Is Private Equity at all like Venture Capital?
So I’ve been thinking about various fields I could try my hand at in addition to MBB and I have both VC and PE. I wanted to ask how similar PE is to VC. From what I’ve gathered VC is all about taking equity in startups and then growing them to a sizable point. Is Private Equity the same as VC but instead of taking equity and growing startups you’re taking equity in already established companies and growing them? And what is the work life like with PE vs. MBB? I’m also curious on prospects of traveling, because I love to travel to places and that’s been a big draw to MBB aside from other stuff.
From a very high level / as simple as possible explanation, your thought is correct. VC tends to take very small stakes and help the founder grow, while PE will buy a controlling stake (usually the entire company), make changes incuding usually new management, and sell within a set time frame.
MBB has better WLB in that you're not working until 3am every night and on weekends, but the travel is very draining. You're not going to LA, Paris, and Miami - you're flying to Boise, Idaho and staying at a run-down Hampton Inn with 2 restaurants in the whole town. The experienced consultants I know hate the travel, it stops being exciting after the first year and then you just have a really long commute to work and don't get to go home at night.
Oh, yeah, doesn’t sound as glitzy as I made it out to be. Hm, I think I’d sacrifice traveling if it meant I got to live in a pretty cool place like NYC.
PE and VC are similar in the sense that both jobs are centered around a) doing deals, and b) investing in private companies (or in rare cases, taking companies private). After that, the similarities kind of vanish:
a) Deal Type: As you noted, VCs are mostly making minority investments in high-growth, early-stage companies, whereas in PE you are generally making control investments in more established businesses and partially funding these acquisitions with debt.
b) Deal Velocity: On average, you'll do more deals each year in VC than PE. PE portfolios tend to be more concentrated.
c) Diligence: VCs operate on more compressed diligence timelines and diligence tends to be higher-level and more market/founder driven. PE diligence tends to be longer, more extensive, and more costly.
d) Portfolio Construction: VCs tend to view their portfolio as a collection of bets, where the returns are driven by a couple home runs, and where most investments will go to zero (or maybe if later-stage VC, most investments will just return your capital). PE portfolios are typically more concentrated, and the focus tends to be on not losing money and hitting consistent singles / doubles.
And so on...
Now, to your question on work/life balance for PE vs. MBB, this is going to depend a lot on the type of PE fund you work at. At MF/UMM PE shops (especially those in NYC), you're probably looking at banking hours. For more MM/LMM shops, or growth equity, your hours will likely be better, probably closer to 55-70 per week. Generally speaking, less travel than MBB, but you'll still travel a good amount in PE. Just not 4 days every single week.
I guess I should also mention that using PE and VC as umbrella terms is a bit flawed too.
Within VC, you have seed/pre-seed funds doing deals pre-revenue (or even pre-product), you have late-stage VC funds who are coming in a round or two before IPO, and everything in between.
Within PE, you have variance in fund/deal size (LMM ==> MF), funds that specialize in certain sectors, growth equity funds that look similar to PE funds in a lot of ways, etc.
My comment above is generalizing differences between the two, but there's some nuance to it as well.
Why do PE funds make so few platform deals per year? I read somewhere PE associates could see maybe 0-2 platform deals closed in their 2 year program.
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