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Have heard that paper LBO can still be asked
I would still do all the basic PE prep stuff, including paper LBOs and even a few easy practice LBOs as well. Know how to build financial models, 3 statements, etc. Depending on the shop, GE can skew more towards PE or more towards VC, it just depends on the partners and their backgrounds. It also depends on how late stage we're talking. If you're doing big deals that are pre-IPO and are going to a big shop, the technical requirements will be similar to buyouts, even though you might utilize less of that skillset day to day. If you're at a more MM type of shop that might be doing 20-30M checks into Series B/C and later, then it might be a little less technically rigorous. With all that said, there's usually enough company info by the growth stage to start digging in on diligence, so I'd feel comfortable with at least the basics of some more technical aspects of software investing. I've seen cap table modeling exercises being given, which can get tricky after a number of rounds, or even just take home case studies being given that won't require a ton of rigorous LBO knowledge, but you'll need to know how to build a return profile and step through the basic logic of what you'd present at an IC.
The only problem with prepping for cap table stuff is that there are very few resources online. Most PE prep materials are skewed toward MF buyout case studies, so how would you recommend effectively prepping for late stage VC / smaller growth shop technicals?
I built the model test still used by a $2B+ (current fund size) growth fund. The biggest differences from a typical LBO that can be (but are not always) thrown your way:
1. Primary Capital - how does funding $30mm to the B/S dilute the existing cap table, post-money equity value vs pre-money equity value vs Ent Value math, and making sure you include on your B/S in the forward model
2. Typical software revenue build - the expectation is not "revenue grows xx%" like some paper LBOs. Current ARR * net retention % + a new bookings assumption (new bookings per rep, assume you add x reps per year is one way to do it)
3. Cap table - can you do simple math of "xx firm buys 15% and puts yy mm $ to B/S at zz pre-money valuation - that means fund owns what % of company?" What does that mean for equity check, what is FD ownership after 10% option pool, what is $ returned to the fund at exit?
4. Another round - have seen "assume company raised $xxmm Series C in 3 years at YYx YE ARR?" So now have to show how that future round affects #1 and 3 above
Hope that helps!
Very helpful commentary man, thanks. Appreciate I'm replying 8M late, but currently interviewing for a few top GE shops and was wondering if you would be happy to share a version of the template model that you detailed above? Thanks a lot
Hey! Just thought to check if the model has been shared with you?
This is consistent with the GE type models I’ve built on the desk + standard exercise I’ve heard from peers as well. Pretty important stuff to know how to walkthrough the more I think of it. Will typically mention high level math related to the above 1-4 when discussing w/ peers if an investment opportunity makes sense from a “returns” perspective.
Thanks for the super informative comment! Would you be willing to share your template model for this with me? I'm prepping for a GE interview and would appreciate it.
Thanks for your comments here, really helpful. Would you mind sharing that model with me as well?
Would appreciate if you could share with me as well! Thank you!!
Hey! Just thought to check if the model has been shared with you?
Hey! Just thought to check if the model has been shared with you?
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