Straight to PE vs doing 1-2 years of IB First

This comment I made awhile ago should be stickied at the top of the website. Basically covers what you are asking:

The PE versus IB debate is an interesting one. The truth is college kids don’t know what they want to do and it’s really hard to say what is actually better for your future. I think the actual answer is it doesn’t really matter contrary to what prospects and others will say, with both having pretty solid pros and cons. Also, both likely can lead to the same path down the line. Most the Megafund PE analysts seem to jump to another Megafund PE firm for associate anyway, or go to a HF. WSO will take this as a prestige debate, but I’m going to tell you some differences in what I learned in IB and PE (although growth) and why despite hating IB I’m actually very glad I did it. My personal take really is it’s actually less meaningful than people think, with potentially IBteaching you a skill set that is beneficial the rest of your life and undergrad megafund PEpotentially being a quite impressive position that gets you to where you want to be sooner. I don’t know if there’s an obvious choice and both are great places to be. I think it’s more a coin flip than people would think based on the benefits of the skill set you get in IB and the ability of both to get to the same end destination.

Background on me, I did IB at a MM and thought when I recruited I was pretty certain I would do PE or broader investing long term. Some of the advice I received from mentors was IB and PEcan often times be similar, but there are subtle differences that can teach different skill sets. I also was told to do mm IB specifically (again really contrary to this website, so hang on!). Doing IB for a little bit could potentially be helpful for making you a better investor in the long run or just an overall more knowledgeable business professional. I sorta knew I would leave IB when I did it, but I was surprised by how much I hated my time in IB. There was less critical thinking, more abuse, less interesting work, worse people, and tons of people who just completely lost sight of the bigger picture. That said, There are a few things I learned that were really important:

• How to work under pressure, with bad managers, and be more efficient with my free time
• How to work quickly and accurately with ppt, excel, and outlook
• How to model a business
• How to create materials to market a company
• The type of questions investors ask when buying a company and expectations for diligence 
• Speed/ the general process timeline for a raise or sale of a company
• Valuation approaches (I say approaches because valuation moves so drastically in even 6 months that you can’t really learn what companies are worth anywhere. The value of a investment bank is often because they are constantly selling companies they can tell you what the market is valuing things at. Contrary to what I thought as an undergrad, companies are really worth what someone will pay for it, not some calculation you can do through a dcf or LBO, although those methods can help inform what you would be willing to pay.)

Now at a megafund pe job, you likely would learn most these. However, a huge part of investing is the 80/20 rule and further most the time in investing your role is looking at potential investments and saying, “yeah, this one isn’t for us”. So it’s very possible to go to a private equity firm and spend a great deal of time not seeing the process of a company getting bought or sold. People refer to this as deal execution. IB your job is literally deal execution, so you will get more reps seeing processes than you would at a private equity firm, the con is you don’t evaluate opportunities in IB and are always trying to frame a company as great when many aren’t. Further, the reason I say I am glad I did IB is I know how to raise capital and market a business—you wouldn’t learn this at a private equity firm outside of hearing from an investment bank that is helping you sell a portfolio company or participating in a process, which isn’t the same thing. I have assisted numerous early stage and growth companies in creating materials and preparing them for series A, B, and C raises and it’s a skillset that I learned from banking. Had I done PE, I wouldn’t have this skill set and really wouldn’t know how to prep materials or provide advice on a process like an ex-banker would. Ultimately understanding how to fundraise and market a company as well as deception used by banks to make companies look better than they are is a skill set that is invaluable for 1) running/working for a growing company (entrepreneurship, startup work etc.) 2) assisting growing companies (VC, growth equity) 3) to some degree understanding the deception used can be helpful for evaluating opportunities (large-cap PE, other types of private investing).

Now PE will help you be a better critical thinker when IB actively discourages critical thinking. That said, in IB you can look at each deal you are on and think critically about whether you think a company is worth what a buyer is paying for it and what you would pay.

Finally, something that also is very relevant: your first year on the job, you are very useless anywhere and likely won’t really learn about an industry. Notice how some of the biggest skills I listed were outlook/ excel/ ppt proficiency? The truth is no matter how smart a person is, out of undergrad they just need reps writing emails and doing tasks to become effective in a working environment. This takes time, and really makes the first 6 months of a job in any IB firm or PEfirm virtually the same.
 

You know Megafund PE is arguably the most prestigious position an undergrad can get, which provides superb optionality. There’s some pros to IB and switching as I listed. IB really does suck though and I think would be a more miserable experience than a megafund PE role. Ultimately both are great options and you can’t choose wrong. I think that’s the weirdest part about being an adult—for the first time in your life you need to make a decision that will close doors. Up until the end of college, most your decisions just open doors, but post, you start needing to make choices that will close opportunities. My advice, pro con the paths of each, call people who have had to make that decision before and ask them how they handled it, and trust your gut. The one thing I would caution you on—getting advice from people who are ignorant. This thread will likely have 10+ college undergrads saying “megafund PE for sure” without any idea of the pros and cons. Weight knowledgeable peoples opinions heavier than random ignorant peoples views. Good luck!

Edit: the one other thing I would say is to be careful about maximizing optionality above all else. My favorite type of person is the IB—> buyout PE —> HBS person who has no idea what they want to do with their life despite being almost 30 because they have never listened to their heart and pursued “optionality” above all else. Have a spine and take a chance at some point otherwise you will just be a wondering corporate shell continuously using other peoples definition of success to define your own, which from what I see is the best way to be unhappy and unfulfilled.