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!
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.
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