Growth equity vs. buyout shops - compare and contrast

numi's picture
Rank: Gorilla | 641

Hi all aEU" IaEU(tm)m looking for some help in understanding the appeal of growth equity vs. traditional buyout shops in PE. I am not very familiar with growth equity so any advice you could provide would be appreciated. Specifically, my questions are as follows:

-What are some reasons why someone would want to go into growth equity instead of VC or LBO? For those of you who considered interviewing for growth equity opportunities, what were the key proaEU(tm)s and conaEU(tm)s?

-How are growth equity investments financed? How big of a component is debt? And as a corollary, what type of modeling skills are most applicable aEU" are LBO modeling skills even that useful in growth equity?

-I understand that growth equity is more about the aEUoestoryaEU of a business as compared with buyout opportunities. Given that there are a lot of stocks in the public spectrum that are considered growth aEUoestories,aEU what is the appeal of growth equity versus investing in growth stocks in the public markets?

-What is the transaction process for a growth equity investment like, and how do they compare to buyouts? Is there much overlap in skill set, and do you see people leaving one field for the other or vice versa?

Thanks in advance for your help.

Comments (14)

Oct 23, 2007


Oct 30, 2007

Can anyone please post their thoughts on this? Surely some of you ex-bankers considered buyout vs. growth equity funds at some juncture of your analyst stint...thanks

Dec 11, 2007

OK it's late and I don't know why I'm up but I figured I'd answer this before going to bed.

Think of there being a spectrum, with LBO on one end and VC on the other. Growth equity is the middle. Think of all the things that make LBO different from VC and you can get a pretty good idea of what growth equity entails.

For example LBO you're majority investor, VC you're minority; Growth equity will depend on the deal and thus varies.

LBO financial engineering is much more important than company's management/strategy (opposite is true in VC). In growth equity both are relatively similar in importance.

VC deals will be all equity, LBO deals will have a lot of debt; not surprisingly growth equity is in the middle.

LBO models are definitely useful in growth equity, especially if you do late-stage growth equity.


Dec 11, 2007

VC (early-stage) is all about the relationships and there is very little modeling. You will get to know a lot of the companies out there and make some good connections, and might even be able to get in at an early stage at one of the portfolio companies, but in some ways you won't learn as much in the way of technical skills as you will at growth equity/LBO places.

Growth equity is more about you doing the models and doing diligence on companies. Since they have customers and revenue, you can actually do some analysis. At some places (TA, Summit, TCV, etc.) you will actually get to source deals and are told to cold-call companies. This can be good or bad depending on how much of it there is. Some growth equity shops will actually do LBOs from time to time or use debt as a component of their investment; it really depends on the firm.

Large LBO shops are almost entirely modeling and analysis. You will get some great technical skills but not learn as much operationally or make as many of your own contacts in the field.

In terms of lifestyle, VC is best (more than 9-5 but not even comparable to banking), growth equity is probably a 60-70 hour a week job (maybe less) and large LBO shops are banking hours.

I would do growth equity over VC if you want to gain better technical skills while still having the opportunity to network and build relationships; do it over large LBO shops if you want a better lifestyle and the chance to do something non-technical.

FYI: a recruiter told me once that she recommended candidates not to do early stage VC and do growth equity/LBO instead because you could always switch into early stage investing later, but doing the opposite is harder if you don't know about debt, covenants etc.

    • 1
Dec 15, 2007

dosk17 and alexpasch, thanks so much for your insightful responses. i'd thought that these threads would have been forgotten, but i appreciate your answers and i'm sure others posting here will probably have the same "compare and contrast" for buyout vs. growth equity, especially once recruiting kicks off again.

Jun 16, 2014

I thought the comments were very useful. So bump.

Snootchie Bootchies

Jun 16, 2014

Wow this is an ancient thread

Jun 16, 2014

Resurrecting this - going to a growth shop myself and am curious of experiences/regrets.

Jun 16, 2014

pm me

Best Response
Jun 16, 2014

@Dosk17 provided some strong commentary, and I'm going to add a little color.

Think of why a Company would go to a Growth Equity shop and raise dilutive capital.

Typically the Companies are too small to access the broader credit markets and are looking at mezzanine debt (if anything), with a high cost of capital. Since the Company is still growing, they would rather deploy capital to growth initiatives than servicing debt, and as a result would like to bring in an equity partner to (i) provide capital to deploy for additional growth initiatives, (ii) take a small piece off the table and make some money (not enough to make them disinterested), and/or (iii) bring in a capital partner that has industry expertise to help them grow.

The other thing about Growth Equity shops is that they will take a look at a variety of deals (excluding some of the big names out there), including smaller stage buyouts. My experience at one of these shops was very positive, not only did we look at minority equity deals (incl. VC deals), but lower end buyouts as well. However, as previously mentioned, the growth and VC deals were more relationship based and were more hands off post-close. The deals where I had the best experience were in the buyout deals, where we would have multiple seats on the board and there would be open dialogue amongst the team on how to grow the business and operate in an efficient manner.

I was told early on in my career that it's hard to go back up. IE - Move from VC to Buyout PE shops. Obviously this is a uniform statement, I'm sure there could be one-off exceptions. Regardless, over my experience I have found this statement to be true.

The modeling is more consistent at Buyout shops, but the experience at smaller firms that deploy capital across the capital structure, evaluate a variety of deals, and have the flexibility to close different size/structured deals provide a great exposure.

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Jun 17, 2014


Jun 17, 2014

depends obviously. but prefer growth equity because generally more market research, competitive analysis and less number crunching/modeling and documentation

Jun 17, 2014