information and have to be creative on how to still build a model, different capital structure or management promote considerations, different tranches of return. Honestly, sometimes I feel out of water and I'm a bit worried.
Do consultants who break into PE face the same issue? How do you deal with it and improve? can I still become good at modeling even though all my peers did banking and I didn't?
Thanks!
Following
Practice, Practice and Practice !!!
Do it so many times that whenever any financials come in front of you, you could visualize the expected financial model right there.
Financial Modeling is an art for me. I started with simply copy pasting the data into templates. Slowing, I started making changes to the models. Then, I started improving the models. Now, I make financial models all day every day.
Quick tip - Learn Excel. Avoid complex formula. Keep it simple.
Yes. pratice is the only way. It definitely takes a lot of time at the beginning --- I still take a lot of time building infrastructure models (toll roads, parking garages), so I put in more hours. Eventuall I/you get thhe modeling part done, that's good enough.
godam PF models with 50+ tabs and macros....
I work in a market where most companies don't bother publishing the cash flow statements - talk about missing information and non-standard things lol.
Typical in mid-market deals !!!
Definitely challenging. No notes to financials.
It first comes from having a good grasp of the underlying finance/biz driver concepts you're trying to model out. The rest is just arithmetic and simple excel formulas in an easy-to-understand flow. Over time as you do more reps and see other models, you refine the way you present this flow and it becomes a matter of adapting them for new situations rather than coming up with something entirely new.
In short, really understand the underlying analysis and do it over and over again. You'll get good fast.
Ask your colleagues to let you work through old models and write down every question you have! don't use complex formulas and reference everything, using color coding etc ..
You mention that you struggle with different capital structures and management promote considerations.
It is going to be much simpler for you, if you spend some time figuring out how these things work on paper. Before jumping into Excel, figure out how cash flow waterfall works at exit, and do it a few times. Then do the same with management equity. I sat down with a few younger people on my team and we walked line by line through what happens to each instrument in the capital structure during the hold period and at exit, and wrote it down on paper. Same for management promote.
If you are not a modeling virtuoso today, don't despair. Roughly 3-5 years into your PE work, modeling becomes less relevant. What becomes much more important, is ability to contribute to deal structuring, termsheet / other legals negotiation, deal origination skills, ability to lead commercial DD, assess management teams, come up with creative deal angles. Not every modeling pro is capable of making this transition.
Therefore, if you know that modeling is not your strength, I suggest you obviously learn what you need to learn about it, but urgently build up other strengths. Be the first one to go through the 300 page CDD or FDD report. Lead the creation of a 100-day plan. Figure out how clever structuring can help overcome valuation concerns.
Good luck,
Tamara
3 steps: 1. Just make up some weird algebraic sh*t 2. Cell comment what your thought process was 3. Make it someone else’s problem
Be nosy and consume other people's work as content.
Steal some of their techniques. Form some of your own
Spend nights and weekends practicing
Learn computer science instead - more valuable life skill.
Following. BIWS, Wall St Prep, borrow other peoples models and play in them and eventually rebuild them from scratch
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