Modeling is overrated, technical prep matters a lot too for PE Associate Recruiting

As incoming analysts / current first years are preparing for PE Associate recruiting, there’s one particular phenomenon that I’ve noticed (and fallen guilty to myself) that leads to some candidates spending 100s of hours on PE prep but never walking away with an offer. 

And it’s a trap that you never fully consider, given the echo chamber and popular online courses that focus primarily on one skill over everything else – LBO modeling. 

People spend far too much prep time on LBO modeling and not nearly enough on technical questions, case studies, deal walkthroughs and behaviorals. It’s easy to worry the most about LBO modeling given that everything else “can be thought of on the spot”, but I’d argue that you are doing yourself a disservice if you spend 80% of your prep time on cranking out LBOs.

Consider this – model tests are always given at the very beginning of the interview process for every firm. They are used as a “check the box” exercise, and are never something that is brought up again when actually deciding between the 10-20 final candidates in later rounds of the process. 

After you pass the model round, there’s still at least 3 - 8+ rounds of interviews waiting for you, all of which matter so much more than creating a passable model. It’s easy to chalk these rounds up to being as easy as investment banking technicals, but from experience, this couldn’t be further from the truth.

There’s such a large quantum of things to master – industry knowledge, strategic case studies, deal walkthroughs, firm interest, macro knowledge, technicals…the list goes on and on. You need to spend extensive time getting these down cold – for most big name funds there are 2 - 4 seats per group, and hundreds of qualified IB analysts gunning for these spots.

With regards to technicals alone – you need to be certain on revenue builds, topline vs. margin vs. FCF, valuation, accounting, mental LBO math, brainteasers, etc. – so many things that I would need to create a second post for.

So what’s the solution? Spend more time practicing all of the above and less time on modeling once you can create an LBO from scratch (level 3-4 of PF).

Sure, you still need to be able to handle a few of the LBO complexities, but there’s far too much focus spent on LBOs compared to everything else that truly is the differentiating factor between applicants. 

When you are competing with 10 other candidates in the latter rounds of the process, you need to be perfect in every other aspect beyond modeling. Really wish someone told me this straight when I was preparing for PE roles and was ultimately the difference between me getting an offer in the later processes I participated in vs. the first ones.