EB -> Startup -> VC or GE Investing

leaving banking after a year as an analyst bc of insane burnout to join a startup and actually see what it takes to execute operationally and drive growth

i think we all recognize the learning curve flattens significantly at the analyst level in the 2nd year, but obviously 2 years of experience in banking is viewed much more favorable than 1.

given the perception here (quitting banking early) and non traditional path, how possible could it be to pivot back to an investing role, if that's something I want to do in 2-3 years? Either VC or GE

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Comments (18)

Aug 15, 2021 - 3:03am

NP VC, harder for GE.

  • Associate 2 in PE - LBOs
Aug 15, 2021 - 1:11pm

Everyone here says "growth equity" on this forum but really that could mean two things (and have seen people use the term interchangeably for these two different topics);

  • Venture growth / late stage venture / series C+
  • Growthy buyout deals (>15% growth rates and low-ish leverage)

The former is not really that much like buyout

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Aug 21, 2021 - 2:57pm

Everyone here says "growth equity" on this forum but really that could mean two things (and have seen people use the term interchangeably for these two different topics);

  • Venture growth / late stage venture / series C+
  • Growthy buyout deals (>15% growth rates and low-ish leverage)

The former is not really that much like buyout

I agree with this statement -- I'm a former buy-side equity research analyst that moved to an early stage VC, then to a late-stage VC where I am currently a Jr Partner.

There seems to be some vagueness around the use of the term "Growth Equity", because in addition to the Growth-Stage buy-out Private Equity shops, some "Growth Equity" practices/strategies are actually doing "Growth-Stage Private Equity", which has a lot of overlap with late-stage Venture Capital. For example, KKR did the Series D of PropertyGuru (https://techcrunch.com/2018/10/31/propertyguru-kkr-144-million/) in 2018, and invested in the Series F and Series I of Go-Jek (https://emerhub.com/indonesia/shareholders-of-go-jek/). Warburg Pincus actually joined KKR in the Go-Jek Series F and Series I rounds.

The ForgeRock Series E (https://www.forgerock.com/about-us/press-releases/forgerock-surpasses-1…) was also interesting, because it was run like a traditional venture round -- meaning there was an investor syndicate rather than a single investor taking the whole round -- and it included a mix of "Private Equity" (Riverwood Capital the lead investor, and KKR Growth participated) and "Venture Capital" firms (Accel, Meritech and Foundation Capital).

I can't speak much for the "Growth Private Equity" stuff, because I've never worked at a "Private Equity" firm, but I can definitively say that this type of background (IB + Startup) would be very welcome for a Senior Associate/Associate Director-level hire in a Late-Stage Venture Capital fund. The only portion of the skill set that you would need to ramp up quickly is the Venture Capital-specific "deal" stuff, such as familiarity with current VC deal terms, market practices, familiarity with the names/markets of your "coverage". In late-stage VC, there's a bit more "hunting" involved, because the companies' founders generally don't do the types of pitching that a Series Seed to Series C company would do. Access is one of the most important skills at this stage because the best companies' rounds are often multiple times oversubscribed given the pro-rata/super pro-rata by existing investors on top of new interest. Having some startup/tech industry work experience may also help because you would be able to develop relationships with people at the operational level that the VC's often don't interact with -- "diasporas" are very important here. Just like how PayPal created the PayPal mafia, there are great companies being formed by alumni of exited companies (even beyond FAANG). Further, your co-workers may eventually go on to roles at companies you may see the rounds of/see secondaries of, and they are often amazing resources to learn about the company and their competitors -- these are insights you often don't get from a dataroom. A single reference check call is often much more helpful than hours of excel jockeying, as your diligence process usually gets pointed in the right direction when you speak to people in the target company, their competitors, suppliers, clients, etc. As a former equity research analyst, I grew up doing Channel Checks almost on a daily basis -- for some reason, this is something that's done to a much lesser extent in VC, but a number of my most profitable insights have come from Channel Checks. References are difficult for me to come by because of my background and I often struggle to get phone calls or coffee chats set up within the very tight timelines of late-stage deals right now. This has been compounded with the difficulty of meeting people during the last year and a half -- Unfortunately meeting at Blue Bottle had not been an option over most of the pandemic. I also find that pure finance people are sometimes at a disadvantage to those who have worked in tech, because even equity research analysts like myself who grew up understanding companies and sectors in "depth", still have a shallow understanding of how companies operate, what their value chain looks like, and especially for technology -- what the market segment actually looks like. Judging the market standing of a tech company's product is much easier for someone with actual work experience, than it is for someone with a pure finance background -- I often struggle to figure out if a company truly is a market leader in its entire vertical or market segment, which is really important in the Late-Stage, where IPO is one of the primary paths to exit.

