AMA: BB M&A Banking to PE Associate and then a Pivot to a Tech VC / Growth Equity

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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Comments (26)

Jul 17, 2019

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!

    • 1
Jul 18, 2019
darthStrader:

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!

1) Yes, what I realized during my time at PE was that majority of the industries, whether it's consumer, healthcare, industrial, will eventually benefit from and disrupted by technology. Take consumer for example: widespread use of D2C companies, whether it is boxed mattress or a box of razor, it is widely disrupting the incumbent retailers and manufacturers. I just wanted to get back to the middle of where all this was happening.
.

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).

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Jul 18, 2019

Thanks!

What made you pivot?

what's your total compensation?

Jul 18, 2019

Total compensation is in line with other MM firms. My previous firm was toward the upper end of the pay spectrum. As I mentioned above, it was a combination of wanting to get into the world of tech and venture given my interest in looking at disruptive companies that are impacting variety of industries, and much better culture at my current firm.

Jul 18, 2019

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?

    • 3
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Most Helpful
Jul 18, 2019

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.

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Jul 18, 2019

Any advice for a IB analyst that thinks they want to move to VC later on in their career? I understand breaking into VC without buyside/operating experience can be tricky. Do you think it is a must to go to PE prior to VC?

Jul 18, 2019

No, I don't think it is a must. If you are interested in joining a larger growth equity shop (TCV, Summit, TA, GV), they go through a formal recruiting cycle. If you want to join earlier stage shops, going to PE matters less than building up your network in the tech eco system.

Jul 18, 2019

Can you split up your daily responsibilities? % sourcing, % execution, etc.?

I've been working in consulting with a concentration on tech but am interested in transitioning over to a traditional analyst sourcing role at GE like TCV/Insight/Stripes and it's been an uphill battle. It's been easier to get early stage investing opps. Curious to hear your thoughts

Jul 19, 2019

I would go with 5% sourcing, 80% execution, and 15% admin and IR role (valuation, etc.). send me DM for other questions.

Jul 18, 2019

In your last bullet point you say 'Late-Stage VC / Tech Growth Equity'. Do you/people in industry make any clear distinction between late stage VC vs. Growth Equity. Obviously, VC tends to be tech-centric but I'm curious if there is a genuine difference in approach/strategy or if it is just a vernacular preference.

Jul 18, 2019

No, not really. Obviously, growth equity can focus on non-tech, so any minority investment in a growing business could technically be considered a growth equity.

However, the line is extremely blurry between tech growth equity and late stage vc, especially when more VCs are raising a separate fund to fund growth deals (Andressen, etc.)

Jul 19, 2019

Any advice for breaking into blockchain VC? or do most Tech VCs cover blockchain startups

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Jul 19, 2019

Most Tech VCs do not cover blockchain VCs. It's just a bad look for their LPs. A16Z has a block chain fund I belive.

I know there are a few blockchain VCs who only focus on them, the best way would be to find an in by networking with the entrepreneurs who are funded by them. Names include block chain capital, pantera capital, etc.

Jul 19, 2019

Advice on breaking in? Possible from undergrad? I'm assuming traditional IB Analyst track is the ideal path but curious if there are consistent other avenues you've seen. The impression I've gotten from posts on this sight is that good GE shops are less selective than say a good UMM/MF PE shop would be as far as IB group tier. I've heard/read that some of the reputable tech MM IB shops in the bay area have good placement at noteable growth groups.

Any notable differentiation you'd make between PE vs GE recruiting? Both process and general knowledge? Clearly investment strategies are different and being knowledgable of that would be important. But is most recruiting on cycle with PE recruiting? Is GE typically done through recruiters as well?

Furthermore, for tech-oriented investing, how valuable do you think a CS background is? Genuine value add in evaluating investments or just a notch on the belt that might come in handy when working with a ton of data?

In your group, how active are you with your port co executives? Do you find that you more often provide capital and let execs do their business or do you get more involved with operational strategy/partnerships/etc? Do you find this typical of other growth shops as well or more unique to your group?

Jul 24, 2019

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.

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Aug 8, 2019

Thanks for catching that. Very insightful + much appreciated

Aug 8, 2019

so you would say you dont necessarily have to be at a top tech group to get into good growth/vc funds? Thoughts on DB Tech?

Jul 22, 2019

Thanks for the AMA. Do you have any insight on how to move from a CVC -> VC firm? I'm having some difficulty making the jump as I'm looking for not only a career switch but also moving to a different region.

Other details: My network is quite good in the region I'd like to move to + I do have PE/VC experience at well-known firms.

Jul 22, 2019

I have seen a decent number of people move from CVC to VC. It also seemed more likely that the more the CVC firm is for a technology company (Google, Samsung, etc.), it is easier to move to generalist VC vs. auto focused VC for car companies' VC arm, etc.

If you have an existing network, I would look out for those opportunities that come up, as most VC opportunities (outside of associate program, which recruits from bankers) are all filled up based on personal network, etc.

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Jul 22, 2019

Thanks for the insight, cheers!

Jul 22, 2019

Any advice for an undergrad still recruiting for IB that is looking to pivot into more of a tech role with a finance and poli sci background? Initial interest was energy (oil) but i came across lithium last fall and have been following lithium and EV/Automotive industry and it instantly drew my attention/interest

Jul 22, 2019

If you are interested in EV / Automotive technology, there are more than a handful of companies that received $50mm+ funding from top investors. Companies that comes to mind include on lidar side, Aurora, and for EV side, Nio. Go to their company's website as they are hiring like crazy from what I heard.

Jul 24, 2019

Any thoughts on Blackstone's entry into Growth? Do you see them being able to pivot part of their business into focusing on earlier stage stuff?

Jul 25, 2019
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Aug 5, 2019