A leading upper mid-market PE firm emailed me this: "It’s rare that we recruit for a VP role. We typically hire at the Associate or Senior Associate role and promote."
This seems fairly typical, although it's rarely expressly said. Why is it so hard to lateral as a VP?
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Rolodex for sourcing? It's not that hard to get on the radar of 20 banks or so
I'm not talking about the standard "let me call up an investment bank." Any idiot can do that. I'm talking about having a real network for truly proprietary deal sourcing. That's when you're worth something.
I thought that's what Tinder & Bumble are for
That's not sourcing! Connecting with banks to get highly-brokered and expensive deals is not sourcing. The secretary can do that. Finding proprietary deals off-market ... that's sourcing. Leveraging your own contacts to get industry insight and find a deal that is un-baked, that's sourcing.
Serial entreprenuers, board members, other investors, commercial bankers, etc.
Example: There was a big healthcare company listed in US. Valuation was not cheap, but CEO thought it was worth more. My MD called on this guy every other month for a year and visited with him every time he was in town. Listened to the CEO bitch about how his stock should be higher. A number of other PE shops had visiting the CEO suggesting he take the company private but he never pulled the trigger.
My MD finally was able to convince him to go private, and that we should be the one to do it. He had our team fully underwrite the deal, do a f-ton of analysis, and show him how much it would be worth as a private company - that could then go public later. Then we flew in our big LP backer to convince the CEO that we could use the LP's money as a co-investor to fully fund the take-private. The CEO gave us the mandate, and we built the syndicate and did the deal. We did 5x in 4 years on that deal, taking the company public later after breaking it up into divisions and taking them public as several different companies. No ibank would show you a deal like that. And if they did, pricing would be awful. That's sourcing.
Example 2: One of our associates saw a growth company as a case study in his part-time MBA class. It was a well-known family-owned/run high-end appliance and furniture company. It was a good brand, but behind the curtain, the family members were not getting along. He pitched the company on the idea of us coming in as growth capital and helping professionalize how the company was run. Bringing in outsiders as C-level executives - as opposed to letting family members be all the C-levels. That got the family members to not have to be involved, and stop gumming up the gears. The company accelerated its growth and we took it public. The associate got a bump to ED and shortly thereafter, MD.
That's sourcing.
Goddamn, posts like this are why I fucking love this site.
Thank you for the insights.
1) Cost. The cost of you flaming out is high in terms of both time and money- you don't really know an employee until they've worked for you for awhile.
2) Culture. A mid or senior level hire is more difficult to mold into a firms culture, since they're bringing a lot from their old firm.
Its much easier and cheaper to hire a few Senior Associates and promote the best one, you know what you're getting.
Hiring is REALLY hard. How can you tell really what someone is going to be like, until you've worked with them? This is especially true in finance, where everyone is a pretty good talker. Even the worst backstabbing sociopath can be a good interviewee. And how can you tell if they'll be able to bring in deals, to lead, and to deliver all the way to the hard end result? Show me how to do that, so that I can be the recruiting / hiring king, and I'll thank you for it.
PE has 3 parts - analysis, sourcing, and fundraising.
You need an MD to do sourcing and fundraising, and analysts and associates to do analysis. VPs serve no real additional value over associates, and haven't proven their ability to source or fundraise.
And I say that as someone who can't do sourcing well or analysis well, so I just suck and can't break out of my directorship level.
But isn't 'quarterbacking' itself a term invented to describe jobs that have nebulous value? Partners can point directly to deals they've sourced and money they've raised. Junior folks can point directly to their low pay and long hours of analysis. What can a VP point to? 'Quarterbacking' . . sure but it's a lot less of a leg to stand on than the previous two examples.
This is why mid-level folks are the most frequently fired and most rarely hired people in almost every profession. They're stuck in no man's land where they are too expensive for junior work but not senior enough to point to a book of business. True in banking, PE, and probably most things. Need to cross the abyss and best strategy is to demonstrate that you're likely to be successful at the senior level. Never too early to start winning clients and deals on your own.
I agree with you that VPs have a lot of value quarterbacking deals. But it's a risk-reward issue for some firms when hiring VPs. If they hire associates and train them up, they know what kind of person they are getting. If they hire an MD, they've usually worked with them on deals and are impressed with them. That MD is going to be bringing in LP money, dealflow, and hopefully leadership. The VP lateral is rare. That VP may not have performed at another shop. And even if the VP is solid, how can you know? You never know how a person will perform until you've worked with them. An associate is a much lower risk-to-potential-return bet. Plus VP and director are notoriously challenging positions, in that the VP must start also sourcing deals. Many VPs don't make the transition from analytical to hunter.
So I see a fundamental disconnect between what everyone is saying, and what I have seen from VPs in my career. You guys act like sourcing is this golden nugget that precious few have and if you have it at one firm, you can't lateral it to another. I've seen sourcing up close, it's not that hard or proprietary. Just by sticking around the industry you'll develop relationships.
VPs, to me, are the quarterbacks of deals. They are responsible for end to end deal execution. Associates do some of the heavy lifting, and MDs are responsible for oversight/key decision-making/big picture strategy, but the success and progress of the deal falls on the VP. He spearheads the process, makes sure all the Associate shit is right, thinks of everything, manages the diligence, negotiates the purchase agreement, pretty much everything. Buck stops with him. No one is more responsible for deal execution than a VP.
Now imagine you've been doing that with great success at one firm. You want to take your talents to South Beach. But that firm says "we don't hire VPs." How does that make a lick of sense?
Put yourself in the shoes of the senior partner. You've got several 26 year old associates who got straight A's in college, did two years of crazy hours in IB and have now done 2 more years in PE. They've learned more in 4 years than many people learn in a decade. You sure none of these guys can be a 'quarterback'? You sure you'd instead hire an outside VP who (i) costs more money, (ii) hasn't been observed by you like these associates have, (iii) hasn't been brought up in the culture of your small tight-knit firm and (iv) is mysteriously leaving his current firm when that firm would have every incentive to make him stay given his excellent deal sourcing?
I would have zero interest in even wasting 30 minutes talking to this candidate until he presents a very straightforward reason why it does make sense. For example, he's getting married and has to move cities. Or he has a substantial pool of attractive deal opportunities that his current firm simply cannot or will not pursue for a clear reason.
Lets dissect this and the above post.
Point 1: The OP said funds "don't hire VPs" and instead hire A/SA. So it becomes important we clearly define VP. I see VP as a (i) role that pays mid to low six figures depending on fund size, (ii) has (substantial) carry in the vicinity of low seven figures and (iii) the role involves QB'ing deals and managing 1-2 people (post-banking associates) and reporting to someone who is just 1 level removed from partner (i.e. principal). E.g. at BX this is called senior associate but the next promotion is to Principal. E.g. 2 at KKR this is called principal.
Point 2: Around those being bigger funds. I know a current MBA who has interviewed at funds ranging from latest fundraise of 1bn to 25bn where VP is largely a deal execution role that has the above characteristics. If you're referencing even smaller funds, then perhaps your post is accurate.
If the above is the case, then it is necessarily true that funds recruit VPs from MBAs and the OP is necessarily false when he says "funds don't hire VPs." Yes, SOME don't (e.g. H&F) but many, many do (e.g. CD&R, BX, Carlyle, AmSec, Advent) etc. etc.
I also challenge the notion that funds don't hire laterally. Anecdotally headhunters have told me experienced VPs have strong marketability.
Maybe in the LMM VPs are doing deal gen but that's a principal/partner level responsibility 9/10 times. VPs are deal execution guys managing 3rd parties and associates.