I have done one of these AMAs ~2 years ago but it's been forever and I figured it was time for another. ###Brief Background: - Went to Target West Coast school with just "ok" IB alumni base, 4.0 GPA, economics major - Regional banking / VC internship freshman and sophomore year - SA at a BB M&A banking and full-time at BB M&A Banking - 2 year stint at middle market growth equity fund - Then pivoted to a Late-Stage VC / Tech Growth Equity (It was a pivot as I did almost no tech-related work during my banking or growth equity times. Also ended up taking lower comp as a result) Feel free to ask me any questions or PM me if you have any personal questions!
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1) Why did you decide to pursue VC/tech growth equity after your PE stint? Was it the ability to specialize in technology? What turned you off from continuing to pursue PE?
2) Can you describe the difference in lifestyle between your PE stint and your current job?
3) How much was the comp cut, and what justified that in your view? Better lifestyle, career trajectory, type of work? Would you have received the same lower comp if you did have tech PE experience?
4) Do you plan on staying at your current job in the long term?
Thanks for doing this!
2) I was working at a pretty laid back PE as well, so in terms of life style, can't really say there is a huge difference. A thing is, unless you work at a really small VC shop, it is likely that your day-to-day is not going to be too different from PE. On average though, it is still wildly better than banking or large traditional PE. Believe I work around 40-60 hours a week, depending on the workload.
3)Nothing too significant, think ~$10k. I I would not have received the same lower comp if I went straight into a Tech PE. Growth / VC was much more interesting to me in a sense that you get to partake in the growth of the company vs. milking it for cash flow (with a huge caveat that there is a whole world of growth buyout shops in the world.)
4) Yes! I would personally like to stay at the firm in the long term given the strong track record, great culture (personally the best culture I have experienced ever, period).
I'd be curious to hear your thoughts on current valuations in the space. SaaS companies are routinely valued at 100x MRR from an early stage to later stages (provided they have appropriate growth), but I feel like a lot of the deals I see are simply unsustainable or would require insane growth for the next few years. With a possible recession on the horizon, I fear we'll see a lot of downrounds, which could affect later stage VCs greatly.
How are you guys working with these valuations? Are you seeing an increase in the type of protections that you require on new deals?
Interesting question. First want to point out that those SaaS companies that are valued at 100x are rarity vs. the norm, as the companies you might have heard about are the ones that have gotten to a point where it deserves that kind of valuation; there are way more companies who stall between 20-30mm arr and die a slow death, so there is a little bit of selection bias there.
But also, it is important to bifurcate between early stage start ups (Seed / Series A) and companies that have already scaled (proven product market fit, go to market motion). For early stage start ups, it is not crazy to see 100x MRR or even higher number, 400x, 500x. Those are mostly due to the relatively small size of their revenue, as denominator is small. For some companies that have demonstrated the product market fit in a select market and the VC firms believe that they will be able to rapidly expand, it doesn't really matter if you take 10% or 12% ownership of the company. It is still pretty binary.
For larger companies that have reached 50mm ARR or higher, it is a different story. For those companies to get that kind of valuation, it really needs to show that it can continue to grow 50%-100% y-o-y with no degradation in their sales efficiency. There are handful of companies in each vertical that can show that kind of profile, and every VC firm in the world knows who they are, hence the seller's market and a big valuation multiple.
I don't believe we see that many more downrounds these days vs. in the past. Obviously it happens to companies of all size, but if the founders are smart enough, if they know the core business is not going to work out, they can either turn to profitability as their main metric or pivot to new business model. There are more than a few examples where the company has successfully came out of the downround stronger than before.
We do not typically see added protections in our deals, just because of the seller-buyer dynamic that's strongly leaning toward the sellers.
Sorry man, somehow missed this.
Even though it is not impossible to break in from the undergrad, I highly recommend to go through the typical 2 year program at banking. Good GE shops might be a little less selective, not in terms of the firm's prestige but more so on the industry specificity. Let me elaborate a little here. From my point of view, if I were to pick a growth equity, obviously, a GS TMT banker would be great, but not that much compared to some analysts who are at tech-focused middle market boutiques. That's because a lot of deals (just because of the size of the deal) that we see don't necessarily come from the large BBs, but from industry focused (software, business services, etc.) banks.
For example, a MS or GS analysts might know a lot less about some of the intricacies of growth-stage companies. They clearly know how to model, etc., but for companies where CAC / LTV, sales efficiency metrics, etc. are of paramount importance, boutique analysts who went through the fundraising for these smaller growth stage companies might have a slight upper hand.
GE recruiting is done through recruiter for larger firms (Summit / TA / Google's GE comes to mind).
CS background is definitely helpful but not a must. If you have worked at a tech companies as an engineer, that would be great, but just knowing some coding wouldn't really make all tha much difference.