Buyout to Earlier Stage Investing

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Despite what my title says, I am a second year associate at a buyout shop (KKR, BX, Carlyle) in NY. I have had a good experience but ultimately realized I'm more interested in late stage venture / growth equity. I am not interested in attending B-school.

 

I've researched the team pages of several top firms and it looks like there is a decent amount of people who have made the buyout to earlier stage investing.

 

Can anyone who has made this transition speak to their experiences (1) during the transition/job hunt and (2) on the job? 

 

Comments (10)

 
  • Prospect in IB-M&A
Sep 25, 2020 - 11:23am

Greater focus on understanding of business model in order to get comfy w/ pre-profit businesses and making bets on underwriting top line growth rather than margin improvements/wc unwind

Active incubation and shepharding of portcos vs late stage maturities, definitely more interaction with the management 

i'd say definitely easier to do buyout -> GE transition than vice versa

 

 

 
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  • Associate 1 in PE - LBOs
Sep 25, 2020 - 11:24am

I did the reverse transition so can't speak to the job hunt but can speak to the differences on the job.

 

Allocation of time:

  • In buyout I spend much more of my time on diligence, processing updates from management teams, portfolio monitoring, add on M&A, flipping through CIMs, etc.
  • In early stage I spent my time, in order of most to least time spent each week on average, sourcing, diligence, portfolio support, and internal work (e.g., fundraising - even as an Associate)

Diligence

  • I don't need to describe to you what diligence is like in your current role, but in early stage, diligence can take a few different forms depending on how early you are
  • For venture, diligence is much more focused on product, market, and founder at the early stage. You can't really evaluate if a company will go 2x or 10x, but often the founder will be what gets you there. You can't evaluate product market fit because you don't have the requisite data to do the analyses. You have a higher degree of focus on primary research (consultant toolkit) except because you might have less of a budget, you have to be scrappy about how you do it (e.g., develop a network of personal advisors you can bounce ideas off of - this is something you don't see discussed often on the forum but is true)
  • For growth, you start to evaluate what data you have on customers behavior, churn, and whatever metrics are specific to the category of company you are tracking. There is more analysis to develop insight into the company at hand (it is a different type of insight than what you are doing when you are evaluating things like credit metrics, to be very clear). You have other information as well and it's with this overall batch of analyses and information sets that you can begin to understand PMF

Sourcing

  • Sourcing at earlier stage firms is more laissez-faire. It's up to you whether or not you want to go to conferences, find lists online of relevant companies and pound the phone, make exchange networks of deals with other investors, etc.
  • At growth stage firms like TA or Insight, there is a program. They understand how to most effectively make an associate source, and that is the nature of the associate program there (I realize you are likely looking at VP roles but there is a level of institutional machinery that will be similar in processing across roles and you can extrapolate how that would affect relevant roles). This sourcing machinery will vary from firm to firm but often means pounding the phones and then escalating good deals up the leadership chain.

 Portfolio Work

  • You really can have a spectrum here. One one end you have the IGSBs of the world where they will literally parachute into the company for ~6 months and start to steer the ship to make sure the foundations of success are there. On the other hand you have other companies who will run mini-strategy or other types of projects themselves and deliver those to their portfolio companies- identifying a new market, etc., On the farthest end of the spectrum you have folks who will do the bare minimum required of venture/growth investors: making connections and serving as a sounding board. It is often lonely for CEOs, and so some of the value add is just being able to talk through the issues you are facing with someone else. 

Internal

  • You are welcome to do whatever internal work you want at some firms, and obviously others will be cagey about letting juniors (even VP level) touch internal work. It just depends. You will have a bare minimum of work of editing CRMs, doing some portfolio review, etc. at very small shops because they do not have the infrastructure to outsource this. You may do fund planning as well. It is an item of diligence when interviewing depending on what you so choose. I rather enjoyed some of the fundraising work (I got to bring in an LP as an Associate which was cool, and also developed a relationship with a large investor we eventually flipped a company to) but despised some of the fund planning work (portfolio allocation is not inherently on my mind as a junior because if I source something I like, I want to invest in it, not think about how another company of [category] fits into the overall portfolio, yet unfortunately you may be faced with this issue.

We're both anonymous but I'm happy to discuss with you further if you have any questions in private about tailoring your resume as I can speak to recruiting pretty in depth. In general you are going to have some large firms gatekept by headhunters (shocker) but a lot of the smaller ones doing really cool stuff are off the grid. For example, one of the guys who sourced a unicorn (e.g., Spotify / Facebook / etc. type stuff) at a blue chip fund (Accel/Sequoia/etc.) has since started an extremely successful fund and does all of his recruiting through personal networks. This makes sense, since networks are the name of the game in early stage and growth.

 

 
  • Associate 1 in PE - LBOs
Sep 25, 2020 - 1:22pm

I'm a first year associate at an UMM buyout shop who contemplated recruiting for consumer growth (GA consumer, L Catterton growth) before ultimately opting for buyout. Growth has always been something my mind (as a possibility after business school perhaps or lateral opportunity), but for now I'm enjoying the first couple of months at my current shop. Just curious, how are you liking buyout so far and what compelled you to make the transition? I think any insight here will helpful given you've been on both sides. 

 
  • Associate 1 in PE - LBOs
Sep 25, 2020 - 1:38pm

I am having an absolutely terrible time.

  • Culturally, I feel like a cog in large cap buyout (analysis, organizing creditors/consultants/tax/lawyers) and felt much more valued in my old role (sat and fully opined openly in investment committee, even swayed people from yes/no to the other in investment votes with presentations I put together myself without being asked to because I felt very compelled about an opportunity either yes/no, however obviously did not have a vote myself as an Associate).
  • My old plan was to make the switch post MBA to growth, but huck it out here because my firm places into H/S pretty darn well.
    • Now, I am so unhappy in my current role I would switch to growth now regardless of MBA ramifications.

After having tasted earlier stage, buyout feels much more boring and limiting in the intellectual stretches I make on a day to day basis and the depth of relationships I am able to build.

 

If you want to drop anonymous I will PM you and we can catch up more (I am always interested in comparing notes with people in similar situations - my profile of large PE and then contemplating moves to growth is almost identical).

 

Also, I am aware of a strong consumer growth shop (a little earlier than the GA / L Catterton type, but an extremely respected name) that is recruiting right now if you are interested.

 
Sep 25, 2020 - 2:44pm

I made the switch from MM buyout to late stage VC / growth and think this is spot on. All the modeling and long memo / deck writing skills seem to mean very little in growth. It's all about sourcing. Pace has also been much faster - from 1 to 4 deals per year to almost 10 (although not as intense). Happy to compare notes as well.

 
Sep 25, 2020 - 3:32pm
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