How to learn to model
I did not get staffed on any deals that got past a first round bid and I came from MBB before PE and only did strategy cases (no financial statements). I don’t know how to model. I can do P/L revenue build stuff but nothing else because I work at a firm that uses templates for CIM models. I want to come back as a VP at another firm after my MBA but recruiting will be bad if I don’t know how to model. I only had to do a paper LBO to get this job so I really am in pretty bad shape. It is a point of serious embarrassment so please refrain from the “how have you not built a model from scratch yet” type posts - I know. Thanks in advance.
it's obvious but just start modeling yourself.
Get a reference model if you can and just apply what was done there to the model you're building. What I did was intentionally use formulas and make it as complex as I could. Trust me, getting the balance sheet to balance is a bitch.
You can do a modelling exercise in the beginning for a company you're looking at even if the deal gets killed just for yourself and learn from there.
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Pm me
Don't sleep on the modeling guides sold by WSO or peak frameworks etc. I was in a cap markets IB group trying to switch to M&A and found the WSO 3 statement and LBO guides to be really informative
Either are 100% sufficient to grasp the concepts of LBO modelling. You don't know what each PE firm is going to test, but if it's on-cycle, it will be easy because you would have approximately zero experience before interviewing. With that being said, I personally wouldn't waste your money on those unless you're pooling your $$$ with a bunch of people...there's tons of free resources (Macabacus), and 2nd years usually have a bunch of prep materials they would be happy to share if they're already going to buy side.
I’m sure you have a ton of reference models from your firm that you can attempt to re-build. Proper selection is important - the 20+ tab 20MB “highly detailed” piece of shit is NOT helpful for learning (nor is it helpful for anything else, but I digress).
Not sure now your firm evolves your models, but would find an earlier archived version just after first round. Final deal models more likely to resemble the above, and earlier ones are more focused on actual drivers that matter before they get frankensteined into oblivion.
focus explicitly on each section: revenue builds, then COGS, then SGA, etc. it’s really easy to get lost between different sections being co-dependent, etc, but you have to look at them discretely or you won’t ever fully understand. Re-building them forces you to put yourself in the perspective of whoever was building it too, so it’s helpful. Assuming you know how to do the LBO part since it’s basically a template.
This is good advice, thank you. Yes, I do know how to do the LBO part, that's pretty easy. I'm talking about, as you picked up on, things like revenue builds, cost builds, and then how to make a balance sheet balance and what cash flow is all about especially vis-a-vis Working Capital negotiations. Appreciate your comment.
Yeah makes sense and a lot of people are in these shoes to an extent, where the core concepts of revenue/cost components are easy to understand (e.g., P x Q for product companies, revenue bookings and churn for recurring service, etc) and it's simply a matter of putting it into practice which just takes reps and staring at other models.
Only other things to add is that the "direction" of drivers can really depend on the kind of investment. A growth-oriented deal might size revenue based on capturing market growth (e.g., how many monthly bookings do you need to sustain or grow market share, etc). After you've determined the revenue opportunity, you then try to burden the costs appropriately to support the growth (e.g., I need X more sales reps, assuming they book $Y/month). Another more "traditional" way is to size revenue based on the current cost structure - if you're trying to hold costs down and not go crazy on hiring, what's a reasonable bookings or # products you could sell annually (more of a GDP+ type of framework for mature companies versus high growth). Maybe you already know this but I certainly didn't when I started in PE, so wanted to throw that out there.
Personally, I don't have a ton of experience going super crazy on random balance sheet items or W/C for cashflow, but taking the simplistic AR Days, Inventory turnover, etc, should be more than sufficient to get you through until it starts to really matter, since the actually difficult nuances really vary based on industry.
Just build one from scratch yourself? There are like 100+ guides you can buy and video tutorials.
Have you already left?
If you're hoping to come in at the VP level, to be honest, modeling should be the least of your worries. You need deal experience. It's a lot easier to learn modeling vs. negotiations, what content to include in IC memos, funding, deal process, etc.,
Hearing that you've never made it past first round bid on any of your projects might be an instant dealbreaker in interviews unless you're a diversity hire. To be honest, I'd focus on getting transaction experience vs. worrying about how to build an operating model.
Sam @ WS Masterminds was used by my friend who had success
Echo the above but make sure you focus on how the model linkage works. Understanding what drives the model and how the key drivers of the model effect what you're looking to get from your analysis is going to behoove you a lot. I just say this especially from the perspective that many of the models you'll work on will be previous pieces of work or templates so even if you're modifying those to your current work, it's super important to know what inputs are causing what changes within an LBO/3-statement operating model etc.
I’ve got a few modeling case studies. Pm me
I would also say you’re probably not as far behind as you think you are. I’ve worked at a BB IB, UMM PE and MF PE, and literally no one builds models from scratch. They have a template they adjust or they start fresh, but reference an older model from another deal. The model obviously gets more complicated as you add operating cases, financing cases, sensitivities, etc., but I think the value of being able to build a model from scratch with no resources is a little overdone on this website. I frankly thought the case study model exams were harder than what I do on a daily basis because you aren’t able to reference anything.
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