VC Seems More Interesting - Why is PE So Much More Popular Exit?
Was listening to a VC podcast about all the cool start-ups they vet and scrutinize for potential investments -- these ideas seem so cool and innovative, and it seems like it would be interesting to learn about and analyze these new companies... a lot more interesting than some of the bland companies so many PE companies seem to invest in.
Seems like work day would be more interesting reading about these kind of start-ups -- so why does it seem like VC is a much less desirable exit vs. PE?
Bump
One reason is that VC comp at the junior levels is much lower than in PE. Obviously as you become more senior and more of your comp is tied to carry, that doesn't matter anymore. But for someone who isn't sure what they want to do long term, I can see why the comp difference at the associate level is a big consideration.
Thanks. But what are the odds in VC that juniors progress to the big money? In other words, I know it depends on firm, but is it more likely that PE junior will be able to progress to carry than it is for VC junior to eventually make big money at his/her firm?
I believe it’s just a difference in AUM / scale combined with less technical DD which warrants fewer junior roles in VC to start. Additionally, VC is fairly narrow in terms of locations (SF primarily, Boston, NY) and industry (tech, healthcare, consumer). This combined with the comp difference mentioned above makes the VC recruiting process more variable - with analysts going to VC being an outlier outside of select TMT groups.
So the DD is less technical? Then what do you think are the primary duties of juniors in VC? Just doing a more "big picture" analysis of young firms (products, market, marketing and competition) versus scouring their financials? This would seem more interesting... but maybe it also means you develop fewer marketable finance skills.
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I'm someone who was and still is mostly interested in tech and had the same thought at one point or another, but there are a few things I think you need to think about:
Got it. So are you saying that it's not terribly uncommon for PE people to go to VC? And as far as analyzing new companies, I wonder if that means VC firms are more interested in juniors who came from a specific industry, as opposed to someone with finance/IB experience.
You can certainly go from PE to VC but it's fairly rare as your comp would be stepped down pretty severely unless you're entering at a high level. Also, IB will definitely allow for VC exits but it's by no means a prerequisite as is for PE. In fact, among the buyside exit-opps I'd say VC has the lowest proportion of ex-IB precisely because it's an investment stage that doesn't really value financial expertise as much compared to operational/industry expertise.
If you only want VC and you're certain about it, you can go directly from undergrad and not be at a disadvantage at all compared to a pe analyst that's missing out on the technical training in IB.
I'll share some thoughts as to why VC is less common of a path + less sought after:
Thanks for helpful info. Are you still in VC? And do you view VC as more of a crapshoot, in the sense that if you're with a VC fund that doesn't hit it big and maybe has to lay you off, it's more difficult to lateral bc you're coming from an unsuccessful fund, plus (if you're a finance person) you don't really have anything tangible that will add value (in other words, yes, you might have financial acumen due to past IB... but if VC doesn't really value that, you may have nothing concrete to add to a new fund, especially since you're coming from a failed fund).
I viewed VC as a stepping stone towards becoming an operator in the cannabis industry. I'm currently in Finance & Operations at a cannabis brand. My whole theory was that I could get a landscape view and help a bunch of startups with various issues while learning their best practices so I can take these learnings into the cannabis space.
Your VC adventure is what you make of it and there are MANY angles as to how you can succeed and move up. With my current role and prior experience in VC, I've become quite well-versed in the CPG space and have a pretty good grasp on brand building and operational best practices which is valuable to VC's who care to provide portfolio company help. If you're a master connector and people person, you can move up to Partner at a fund or another shop simply from the strength of your network even if your current fund has lackluster performance (although you can imagine how difficult execution of this really is). If you're in VC and intend to stay in VC for the long haul, building a personal brand and presence in the startup ecosystem is how you attain mobility.
In terms of value-add skills coming out of VC, it depends on the work you're doing at the fund. My fund promoted the idea of helping our portcos so I went out of my own way to help management teams with whatever problems they had so I could get my hands dirty. Also I would say the financial skillset has MASSIVE value-add to CPG and anything related to physical goods because of the impact of working capital and unit economics in a business.
Here’s my $0.02 as a 1st year analyst in a tech coverage role recruiting for Buyout rather than VC. If you’re more interested in complex financial engineering, capital structures, modeling, etc. then Buyout is probably a better fit because the value created isn’t really driven by organic growth but rather your firm’s ability to de-leverage the business. If you can create multiple expansion, great, but it certainly isn’t a given. This puts so much more focus on securing the best financing, ensuring the business has sufficient cash flow, etc. If you’re more interested in the actual business or underlying asset itself, such as the technology or medicine it’s utilizing, then perhaps VC is a better fit. VC is so much more about an overarching narrative and story that people can hopefully get behind. Yes, there still is some modeling required in terms of revenue builds, cap tables, etc., but most of the focus is on things away from Excel. The questions are so much broader in the sense of “can this product solve XYZ problem and if so how do we monetize it?” rather than “what is the likelihood we experience an x% decline in FCF which will cause us to miss our target hurdle rate?”. I personally am just more interested in the nitty-gritty of Buyout rather than VC, which maybe comes from previous internships or simply the lense in which I learned finance. On the other hand, some of the other analysts in my group who come from Computer Science backgrounds are focused on VC recruiting because they’re just genuinely more excited about the underlying assets and stories surrounding them.
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