Difference between late stage VC and growth equity

Hi all, currently evaluating a late stage VC (Series C +) fund offer.

Team looks good (harvard MBAs) but what concerns me after reading this board is that it would be next to impossible to get into PE + the lower comp.

I was wondering, how possible it would be to spin this experience to get into a Growth PE gig?

Thank you.

Comments (19)

Feb 4, 2019

Is series C+ not growth? How big are their investments?

Feb 4, 2019
HopingToLearn:

Is series C+ not growth?

That's what I am trying to figure out. Concern here is that if I don't get enough late stage experience, could be hard to move to a growth equity fund.

HopingToLearn:

How big are their investments?

Around 5 MM.

Feb 4, 2019

ticket size of the rounds they are taking part in? Are they leads on these rounds or not?

Feb 5, 2019

The simple answer is that the line between late stage VC and growth equity is beginning to blur as both types of funds are beginning to creep into the others territory in search of quality.

    • 1
Feb 5, 2019

$5 million sounds like a Series A investment. $20-50 million is a usually the range for Series C and beyond. As for the difference between late stage and growth...all depends on your definition but it's more or less the same thing. Anything past Series C is late stage/growth.

I'll add too that in VC land there are about 5-7 funds that are absolutely killing it, another 10 or so that are decent, and the rest are completely terrible (flat to negative). Something you might want to keep in mind.

Learn More

9 LBO Modeling Tests, 10+ hours of PE Cases and 2,447+ interview insights across 203 private equity funds. The WSO Private Equity Interview Prep Course has everything you'll ever need to break into the competitive PE industry. Learn more.

Most Helpful
Feb 5, 2019

There are a couple ways to slice this. You could put six smart people around a table and ask this question and get back eight different answers.

One could be by industry. Growth equity, as a lot of people think of it, spans all industries. It's a private equity strategy that looks for mature businesses that are cash-flow positive and simply looking for more capital to expand more quickly. Venture capital at the late stage is often supporting a business that hasn't yet proven to be profitable, but is seeking more capital to scale quickly to the point it can eventually reach a scale where profits can begin. The story is "we could be profitable today, but we want to scale faster so we're investing in growth now rather than optimizing for positive cash flow".

A prominent example here would be Uber; it is losing something like $800m-1b quarterly, but the bet is that once it's eliminated further competition by undercutting on price and offering incentives for both the supply side and demand side, it'll be able to start milking profits from a market that it squeezed other players out of. That's still a venture story, even though the company is now massive.

It isn't impossible to move from venture capital to private equity. It's more easily done at the later stage; the trick is to prove that you have the technical ability to check the box.

Some private equity shops are really focused on financial engineering. They will underwrite deals to a lower IRR (10-15%) and really focus on deal structure as the primary driver of returns. Put simply, if they use leverage (and perhaps some repayment mechanisms like a recapitalization or dividend) wisely, they can get an attractive enough return out of a deal where there isn't much visibility into top-line expansion (revenue growth) or bottom-line optimization (cost minimization). These are the places that tend to grill candidates very thoroughly on technicals, which is sensible given how important the integrity of the financial analysis is to the outcome of the deal.

Other private equity shops are focused more on operational improvements. This is where structure falls subordinate to strategy: can the new owner run the business more efficiently? This might be insight on a new product offering to introduce, some kind of expense optimization program to implement, exceptional executives to insert into management, etc. These shops tend to prioritize candidates with more qualitative skill-sets. This is where you would fit coming from a venture capital background.

Good luck.

    • 6
Feb 4, 2019
APAE:

There are a couple ways to slice this. You could put six smart people around a table and ask this question and get back eight different answers.

One could be by industry. Growth equity, as a lot of people think of it, spans all industries. It's a private equity strategy that looks for mature businesses that are cash-flow positive and simply looking for more capital to expand more quickly. Venture capital at the late stage is often supporting a business that hasn't yet proven to be profitable, but is seeking more capital to scale quickly to the point it can eventually reach a scale where profits can begin. The story is "we could be profitable today, but we want to scale faster so we're investing in growth now rather than optimizing for positive cash flow".

