Hello all, I have been meaning to get around to this for quite some time. I am a first year principal at a lower middle market private equity company based out of NYC. We take control / 100% equity investments in companies in a few different industries. I have previously worked in middle-market PE in other boutique shops and a couple of large banks like Goldman. I have also led recruiting processes, including a recent one where we hired a post-MBA Associate from a top business school. My education is: Wharton undergrad and Columbia B-school.
WSO Mentor Profile
Want to work with me? Check my profile here.
What’s your view on top 3-5 skills to hone to keep moving up the ladder?
Certainly the foundation is modeling and analytics - being able to relatively quickly and thoroughly model (or review and provide comments to an Associate) or put together an analysis and draw meaningful conclusions from them is something I still do regularly. I think this is still the #1 reason Senior Associates don't move on to VPs.
Other very important skills are being able to be a workhorse in terms of efficiency and productivity, be able to evaluate businesses and communicate the investment opportunity thesis concisely, and get very comfortable leading the evaluation and diligence of opportunities.
Soft skills are obviously incredibly important. I'd say one of the most important ones is able to confidently and professionally engage with management teams and bankers. As you go from VP to Principal, you will lead a lot of diligence calls, so being prepared and demonstrating knowledge of the company / dataroom is a must.
1) What aspect of the job you like the most; hate the most?
2) How robust is your IC process and do you feel there is pressure to deploy vs. be intellectually honest / correct?
3) What is your comp or for those at similar funds. VP, Principal and MD / Partner
4) How often do you get inbounds for lateral moves from recruiters
5) What is the VP to Principal conversion rate at your shop / similar funds
6) Seeing any slowdown in activity; IC being more cautious?
7) What are you seeing for fundraising momentum at your / similar shops? People taking a pause?
8) How are you liking post-covid dating in NYC, if single
I'll take each of these questions seperately so people can reply to whichever one interests them.
Aspect of the job I like the most - engaging with management teams and operators. Have a great respect for those who have built their companies, even if they are flawed and have stagnated in growth because they are comfortable with their lifestyle. It's fun to learn how businesses really tick, and gives me pattern recognition to help our portcos or in other investment processes with how to improve or grow companies
Aspect of the job I hate the most - it can be very tough to see an investment almost immediately go south, whether that's not meeting your base case or issues develop that you didn't anticipate. I've been in situations where covenants get tripped or an equity injection is needed within 6 months post-close, which brings all your work and analysis into question, which is painful. In terms of more regular things I hate, it would probably be a very painful diligence analysis that needs thousands of rows of incomplete or inaccurate data. For instance, a payroll analysis to determine how much OT was paid can be a 12 hour exercise in futility if the data is garbage. Also it can be frustrating to have to negotiate things you thought were already negotiated, like an indemnity escrow
Answering this q: How robust is your IC process and do you feel there is pressure to deploy vs. be intellectually honest / correct?
.
.
.
It's not that robust because I work at a boutique, so the decision really comes down to 2, or more often, 1 person. We basically do 2-4 weeks worth of pre-LOI diligence which includes a basic model, basic understanding of drivers and risks, a management call, getting a short list of DD questions answered, and what our thesis would be. We figure the rest out in post LOI diligence. Everyone feels the pressure to deploy, including us, but it would be crazy to do a bad deal vs. no deal at all. Everyone who has been burned on a deal wants to avoid that. So usually we can stay pretty disciplined. We can overlook some flaws but if we think the deal is riskier than we thought or not as attractive, we're fine to walk and move on to the next one
Answering this question: Seeing any slowdown in activity; IC being more cautious?
.
.
.
I happened to have just spoken to 30+ LPs and lenders and it's almost a unanimous - NO. Lots of deals still happening, acquisition multiples are frothy, leverage multiples have barely budged..I will caveat that with 2 nuances: 1) lower quality businesses and / or consumer discretionary businesses are showing some softness; 2) senior lenders such as banks are becoming slightly more risk averse, which has a flow through effect in the capital markets, whether that's slightly lower leverage multiples or mezzanine shops taking bigger bites of the debt than they otherwise would have, for slightly higher interest rates
Answering this question: What are you seeing for fundraising momentum at your / similar shops? People taking a pause?
.
.
.
Yes I've seen a slowdown in fundraising, but that's primarily because so much capital has been raised in the last 18 months. I've lost track of how many Fund III's and IV's I've seen recently. I know there will be a few funds raised in the Fall but for the most part there's a lot of dry powder out there so I'd expect to see a continued slowdown for awhile as shops focus on putting money to work.
