Does it make sense to try and lateral from a BDC to a LBO Fund or larger BDC after a year?

Hello everyone!

I was hoping to get someone/the community's thoughts on my current predicament. I am a PE/investment associate (career track) working at a BDC underwriting both minority and majority equity investments sourced through traditional auction processes. We are the sole sponsor partnering with the management team (not supporting another sponsor) and outside of new deal execution, my job on the portco monitoring side is for the most part to execute (diligence, valuation, & documentation) on add-ons for our portfolio companies which are all typically very aggressive on the consolidation front. I am close to a year in but was originally deep in the recruiting process with traditional LBO shops until COVID happened, fortunately this job came around.

I am wondering if this dynamic (working for a BDC, not doing buyout transactions, working on minority deals) will make it tough to lateral to a more traditional buyout firm in the future at a higher role (sr associate/VP) and if so, if it would make sense/is feasible to lateral to a buyout shop after a year or so is up to start getting the "right" experience rather than stay and recruit after 2/3 years. Or if it would be materially easier to lateral now to a larger BDC than it would at the 2/3 year mark at a higher position.

In IB, if you don't get the IB gig you wanted specifically, lateraling in your 1st year was pretty straightforward and intuitive with plenty of spots open due to attrition and so it made a lot of sense to lateral after a year or so at a smaller shop, but I'm not sure what the dynamic is on the buy-side. If lateraling after 2/3 years is not materially tougher or simpler, I would prefer to stay put for now.

Appreciate any and all thoughts.

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Comments (18)

Feb 12, 2021 - 3:42am

It's a BDC but you're mainly doing equity deals? Or is it more an across the capital structure mandate? I ask because most BDCs are direct lending vehicles 

Also what's your background? Is this your first role? Will help in forming an answer to your question

  • Associate 1 in PE - Other
Feb 12, 2021 - 1:33pm

Hey thanks for the reply! 

Yeah, it's a bit of a unique dynamic, the BDC overall does do a lot of direct lending type of deals for sponsored and non sponsored transactions, but the teams at this firm are broken out based on strategy and I sit at a desk where we'll invest both the equity and the debt in a transaction sourced through an auction process / investment bank. So we would own both the equity and debt in a single transaction (no other institutional money or investors) and are seen as a regular old PE shop by these banks it seems, just one that tends to prefer minority deals and will provide the debt themselves. The debt helps support the dividends the BDC issues / creates a more reliable income stream.

Prior to this, I was an investment banking analyst at a large bank doing M&A, this BDC I am at now was often listed as a potential buyer in our sell-side processes and our financial sponsors team had a relationship with them / showed them deals, as they continue to do so now. It feels more like a family office role with no designated fund life so no exit defined.

I appreciate you taking a look at my situation and hope this provides enough color.

  • Associate 1 in PE - Other
Feb 12, 2021 - 1:59pm

Sounds like Prospect Capital Corp; if so, I would stick around for ~2 years and try to lateral into a Senior associate position at a buyout fund. Key thing I would recommend is getting your hands on as many reps as structuring negotiations & credit agreements so that you can tout your ability to think as both a debt & equity side and also have legal documentation knowledge that would prove you well in a buyout gig at Senior Associate / VP level.

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  • Associate 3 in PE - LBOs
Feb 13, 2021 - 3:54pm

Out of curiosity, what is spurring you to lateral elsewhere?  Assuming most of your work is on the majority equity side, I can't imagine the responsibilities and workflow are much different from a traditional LBO fund. 

  • Associate 1 in PE - Other
Feb 14, 2021 - 3:51pm

Hey! Yeah so it's nice to hear you say that the workflow probably insnt too dissimilar since until some recent conversations and some replies on this post over the past few days, I was actually unsure of if I was missing out on some experiences that come with working for a shop with a defined fund life or with only a control focus (doesn't seem to be much different). I will say we don't treat the majority deals and different from the minority deals, especially as we have minority investor rights + debt holder protections, so we have kind of all we need control wise less the right to force a sale (but all holds are designed to be long term). Focus is always on deploying more capital, mostly through add-ons considering the market is whacky.

One key reason to lateral either now or after some time, is simply that the standards here are a bit lower than what I'm used to. I was deep in recruiting with traditional LBO funds when COVID sort of forced my hand, luckily, this opportunity had caught my eye as a why not kind of opportunity earlier last year and would kind of like to go back down that track. For one reason or another, the standards at this shop are simply below my expectations / preferences / former experiences working in IBD and I don't want to pick up the bad habits of getting too lax about things. The sense of urgency I'm used to isnt there which frustrates me and I imagine they might be at a LBO fund, I also just dont want to be branded as a quasi-PE guy if that makes any sense. After thinking it through and having a few convos, am thinking the move is to wait to get a full 2-3 years of deals and general experiences under my belt, then lateral to a buyout fund. People here are fantastic though, so wouldnt mind staying for a bit.

Happy to hear any thoughts you may have

  • Associate 2 in PE - Other
Feb 15, 2021 - 9:58am

I'm confused by what you mean by lower standards? Do you mean you're closing deals where you feel the quality of work is below par or the quantity of work is below par? If its the latter, it could be your shop is just more efficient with figuring out which deliverables are more important than just busy work. If its the former, how do you know its low quality? Are you closing deals where you know the model is wrong and return expectations way off or something? What do you mean by getting too lax about things? I think we'd be of best help for this concern of yours by hearing some examples. As to your point of being branded as a "quasi PE-guy", who do you think has a better skillset as an investor? Someone who knows how to structure deals throughout the capital structure or someone who just knows how to look at buyouts? 

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