Growth Equity in 2017 - can you really learn valuable / transferable skills?

All the growth equity threads are outdated and I was hoping to get more current insight about these types of shops. Specifically:

  • what types of transferable skills do you learn (is it just limited to sourcing opportunities)
  • compensation for 1st and 2nd year associates (base / bonus)
  • what do people usually go on to do after? From what I see on LinkedIn, associates go to bschool or other shops. Are you ultimately stuck in this field once you go down this route?
 
Best Response
  1. The same transferable skills as other PE firms - growth equity shops often look at traditional buyout investments, but are just a little more flexible in their thesis (IMO) - more of the projected returns come from growth as opposed to just maximum leverage. I think this grants a more interesting strategic perspective than pure financial engineering, but I'm in growth equity so of course I'm drinking the Kool-Aid.

- Sourcing (this is very valuable skill btw -- essentially what you get paid for in PE as you get more senior) - Modeling - Diligence - Deal process - etc. [Fill in the blank here]

  1. Same as normal PE -- my guess varying from 200k all-in at the low-end to ~$300k at the high end (pre-MBA associate).

  2. Hedge fund, other PE / growth equity fund, VC, business school, join small, growing business as head of strategy / corp dev., etc. Same opportunities as other PE with a little bit more emphasis on growth -- so unlikely to join distressed firm, but it could happen.

 

Hours vary just like any deal-oriented role. Pretty cushy (relative to IBD) when not on deal, slammed when on deal.

Sourcing is just one of my weekly tasks -- yes I do it primarily during normal business hours, but not like it consumes my entire day...

Honestly, I think work in PE / growth equity varies more by firm (and is more firm-specific) than rough categorizations of PE firms (eg "growth equity" vs. "mature buyout"). Generally more sourcing in growth equity, but traditional PE firms that do a lot of rollups can wind up doing even more... really depends.

 

No - those are some of the best ones (pay well). All have sourcing, I just personally don't think sourcing is this terrible, all-consuming task that people make it out to be. Per above, I also think it's one of the most important (if not the single most important) skill for a long-term career in PE.

Newsflash folks: there are a lot of PE firms, and differentiated sourcing is really hard.

 

From my experience, different shops structure the bonus differently. I’ve heard of specific payouts being written into an offer letter that gets paid out at close or in the form of equity in the business. This is on top of your year end performance bonus as well. You’ll definitely see a bump on that end as well.

For the above reasons, it matters if the deal closes to get the sourcing bonus, but if you generated good deal flow throughout the year, you would at least get a better performance bonus. Sourcing is a crapshoot so it’s not your fault if a deal doesn’t close. You just won’t get the sourcing bonus.

On the sourcing volume front, different firms track it differently. Firms will keep track of actual deals you bring in, but that can’t be a consistent metric to base all your sourcing. You can’t force someone to transact. When you’re dialing for dollars, your CRM will be tracking outbound calls/ emails and connected calls. Sometimes firms will set quotas for either of those metrics to keep people accountable. I know TA used to have a weekly Monday morning meeting where associates had to pitch a deal that they had uncovered. I’d say the fear of going into one of those empty handed should be enough to keep you motivated.

This deck is dated, but slides 18-21 should give you an idea of what a sourcing pipeline would look like. “Three investment professionals need 1 year to close 1 deal” has held true in my experience when looking for purely proprietary deals (i.e. excluding banker processes, brokers, etc.). https://www.slideshare.net/dteten/source-deals-web-20-teten

 

Any advice on preparing for a growth equity interview / typical questions? I have one coming up but there are very slim details on WSO compared to traditional LBO opportunities.

 

Again, I think what to expect in interview probably varies more between firms than between "growth equity" vs. "traditional buyout" shops.

In my interviews, most of the questions were no different from traditional buyout shop questions - paper LBO, how do you think about investments, blah blah blah. Obviously, put a little more of a growth spin on things, but you get the idea.

Probably won't hurt to express an openness -- dare I say enthusiasm -- for sourcing if that's a big piece of the associate role at the firm you're interviewing for.

If you know any older analysts that interviewed at whatever firm, probably best to hear about their experience.

 

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