What is your / your team's process for developing a new thesis in a given sector or vertical? And then, more company-specific, do you have any internal processes that help you choose the best place along the value chain in that vertical for your firm to invest?
It's not that hard to develop a thesis. Usually you will see an opportunity where you learn more about a certain subindustry or niche, and the thesis about why that subindustry has tailwinds and is positioned to grow is fairly obvious. From there you can do research to find similar companies, or employ a buyside finder company to find them if your company has the resources. We did that to find add-on deals for our platform company which was helpful.
At my current company, we see hundreds of deals a year from dozens of sources, and we track them in our CRM. So often we will see companies that have a similar thesis but are otherwise seperate, and we will see if it makes sense to combine them.
Value chain - during the evaluation process, it is important you get a rock solid understanding of the value chain and the different stakeholders within it. Then you need to make sure that the deal you are working on falls in a place in the value chain where there are tailwinds or favorable dynamics, and aren't likely to be squeezed by other players. If during this evaluation, you see other parts of the value chain with better dynamics and less risk of getting squeezed, then great, go after companies in that part of the value chain. So it's not rocket science, it's just a lot of brute force to gain knowledge and keep building on that knowledge base until it becomes obvious which stakeholders have tailwinds and which have headwinds.
What are the best ways to gain the pattern recognition skills that so many folks refer to when looking to understand the handful of levers that will make an investment attractive?
What do you like to look for in these
Well, there's a reason "practice makes perfect" is such a cliche.
There's no substitute for reps. Evaluating hundreds of CIMs, having hundreds of calls with management teams, listening intently to hundreds of internal weekly calls and screening / investment committees. You'll start to hear the same investment merits and risks over and over again and similar reasons to kibosh deals. Once you work closely with management teams on multiple portcos, you'll see how similar many challenges and opportunities are.
MDs aren't necessarily smarter than everyone else. They just have more reps and more experience leveraging that pattern recognition.
Mind pls touching on comp q from above even if in generic terms with a range?
Typical range for a 2nd or 3rd year VP in the lower middle market is $300k - $350k all-in, plus 2-4% carry.
True mid-market or UMM will have higher comp, but I can't speak to the amount.
Thanks. And what about principals?
Would love to get a sense of the comp (ballpark) for your level and how that progresses. Thanks!
Few questions not career related but interesting. Thanks!
How do you hire bankers to help you with a buyside / sellside?
Who is involved in the decision of hiring bank a over bank b?
What is a good / bad banker?
The #1 thing we look for in hiring a sellside banker is that they've previously sold a competitor or similar company in the space. That means they know the potential buyers, the right multiple, understand the company and the industry etc. From there, they get judged on execution and results. Bankers know this, which is why they pitch so often, so that PE companies know which banks have sold which relevant companies.
Typically it's the Managing Partner or lead partner on a deal that will decide on the investment bank. It's not a group decision.
Following up on this -- from you perspective, what part of the sales process / where do you think the sell side bank can add the most value?
Do you have a visible path to the partnership?
Theoretically, yes. I believe I am a high performing Principal in most ways. I've been told I am partner track by the current partners.
In reality, I think there's a lot of water to go under the bridge between now and then. At some point, I will be judged only on my IRR / MOIC (it doesn't necessarily have to be realized IRR and MOIC). I don't think I've done enough deals, and more importantly very good deals, at this point, for me to be secure in my progress to a Partner. So I'd need to do very well in that arena for the next few years to have a high chance of becoming Partner, and that's easier said than done. If I was a betting man, I'd say I would not end up as a Partner here, so I am going to have to think through what that means in terms of a lateral.
Will send you a DM.
Would you be open to a conversation?
Sure thing. You can click on my Mentor profile in the introduction above and book me.
Would you be open to a conversation?
Would you be open to a conversation?
What’s your WLB like, generally speaking? Principals at my former MM were in office 9-5/6, and if not dealing with something super urgent, would send emails here and there (from phone) but would be pretty much offline during evening and weekends as well (other than their own research/networking/etc). Obviously everything changes with urgent deal work but was curious if this same sort of thing applied to you?
As you noted, it depends a lot on firm culture, the deal-specifics, and who you're working for. On the whole, I had good WLB. I could sign off at 6pm for the most part and hit the gym/eat dinner/relax etc, but I'd often reply to emails in the evening up until 11pm. Obviously if there were deliverables and/or urgent deal related stuff, I was no stranger to late evenings. Sometimes that would be like a month in a row, other times it would be 1 night a week for a couple months. Weekends were pretty protected, unless something was urgent to close a deal.