Someone in the thread above asked about what kind of firms would fit in this definition. Let me first caveat by saying that even the term "Late-Stage", when used by many people, is very broad, and depending on who you speak to, encompasses "Growth-Stage Venture Capital" (Series C-F), what practitioners specifically refer to as "Late-Stage Venture Capital" (very very late rounds like Series F-onwards and Pre-IPO rounds), and the nebulous term of "Crossover", which can mean either buying into the last/penultimate round before the IPO (as long as it's 1-2 yrs from IPO) or buying secondaries from early investors/employees/whomever right before the company goes public. Some of the best firms who are generally focused on specific stages are the following:

You also have a lot of firms who invest across the gamut:

  • Tiger Global Management [f/k/a Tiger Tech, founded by former Tiger Managemnet Tech Analyst Chase Coleman III, and a Tiger Seed (not just a Tiger Cub)]
    • Tiger has a big hedge fund practice, running a flagship Long-Short fund called Tiger Global Investments and a Long-Only fund called Tiger Global Long Opportunities
    • They invest in Growth-Stage and Late-stage through their "Tiger Global Private Investment Partners" series of funds -- John Curtius runs this, if I'm not mistaken
    • They also have a Very Late Stage/PE/Crossover unit that used the be run by Lee Fixel, now being run by Scott Shleifer
  • Coatue [Tiger Cub firm founded by former Tiger Management Tech Analyst Philippe Laffont]
    • Coatue runs a big hedge fund practice, which includes their Long-Short fund, and some Long-Only funds like Coatue Long-Only Offshore Fund Ltd.
    • They have a cross-over + public equities dedicated fund called "Coatue Hybrid Fund I, L.P.", not sure if there's a Fund II and onwards
    • Coatue does a TON of Single-Asset SPV's (called "Coatue CT") to invest in allocations when their other funds cannot/are tapped out. As per public records, they are up to SPV #125 (https://www.bizapedia.com/de/coatue-ct-125-llc.html)
    • They have a Venture Capital practice as well which includes their growth-stage practice "Coatue Kona" and their early/venture-stage practice "Coatue Ventures"
  • Dragoneer Investment Group
    • Dragoneer's primary focus is very late-stage and crossover VC, which they now call "Dragoneer Growth" (https://www.dragoneergrowth.com/), and also includes their SPAC business
    • They've launched a practice with a broader range of stages, I believe this is their "Dragoneer Technology Opportunities" series of funds
    • Dragoneer runs a venture debt practice as well

I'd also like to point out that Late-Stage Venture also involves quite a bit of Secondaries -- meaning buying shares from early investors, employees, founders seeking some liquidity, service providers who received stock as payment, venture funds with specific funds reaching their end of life and other natural sellers. Secondaries are often a fantastic asset class, and some of my best returns have been from Secondaries -- our Secondaries investments are actually currently outperforming the Primary investments. Having some work experience at tech companies gives you a network that could include some of these natural sellers. Firms like Tiger and Coatue sometimes have vehicles specifically dedicated to buying Secondaries of certain companies as they pop up. I'll give you an example of some Secondaries deals that I've done, which illustrate the value of this:

  • Deal A
    • In early 2020, one of our portfolio companies was going public. We had invested in the pre-IPO primary round, and a number of shareholders were looking to get some liquidity prior to the IPO. This opportunity popped up literally 3 weeks before the IPO
    • Apparently, the founders, and a number of employees were looking to get some liquidity by selling 5-10% of their holdings before they got locked-up at the IPO
    • We didn't have a very strong relationship with the founders, as we just participated in that pre-IPO round a few months prior. The process ended up falling apart because of the timeline
    • They referred us instead to an early investor who was selling part of their holdings prior to the IPO; Two of their funds were reaching end-of-life and needed to liquidate their holdings as soon as possible -- we had to close this deal (as in, wire the money) in four days. Ended up doing only half the amount we wanted to do, because we ran out of time to buy the shares held by the other fund
    • We had a ton of LP appetite for this, and we could have bought way more stock had we known some of the employees
  • Deal B
    • We did a post Series I tender offer for early employees, priced at a slight discount to the Series I
    • Dollar value of people availing of the offer was quite small initially, given that a lot of the early employees had already left
    • After the process, we found out that a lot of those former employees would have participated if they had known about this tender -- that's unfortunate because the process had already been closed by the time we got to speak to them; had we known these people earlier, the tender would have been much larger
  • Deal C [failed deal]
    • There's a late-stage company where one of the initial hires had moved on to another company and was looking to generate some liquidity from the equity grants this person had received when they joined. The company had turned into a unicorn already, and this person's equity was worth tens of millions of dollars, and they were hoping to liquidate $10MM of that
    • I had been introduced to this person was in the middle of COVID and was only able to speak to them over email and Zoom. Unfortunately, I had been swamped with deals and was unable to focus on the opportunity and spend the requisite time to get smart on it and gain the level of conviction we needed to make an investment
    • I circled back a few weeks later, and the person had changed their mind -- the company had raised a funding round at a share price that was multiples of the last round, whose price we had used as an anchor for our discussion. I just found out that there were multiple early employees who had moved on to other companies and wanted to get some liquidity. I could have put together a tender in concert with the company at that last round price, or at a discount to the last round.

Long story short, get that operational work experience, and you'll have a massive advantage over pure finance people in Venture, no matter what the stage!

"Be the Disruptor, not the Disrupted" - Clayton Christensen
  • 15
  • Prospect in IB-M&A
Aug 19, 2021 - 1:57pm

How early is the startup and what role will you have? If the company has success, and you were an early enough employee, you'll have a strong case for VC and early growth funds. However, great VC spots are few and far between so networking is crucial.

Aug 21, 2021 - 1:10am

Series C joining ops/finance at a point where revenue exists but is low - seems like a good way to develop reference experience on how to scale. may not be a direct translation to early venture, but perhaps applicable to late stage venture, if i'm reading the rest of the info on this thread correctly?

  • Analyst 1 in IB - Cov
Aug 24, 2021 - 1:40pm

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