Tech PE vs GE
I’m going into tech banking role soon, and wanted to hear thoughts about tech PE vs growth equity across the board. I’m pretty sure I want to stay in tech, it’s really what I enjoy, but I’m stuck between PE which may be more technical and build a better skill set, vs GE which instead invests in growing companies.
Not sure how you guys see it, but it seems way more interesting to invest in a company growing at 30% every year vs getting a high IRR by levering up an investing in a company growing at 8% every year. Do you agree?
Do GE if that’s interesting to you. The only upside I can think of PE outside of the technicals you mentioned are higher comp and flexibility to move (to GE or HF; harder to go from GE to PE).
Do you think it’s reasonable to say that PE comp is pretty similar to GE comp at funds of the same size, just that PE tends to have larger fund sizes? If not, why would PE funds pay more at comparable fund size to GE?
What do you think about increasingly competing PE landscape and where we see returns shrinking going forward, whereas GE may be more sustainable returns long term?
Bump
I'd say at comparable fund sizes, PE comp is slightly higher. For example, I think top GE firms would be more like $250-$275k vs. UMM firms with similar fund size would be in the $275-325k range. And then at the really top end, PE is much higher obviously at $350-$400k range. But I don't think it's prudent to base your decision on this level of comp different at the junior level. Unclear to me why PE funds pay more...maybe because 1) typically longer hours; 2) larger check sizes (which equate to larger companies --> more DD --> more hours); 3) precedents; and 4) maybe there's some level of "GE discount" because you get to work on some "cooler" stuff.
Higher competition and return shrinking is happening across all stages...across VC/GE/PE/HF. HF are just getting screwed first because of passive investing/liquidity/access to public markets driven by tech disruption. Now, I'd say given that PE targets are more mature / level of information/knowledge is therefore more "standardized" across firms and because PE targets are pretty much all "banked", PE market is behaving more like public markets than say VC/GE, which adds to the shrinking returns. But all in all, I don't think it's a big concern. Looking at the industry, the VC/GE/PE/HF lines are all blurring now with large firms offering all products (interestingly, HFs doing more VC/GE type deals and PEs doing more GE/PIPE deals).
Part of it also depends on what you want to spend your time doing. Imagine a spectrum from Seed to Mature technology investing. As you move from left to right, your focus will shift more so from commercial to financial. With that, comes how you spend your time. When I think about making this decision, I wish somebody would have told me at your age, how do you want to spend your time during the day. Because that's really what a career in investing is - most of the time of your life.
Why did you decide on LBOs over GE based on how you spent your time?
I didn't; I chased the money and brand name firm. Wrong choice. LBO was meh.
As someone in Tech banking, this is something I think about often. I would boil it down to this: it you are interested in the actual technologies, sciences, and stories of companies, then do VC or GE. If you’re interested in financial engineering, then do PE. In GE/VC, value and the creation of it is tied to the fundamentals of the business and their growth. It’s much more about the technologies and how they are disrupting and industry. I will say, however, that in Tech PE more than other industries (industrials), there is still mich more focus and the growth story of a buyout candidate than others.
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