Can you comment on the skillset developed in LMM PE compared to say MF PE? What I'm wondering is how much closer to management teams you work with and if you develop operation skills in the process as an Associate and Principal. Some investment professionals at MF firms say their work is very deal based, focusing on just the investment; once acquired, the portco is handled by another team and they move onto the next deal. If one wanted to go start a business one day, would they develop more managerial/ operational skills in LMM? Your opinion might be biased, but still good to know. Thanks!
Tought to compare skillsets unless you've done both LMM and MF. But I would say you're spot on. MFs have Portfolio Operations groups who take over. LMMs tend to be much more operationally focused. I talk to management at least twice a week and help them execute on the value creation plan. So yes you do develop much more operational skills.
That applies during the diligence process too. For instance, we hire lawyers but we don't have in house counsel, so I stay close to the legal issues.
Thank you for creating such a helpful thread. I am wondering how you develop that value creation plan? Do you use consultants, talk to mentors and contacts who are executives in a similar industry, or just learn as much as you can about the business and tailor a plan to cut costs, reorganize, find new suppliers, make an accretive acquisition, etc? Thank you!
Thanks for doing this. Two questions from me
- Did you choose LMM deliberately (vs MF / UMM) or was it more opportunistic? If deliberate, what were the key points that made you prefer it over MF / UMM roles?
- Can you explain more about you moving around PE shops? What were the triggers for move? How did the shops differ? In hindsight, was there anywhere where you wish you stayed?
I fell into LMM PE as it was the first and only PE job I got coming out of banking. And then yes it was easier for me to get LMM jobs vs UMM or MF. In part because UMM and MF tend to hire top headhunters and conduct a thorough, more competitive process, whereas I got 2 of my LMM jobs by seeing a posting on my school recruiting site, which meant it was less competitive.
Why I moved around is a combination of bad luck, poor judgement and overall mistakes. Bad luck = recession or poorly performing PE company. Poor judgement - having an awkward working relationship with the Managing Partner and not using communication and transparency to try and improve it.
Yes I dp wish things had gone differently and I had stayed at one of the first couple shops I was at. Not only would I be higher ranking and be much wealthier than I am now, it would give me a lot more options than I have now if I wanted to go somewhere new or do something different. There are lots of Partners my age who usually have been at 2 shops, each for at least 7 years. That continuity and consistency speaks volumes.
Hi. What's the difference between LMM UMM & MF please?
how do you view your college and MBA network as it relates to your career? Are you seeing a lot of your classmates now rising the ranks - of which, are these people you have been able to tap into? Have you had to maintain these networks (school networks) - if not, do you wish you had? Thanks.
My schools definitely open doors. That's the most helpful thing. And yes my classmates have risen the ranks, many of them are Partners and Managing Directors, started their own companies and had exits etc. I try not to play the comparison game, it's destructive to mental health. I haven't done a great job about "tapping" into the network in terms of jobs. I do find cold emails are more "warm" when you can write that you are a "fellow Wharton grad," which I've done a handful of times in between jobs. So I've had some success having networking chats but I haven't been great about turning that into something.
Sorry, when I mentioned "tapping", I was referring more to the sense of being able to find business opportunities/sourcing deals (although I'm not sure how much of that you've done) and less so in terms of finding jobs.Thanks.
Thanks for all your replies in this thread - this is all really great info.
Could you share what Associate and Senior Associate comp looks like at your firm? Any perks like co-invest/carry? Work at a LMM firm also and would be great to get a comparison as I am nearing the promotion to the next level. Thanks.
Senior or Post MBA Associate about $225k, give or take $25k. At most UMM only VPs and above get carry but at many LMMs including ours, Associates get carry.
Hi. Can you put some light on what's "carry"?
Carry aka Carried Interest aka Profits Interest.
Basically you get a percentage of your fund's successful exits. So if your fund makes millions from its exits, you make a small percentage of those millions. Now keep in mind exits have a waterfall payout so you only get max payouts when different IRR and MOIC thresholds are achieved, the investors make a certain return etc. You don't make money from dollar one in other words.
But when you hear about PE guys who are worth $10 million or $100 million - they got that rich from carry, not salaries and bonuses.
What would you say your annualized comp is taking into account carry daw?
Thanks for doing this and great answers.
1. What would you say is the cut off (years) for someone wanting to go from banking to LMM PE? In other words, has your firm or others hired banking associates/VPs? If so, what qualities would you look for? In your view, when would it make sense to get an MBA?
2. Why did you decide to pursue an MBA and how much has it helped you in your career?
3. Have you considered living in other cities besides NYC?
4. Have you considered starting your own fund?
Thanks again
Answering this question: What would you say is the cut off (years) for someone wanting to go from banking to LMM PE? In other words, has your firm or others hired banking associates/VPs? If so, what qualities would you look for? In your view, when would it make sense to get an MBA?
