Best TMT subsectors?

I'm a ER Associate with 1 yr of experience looking to switch coverage to TMT, then eventually the buyside (currently covering different sector).  Can anyone speak to the favorability of each TMT subsector (Internet, Software, Hardware, Semiconductors, Fintech, Media/Gaming, Telecom) for buyside exits?  If I want to make the jump to an L/S multi-manager TMT pod, will they generally be viewed equally?  What about to a generalist or broadly TMT-focused fund?

Also, I'm assuming exits would be better to cover in a "less favorable" subsector with a highly-ranked/respected analyst than cover a hot one with an average analyst, is that correct? 

I enjoy learning about Semis the most, but also wonder if that pigeonholes me in the future.

Comments (13)

Jan 12, 2022 - 11:35am

I'm in an almost similar headspace as you, except that I am about to start out under the Telecoms team. Was thinking if Telecoms would be considered a "pigeonhole" sector. I'd have thought tech infra would be the better of the two, but do correct me if I'm wrong.

Most Helpful
Jan 12, 2022 - 1:08pm

I believe that there are a lot more VC/PE firms that focus solely on software and internet sub-verticals such as Thoma Bravo, Silver Lake, Vista Equity, JMI Equity, Andreessen Horowitz, Sequoia just to name a few. This doesn't mean they ONLY invest in internet and software but it is safe to say they back "tech-enabled" companies.

I'm not too familiar with how hedge funds operate internally, but I'd like to think that most HFs have a dedicated TMT team that likely divides themselves into the common sub-verticals pods, but also more niche sub-verticals like Cybersecurity, Electric Vehicles, and Gaming. There definitely will be a semis sub-vertical within most TMT groups at HFs, especially with quantum computing and photonic semiconductors gaining lots of hype/traction in the past decade.

Overall, you can't go wrong with TMT coverage if your focus is TMT buy-side exits since you will have specific experiences to talk about related to tech. If you are truly passionate about semis, I'd focus on gaining experience within that sub-vertical and try to network with people in the semiconductor pods at a HF you like to get a sense of what they do and wether you'd enjoy it.

Jan 12, 2022 - 5:33pm

Software, Internet, Semi. Then software and semi are both very technical. 

I advise against picking analysts based on ranking. Instead, focus on picking an analyst who treats you well and trains you. Sell-side research is very bifurcated between respected analysts and garbage analysts. As long as you are rolling with top 10-15 analysts, they are not that different in the eyes of buy-siders. Eg. if you have to pick between Brian Nowak and Mark Mahaney, pick whom you get along with better. If the choice is Brian Nowak and no-namer garbage analyst A, probably have to pick Nowak. 

I echo ChipiK, get a flavor of different kinds of TMT investing styles and assess for yourself the lifestyle / compensation trade-off of them before jumping in blindly. 

  • NA in ER
Jan 13, 2022 - 12:31pm

Thanks!  Absolutely, those pod shop strategies trading quarters will differ significantly from a place that takes a 2/3 year view or one with an even longer time horizon.  To follow up, I have questions about how certain analysts are regarded by the factors you mentioned - training/development and treatment of juniors.  Is it ok to PM you with these questions?

Jan 13, 2022 - 12:39pm

Unfortunately, you will have to "channel check" on those factors: best way is to ask their former associates. Most analyst are bad managers - this profession doesn't reward good leadership / project management, it rewards instead ability to produce. So your goal is to pick the lesser evil. 

I cannot answer your questions regarding individual analysts. 

  • Analyst 3+ in HF - EquityHedge
Jan 14, 2022 - 1:38pm

Speaking from experience I would say Software gives you best exit ops. More money flowing to that space, more managers expanding their practice there. Even with the drawdown, the amount of positions and new teams expanding. in addition think about what is really driving innovation/capturing more IT Spend. It's Software.  

Jan 14, 2022 - 4:45pm

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