A prominent example here would be Uber; it is losing something like $800m-1b quarterly, but the bet is that once it's eliminated further competition by undercutting on price and offering incentives for both the supply side and demand side, it'll be able to start milking profits from a market that it squeezed other players out of. That's still a venture story, even though the company is now massive.

It isn't impossible to move from venture capital to private equity. It's more easily done at the later stage; the trick is to prove that you have the technical ability to check the box.

Some private equity shops are really focused on financial engineering. They will underwrite deals to a lower IRR (10-15%) and really focus on deal structure as the primary driver of returns. Put simply, if they use leverage (and perhaps some repayment mechanisms like a recapitalization or dividend) wisely, they can get an attractive enough return out of a deal where there isn't much visibility into top-line expansion (revenue growth) or bottom-line optimization (cost minimization). These are the places that tend to grill candidates very thoroughly on technicals, which is sensible given how important the integrity of the financial analysis is to the outcome of the deal.

Other private equity shops are focused more on operational improvements. This is where structure falls subordinate to strategy: can the new owner run the business more efficiently? This might be insight on a new product offering to introduce, some kind of expense optimization program to implement, exceptional executives to insert into management, etc. These shops tend to prioritize candidates with more qualitative skill-sets. This is where you would fit coming from a venture capital background.

Good luck.

Thank you very much @APAE ! I have been going through all your older posts where you wrote up detailed stuff on the VC space. Am reading as much as I can about it. They really did help me out during my interviews.

For those wondering where to start, see APAE's post in this thread: https://www.wallstreetoasis.com/forums/best-ventur... and start digging in.

Feb 6, 2019

@slothsloth what kind of background are you coming into the growth equity VC with? If you've got an IB background prior to this offer, then it would be less difficult with a data point on your technical skill sets. If you're coming into it as an analyst out of undergrad, it'll be tougher (depending on how quantitative the growth VC fund is). But you can build your qualitative industry & company assessment skill sets and investor mindset as key differentiators, and also get some experience on modeling (making adjustments / building scenarios on operational models and assumptions) on the job.

Generally the later the stage of companies, the more quantitative the role (more data, more possible modeling of scenarios, maybe more possibility of funding besides equity...), and closer the fund is to "growth equity PE". Another indication of the role and nature of the group is checking out team bios. If you're seeing a lot of ex-bankers, then it's probably a more quant oriented shop. If you're seeing more product, tech / startup, and consulting backgrounds, then probably not.

    • 2
Feb 4, 2019
kanon:

@slothsloth what kind of background are you coming into the growth equity VC with? If you've got an IB background prior to this offer, then it would be less difficult with a data point on your technical skill sets. If you're coming into it as an analyst out of undergrad, it'll be tougher (depending on how quantitative the growth VC fund is). But you can build your qualitative industry & company assessment skill sets and investor mindset as key differentiators, and also get some experience on modeling (making adjustments / building scenarios on operational models and assumptions) on the job.

Generally the later the stage of companies, the more quantitative the role (more data, more possible modeling of scenarios, maybe more possibility of funding besides equity...), and closer the fund is to "growth equity PE". Another indication of the role and nature of the group is checking out team bios. If you're seeing a lot of ex-bankers, then it's probably a more quant oriented shop. If you're seeing more product, tech / startup, and consulting backgrounds, then probably not.

Thanks for the information @kanon . I come from an FP&A role at a F100. So I am very comfortable with detailed financial modeling (had to be v good at macros + visual basic). Understand your point about technical skills, I may never be as good as IB guys so that's a point I would have to consider.

Yes, the founders are from IB backgrounds but the rest of the team are quite mixed. So not too sure what to expect in terms of the role.

Do you have any good materials to recommend on brushing up on technicals? I already have Rosenbaum's book on investment banking.

Thank you.

Feb 6, 2019
Comment
    • 2