I would say the cutoff is generally during / after the MBA program (meaning recruiting for PE during business school to start in PE after graduating the MBA is the last chance to switch into PE from another industry) or if no MBA then when you are a 2nd or 3rd year Associate. There are definitely exceptions...the most common one that comes to mind is that someone did banking, worked in an industry for a few years, say a healthcare company, then joins a healthcare PE firm. But note the word exception. I've seen very few people switch into PE at the VP level because if they are going to commit $ to you at the more senior level, they want the fully formed product. Very small PE companies (say 5 people or less) may be more flexible and hire VPs from investment banks.
It makes the most sense to get an MBA between the ages of 25 - 30. This is for more regular careers ...for someone who has been in the military or started their own business or something less typical, timelines will vary. The most common time to get an MBA is after 4 years of work experience - typically 2 years at an investment bank or consulting firm let's say, and 2 years at something else. Or 4 - 6 years at the same place showing progress. But it's also somewhat common to see 7 or so years of experience. After that, you would really need to understand and explain why now is this time for an MBA or what you're hoping to get out of it. Or pursue an Executive MBA if you're in your early - late thirties.
Answering this question: Have you considered living in other cities besides NYC?
After my 3 year investment banking stint, I interviewed around the country for PE jobs. I had final rounds for companies in SF and Miami (which was a super day at HIG Capital). If I'd gotten either of them, I would have moved. But I didn't and the rest is history. Post-MBA, I have concentrated on staying in the NYC area.
Answering this question: Have you considered starting your own fund?
I mentioned in another comment that I have not done enough good deals at this point in my career to feel very confident about making Partner. The same applies to starting my own fund. 10 years ago, a decent pedigree and track record would be good enough to raise your own fund. Now, there are so many companies raising Fund III's through VI's that LPs don't do new funds unless there's something exceptional, like say 3 very senior guys from Carlyle and Blackstone get together. I definitely don't fall into that category. So no, starting my own fund is not on my radar. I'd rather build this company and reap the rewards of that then start from scratch.
Answering this question: Why did you decide to pursue an MBA and how much has it helped you in your career?
There are handful of reasons one pursues an MBA. Mine is fairly typical - I was laid off from my first PE firm and had trouble getting another job, so it was a great way to build some pedigree and recruit during business school. And while it's in vogue to say business school is nothing more than networking and partying, it does give you a chance to develop and gain skills. I took many investing classes which helped a lot, and also got better at soft skills like negotiating and being more skeptical of information presented by management teams.
How much has it helped me in my career? Well the short answer is that it helped me get my first post-MBA PE job, and changed the course of my career. I think business school can help careers a lot, but it's not for everyone and timing does matter. I know some very successful people with typical tracks who stayed and made MD and Partner years before MBAs did. That's also a great outcome.
I must say you appear to be a very authentic, grounded, and sincere guy! Something very appealing about that, and I believe you will find your sweet spot in PE. You are extremely self aware, and obviously very competent. I wish you the best! Everything you have written has the unmistakable ring of truth to it,.
Dicta dolorum quam aut alias ad. Et id vel eius itaque odio necessitatibus et.
Eligendi rem velit delectus ipsum. Rerum eum quos qui maxime voluptas ratione. Necessitatibus vel iusto autem.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Minima molestiae sequi in molestiae fugiat commodi vel. Autem consequuntur excepturi porro sit distinctio. Ad omnis dicta facilis dolore iure voluptatibus provident quas. Omnis corporis eum animi necessitatibus. Molestiae illo repellendus cumque sunt.
Qui consequatur nihil eligendi sed. Nobis omnis earum earum neque vel sit sapiente. Ex quia sequi dolores ipsam repudiandae. Voluptatem itaque earum incidunt recusandae. Et molestiae sit quasi dolor rerum.
Omnis sunt aperiam dolor. Reiciendis recusandae dicta iste quas sunt a. Unde officia maiores accusamus in rerum. Deserunt veritatis error eos voluptas. Ut provident saepe possimus. Voluptas quis voluptatem recusandae porro eos alias.
Et ad vitae in adipisci aut. Tenetur delectus et dolorem consequatur. Non accusamus atque pariatur aut sequi voluptatem. Quia occaecati animi est ea commodi. Sunt dolore assumenda aut reiciendis impedit quo consectetur.
Voluptatem consectetur sint labore consequatur et. Sit quidem a expedita quo quos. Voluptatem et libero quia fuga. Quia quo qui quia deleniti.