2nd Year IB Analyst at a MM here. I have a case study (modeling test) for an Associate role at a tech-focused growth equity firm ($1bn-$5bn AUM) and I've been asked to complete a two hour-modeling test anytime in the next few days. I would really appreciate it if people who have gone through this could share their experience, what to expect for growth equity (3-statements, LBO, cohort analysis, etc.?), and any tips and advice. Any resources (previous case studies, models for practice) via PM would be truly appreciated - happy to swap other material to the extent I can be helpful. I have spoken with a couple members of their team and am pretty excited about my prospects here so want to be fully prepared.
Oct 05, 2021
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PE Associate at tech-focused growth equity / private equity firm, here. It's tough to say for sure because the modeling tests vary so much based on shop, but you can probably bet on one of the following formats:
1) You receive a mini-CIP and are told to build an LBO and go/no-go recommendation on the investment for discussion immediately afterwards
2) You are given raw assumptions and told to build an LBO
3) You are given a form of template or partially built out model to fix/complete
If I had to guess, it's most likely something similar to #1, given the 2-hour time limit. It's important to remember that whether or not you are doing a full buy-out, the modeling process is more or less the same. The only thing that changes is the equity %, and debt, depending on whether or not you're using it. You might also put more thought into how to sensitize the investment returns based on various factors.
Thanks, really appreciate the insights. I'll start preparing using online resources and keep you updated on what format they eventually choose to go with.
Do you really have to build LBO?
I spoke to headhunters who told me that for the likes of GA, Warburg, General Catalyst, etc. In their tech practices you didn’t have much modelling and it was mostly about being knowledgeable about a few subsectors
Also, make sure to refresh your knowledge on cap table modeling. Usually, I see people with an investment banking background do well in the LBO modelling part, but mess up aspects of the cap table.
I did a few modeling tests for GE during on-cycle a few weeks back. All of them were basically #1 in the above post. Was practically given no assumptions for any of them. Would remember basic assumption ranges for interest rates for different tranches of debt, appropriate leverage (based on turns of EBITDA), appropriate equity check vs. debt (with careful thought to rollover since not full buyout), transaction expenses, financing expenses, etc. Would reiterate the other poster’s comment about cap table dynamics too. Easy to practice lots of standard LBOs and then forget your goals with the GE model/your audience. You might have to do a PF balance sheet build out too, so make sure you know how the debits/credits flow. Also make sure you know and properly incorporate the step up and DTL calculations. Good luck!!
Hi what do you mean by captable modeling? Are you more so referring to a returns waterfall? I would think it’s more pertinent to show the expected return than the ownership %? Obviously the captable will inform the investor proceeds in a returns waterfall - is this what you are getting at?
Exactly. Calculating pre-money and post-money ownership, properly accounting for different types of preferred equity, etc., which then feeds into the returns analysis
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