Trying to be thoughtful before starting in a BB analyst program soon and wondering if those who were interested in both traditional buyouts and growth equity (or just one) went about narrowing down to one? Just kind of curious what things other people considered. Thanks!
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Generic talking points you can mix and match between: - More interesting to focus on pulling growth levers vs. cutting costs and financial engineering - Companies tend to be more interesting (consumer, tech, healthcare vs. industrials, manufacturing) - You're more of a partner with management teams vs. an owner; less focus on replacing management vs. working with founders - Opportunity for funds to differentiate themselves through ops and strategy added value vs. last dollar valuation (in theory more sustainable vs. returns being competed away in traditional buyout) - More entrepreneurial (smaller deal teams, associates tend to have closer relationships with management teams and take on interesting ops projects, associate often play more of a role in sourcing) ** **** **
Do you like sourcing or not? If yes, then growth equity, as most firms in that space are heavily sourcing focused at the junior level.
BTW, sourcing gets a bad rap. It can certainly be a grind, but i actually think the soft skills you develop in that type of role can be just as valuable as the more technical skills (e.g. financial analysis and engineering) you might develop in buyouts. Possibly more transferable too.
I've been talking to a lot of folks that say if you want to go to GE, it could be helpful to get some sort of commercial and financial chops before doing so, and then picking up more of the sourcing by entering GE at the VP level. Would be curious what you think.
Assuming you are in OP's shoes (IB analyst) and your end goal is GE, I don't think it makes sense to work at an operating company first as you are basically taking a roundabout trip to the same place. Also, as mentioned, it's not always easy to get into a new industry at a mid/seniorish level, especially when it is an industry that is quite competitive.
Note that I am not saying that opco experience isn't beneficial. What I would suggest instead is IB > GE > opco. Many friends / colleagues have done this, and it actually works out quite nice. GE is usually a 2-3 year stint with an expected exit, and oftentimes you can just exit to a portco of your firm. Then go back to GE (sometimes with an MBA pit stop) and just say you wanted to be in GE long term but felt it was good to get the opco experience to understand the day to day of how real businesses work.
In my opinion, growth generally describes mid to late stage investments, so slightly larger businesses, ~$10+ in revenue, that are growing quickly and generally want money to burn as they grow.
The farther you get into late-stage growth, the more similar the workload will be to buyouts. Growth stage work will usually involve a fair amount of sourcing, both for deals you could immediately work on as well as earlier stage deals that could develop from a VC/Early Stage investment, into a growth round down the road. As far as technical analysis goes, the analysis is probably slightly simpler as most of the positions will be minority positions with no debt; however, you'll be more focused on cap table math and figuring out distribution waterfalls, dilution, etc. You'll also likely be doing more market analysis, ie does this company have the potential to get from $10M to $100M, what is driving that? What are the unit economics, retention/churn, essentially trying to validate what the CEO/founders are pitching to you as the big opportunity. Again, the later the stage, the more info you'll be able to dive into. In Airbnb's recent round, I'm sure the Sixth Street guys/gals on that were cranking through data and focusing more on Airbnb's burn rate, what the future looks like for them, at what valuation does the investment make sense, etc.
There's also much less operating control of the businesses. At a bigger growth fund, there's little chance that the investors have much sway and even less chance that at the junior levels, you'll get much exposure. Less control is a double edged sword, it makes things easier, but you also have less control over the investment.
For buyouts, it's a little more technical in that the deal is usually won/lost in the capital structure/financing piece of the deal. Growth assumptions are usually more modest and making money comes more from cost optimization and appropriate leverage. That is what makes the modeling more important, making sure the business can take on leverage, service debt payments appropriately, and generate enough cash is typically the most important part of the deal. These are also usually things that are easier to predict than a growth business' unproven revenue streams. PE partners often times take board seats, bring in new management, and juniors will sometimes have some role in the operations piece of the business. It's more project manage-y at times, making sure the business doesn't trip covenants, working with lenders to get the right financing, moving pieces around to make the business (appear) more profitable.
Neither one is better/worse than the other, kind of just depends on what you're interested in. Some people love growth investing and say that it's closer to true investing, others would say its glorified gambling. For those who love LBOs/Buyouts, they love the structuring piece of the deal and being able to create value in something where others might not see it. Critics of LBOs will say they're just chop-shops, levering up businesses, paying themselves out, and letting the business suffer.
I'm sure there's more I'm forgetting, but that's my high level take.
I'm not close enough to all of those shops to know all the nuance that exists between all of them, which I'm sure it does, but a couple of points to think about as you're recruiting.
For the "pure growth" funds like a TA/Summit/TCV, I'd say they're a real mix of growth style investing and have started to do rollups, majority stake investing, and a bunch of other strats now. These will still be sourcing heavy as an associate, but the potentially interesting thing is they invest in a lot of deals in a pretty broad size range. It's less likely you'll be doing sexy deals, so far fewer late stage, pre-ipo deals, but you'll get stuff like rolling up a bunch of vertical software companies. Good brand and potential to get really good experience, but its a crapshoot. It's a little luck of the draw depending on your sourcing ability and just pure luck of whether your deals get done.
From what I've heard at the grwoth arms of Megafunds, so KKR Growth, TPG Growth, etc is that you get great branding in terms of the broader fund and the deals you do, but the experience is not as conducive to learning PE well. First thing, the growth arms of the funds are often times just another strategy with a few billion put behind it. In the scheme of the larger fund, it's usually pretty tiny, so less less attention paid to it. 2nd, because they usually have pretty big funds, there's only so many big equity check, growth stage deals out there, you could pretty much go on crunch base, see whos rasied a series C/D and later, put them on a list, and then call them and offer money. I'm obviosly being facetious and it's tougher than that, but your universe will be smaller.
At a TA/Summit, you could conceivably find a few separate $~5M EBITDA businesses in lets say ...dental practice software, and run an add-on strategy, acquire them for a few times revenue/EBITDA, put them all together while pro-formaing EBITDA so you can lever up for each deal. Then you stitch them together, maybe have a $50M EBITDA business, sell it for ~10x even though you've been acquiring all of the smaller business for 5x. All while continuing to make those acquisitions with leverage instead of equity. All the sudden you have a business that sells for $500M that you put $100M of equity into. Again, all just illustrative and off the top of my head, but you'll get more looks like that vs a MF arm.
Last thing I'll leave off with, all of these questions are good ones to ask, either in interviews or during networking. Whats your investment mandate? Do you ever do minority/majority?
Oh and to answer the first question of TA/Summit vs late stage growth like TCV, honestly the lines are starting to blur a lot just because it's becoming tougher to be a pure-play late stage growth type of fund. Lots of capital chasing few deals. TCV does majority stake deals now, which is a departure from their old model. But again, a good question to ask.