Turning off the Sales Mindset Help

I’ve secured a Tech Growth PE role for next year and need help with shutting off the rose colored glasses approach to numbers and figures I’ve learned within banking. I don’t have any real operating experience or 10 years of pattern recognition, so how can I practice being more scrutinizing / skeptical of a company’s outlook when modeling / assessing CIMs and such?

What are some of the concrete steps you too to actively assess an investment beyond just looking at historical trends and asking questions about things that look abnormal (I.e random drop in growth rate, declining margins, other obvious stuff). I essentially want to be able to read my bank’s documents and be able to call out the crocks of shit within in like a PE professional would do before going into full diligence - any advice is helpful


Whip out the ol' Robinhood account, look at companies reporting earnings soon. Look into the companies, run a full valuation analysis based on projected financials, decide if you want to go long or short, lose a shit ton of cash. Bam, you're skeptical.


Back of the envelope math is all you need. Bankers take simple and make it complex. Take complex and make it simple. For example, I work with a professor of finance at NYU and Columbia who graduated UPenn in 2 years then did masters and phd at Harvard and he said slapping a multiple on EBITDA is mathematically more accurate for valuation than any model output (look up overfitting in computer science), but bankers can’t get paid fees without the perception of having done a lot of work and spent a lot of time and resources even though it’s a mathematically inferior result.


I agree in large with your points. I think a lot of seemingly complex stuff can still be explained in very simple terms.

In other situations, there are times when I still want to know both the valuation and the build out / rationale or steps to get there. My VP could say a business is worth 50m based on his napkin multiple, but I may have no idea why, maybe I thought it'd only be 30m. Without any other information or explanation, wouldn't you want to learn where the additional value is coming from? Would be frustrating as a new hire to be stuck spinning my wheels all day trying to back solve how to get there, as I'd imagine my VPs valuation would more likely be more spot on, but I'd still want to know how he got there and there must've been more than just a multiple to explain it

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This is a great question and it's great that you're thinking about this. Echo what p**** galore said above.

However, I'd also say that while the sentiment of being more scrutinizing is a good one, you do want to be careful about being perceived as too skeptical. A lot of folks that have this mindset end up being seen as non-believers, and sometimes you want to drink the kool-aid a bit, and it has its own benefits depending on various other factors on any given investment opportunity. The most annoying thing is when we have new hires or interns who are unnecessarily and overly skeptical about everything a banker says/presents just for the sake of being a skeptic.

You want to be the ultimate realist, which means being neutral and fact-based regardless of whether you believe in something or you don't. Your job is very simply to find facts, to identify an area of diligence (something you'd need to prove out / believe in order to make the investment work) and do whatever work you can to get to bedrock validating / invalidating it. Then, you present the facts as they are and let the group come to a decision.

Honing your investing acumen will come with time as you repeat this process over and over and get a better sense of what to look for, and seeing the response from team members about the facts you've uncovered in your work and how they think about them. We always talk about asking the 2nd and 3rd order questions when diligencing a new investment opp. Ok, so you ran some analysis on customer trends - there's some concentration in spend, some concentration across specific product groups, etc. So what? This is the thought process you might want to undertake when doing this work. Getting to the ultimate "so what" until there aren't any more "so what's". 

I'm hoping this doesn't come off as preachy. These are the things I wish someone told me when I started. 


This is really helpful man, thank you. Do you have any checklists or steps that you take when initially ingesting the facts of a new company that leads you down the path of what if’s??

During my stint many analysts used a printed out checklist for common mistakes and kept it on our desks before turning in deliverables - these ranged from common formatting mistakes to “sense checking” (are margins reasonable for example). Would you say that you have a similar checklist of things to consider when a teaser or CIMB comes across your desk? How do you know what’s worth digging deeper into vs. immediately passing


Fair question. Short answer is no. It's a lot more fluid than that. Each company is different. If it's in the same industry as one you previously looked at or that your firm previously looked at, hopefully there are learnings that would make the business diligence process more effective. As you get more reps and after about the 1.5-2 year mark (depending on deal flow) you'll start to get a better sense for what to look for / what's important and how to think about diligencing investments.


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