Moving out of software PE
For anyone that started in software PE and wanted to switch to another industry coverage, how was the transition? Were you pigeonholed into software or did firms and HHs generally let you switch? Bonus points if you went from west coast back to east coast. Thanks
As an associate I think you can definitely switch to another industry. emphasize your modeling experience more generally, DD workstreams you helped drive, portco work you did etc- basically the stuff that is common to all PE.
I have to say, it’s a bit funny that 5 years ago everyone was trying to get into software and tech PE, now associates are trying to transfer out to other industries.
Am an associate 2 going to become a senior associate soon at a top Tech fund:
Still a ton of people trying to get in at the top software PE shops. We did not see any weaker levels of canidates for our associate hiring. Still a lot of money and opportunity to be had in software PE no matter what the doomers say.
2020-21 vintages have been terrible across the board, but already seeing some pretty interesting AI-led value creation and exits across the software space for post-ZIRP investments. Think AI transition will re-create a second wind of software PE returns for the firms that are approaching AI value creation well. Too much doomerism about software PE on forums like this solely looking at portco busts from ZIRP era. Just because one or two ZIRP portcos are trading at distressed levels does not mean a fund is going to die.
Think bigger con of tech PE is that it's all just boring B2B vertical software investments.
most free thinking software mf pe associate
Fully out on software PE as well. Entry multiples are unsustainable. 80-90% GM businesses probably shouldn't exist. Most funds are operating as outdated momentum strategies from cloud revolution / ZIRP. Value creation is dubious at best. Too much money chasing the same finite amount of deals. Jaded
What funds are you at that you are talking about momentum strategies and investing in businesses that shouldn't exist? I feel like a lot of my time with DD is spent around trying to figure out how prone a business is to AI displacement. Most of the better tech investors are focusing primarily on diffrentiated software businesses with lower AI disruption risk, which they are paying up for, and then developing AI products to both drive revenues and reduce costs. Big question really is just how bullish you are on AI.
Focused less on specific funds. My long-term view is that vanilla enterprise SaaS (CRM, HRIS, ERP, etc.), which is at its core just a UI sitting on top of a database, will not exist at 80-90% GMs as the cost to develop good proprietary applications compresses with the rise of more sophisticated / compliant / safer AI-enabled application development. We are still far from this being the reality, but I don't want to spend the next 10 years of my life fighting for carry in funds that are overindexed to this risk. Which in my opinion is most enterprise SaaS funds.
Stuff like PAS in insurance which require a shitload of upfront custom dev / implementation / porting data over from legacy systems seems more defensible to me, but the majority of institutional software investors hate the model because of how hard it is to underwrite. You have to send a lot of bodies on site before you win deals to scope out what customers need and then make a bunch of promises with no guarantee that you can deliver on time.
How do you diligence how prone a business is to AI displacement at your fund? Everyone always talks about this shit but I haven't gotten a differentiated answer yet. Everyone's thesis seems to be to pay up for the system of record that customers are already using, and then build LLMs on top of this data. Don't think this is wrong, just not groundbreaking
I know the conversation has been about general trends and themes, but it would be helpful to know which software/tech PE funds are better positioned right now and have been adapting faster than peers. I'm an analyst looking to recruit for tech PE and build a career in the space, so this information would be invaluable
Try to talk to / network with as many people as you can that you have personal, alumni, or professional connections with in tech PE. Strangers on the internet are not a reliable source. Good luck
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