Is it true that Private Equity requires more quantitative and technical skills, while Venture Capital is more qualitative?

From what i'm reading online, i get the idea that the job in PE involves more technical knowledge, working a lot with models, and having in general more quantitative skills to be applied. On the countrary, i seem to understand that while a certain degree of quantitative skills are still required in VC, there is more emphasis on the qualitative side of the job, on the due diligence, and on networking in general.

Can you tell me if this is true or not? Any insight will be greatly appreciated.

 

PE and VC are, at heart, the same thing. The difference is that in PE you buy in to established companies, whereas in VC you're buying in to startups/less established companies. My experience in VC was that there was some quantitative aspect to everything, but that there often wasn't enough info to dig in to the same level quantitatively as a PE firm would. As a result, a lot of the analysis for an investment has to be done qualitatively (Where does it fit in the market? Do we think this is a good idea?).

I think that in terms of expectations for skillsets, VC/PE probably have the same/very similar requirements for qualitative/quantitative ability, but you will probably do less quantitative work in a VC since there is just less data to work with.

 

Thank you for your answer, i was already thinking that when working with startups you have materially less data in order to do proper analysis, now i have a confirmation of that.

If you don't mind, can you share a bit more about the actual analysis (both quantitative and qualitative) that a candidate is expected to be good at in VC? I mean in real working terms.

Fact is, i always hear "quantitative analysis", but i still didn't have a proper internship in finance, and this kind of analysis sounds a bit vague from the outside and being a student.

 
Best Response

From my experience in consumer/retail VC:

Quantitative analysis:

  • What sort of growth has this company seen over the past few months/years?
  • What is the market as a whole doing right now? Is this segment growing? By how much?
  • How much market share does the company have? Is this growing? Can it grow/is it bound to a certain amount?
  • What are profit margins like? Does the company operate fine as is, or are they burning money/do they need to rework their business model?
  • If the company does need to rework their model, how much money do they have left to do that?

Qualitative analysis:

  • How should the company rework their model
  • What new markets should the company expand to?
  • Is this actually a good product that people are going to buy?
  • Do we trust the management team of the company to do a decent job?
  • If we don't trust the whole team, is there a way we can replace someone we don't like?
  • Is the idea good (even if the product is not)?

You need to be able to form strong, informed, correct opinions on all of those things, about any company in your sector, in a short period of time, and communicate those opinions effectively.

 

I would say on top what has been already said:

  • In VC, you would spend a lot more time understanding the quality, capacity and the motivations of the management team more so than in a PE deal
  • Models don't matter as much as in PE
  • It is very important to understand product-market fit
  • the earlier the stage investment occurs the less the financials would be important.
  • VCs also like to hire people with operational experience rather the typical banker/consultant that you would find in a PE.

So for example, repeat entrepreneurs can garner higher valuations for the same exact product /solution than entrepreneurs without similar backgrounds.

Feel free to PM me.

 

Pretty stupid question, and you just answered it. How would working with late stage companies be applicable to early stage? I would do some homework on the two completely different structures.

"Jesus, he's like a gremlin; comes with instructions and shit"
 
JimmyDormandy:
Pretty stupid question, and you just answered it. How would working with late stage companies be applicable to early stage? I would do some homework on the two completely different structures.

Pretty stupid answer. You suggest I do some research on the two fields, what do you think the point of this thread is? I have a decent undertsanding of the work in PE like how they select & source investments, modelling & valuation etc, but I'm interested in how the work in PE compares to the day to day activities of someone in VC, especially the technical aspects of the job, and if there are any similarities.

You know you've been working too hard when you stop dreaming about bottles of champagne and hordes of naked women, and start dreaming about conditional formatting and circular references.
 

I am currently in neither field (though bound for MM PE soon). I have heard, however, that the overlap is fairly limited. Possibly the massive VC funds may have analyst/associate roles that parallel PE, but several headhunters told me that due to several factors, VE roles tend to be very different from PE roles.

Specifically, many VC firms have a senior-model sourcing component for relatively low-level roles (attending conferences, building up a strong personal network/brand in the field most likely internet or biotech, and proactively seeking deals).

VC firms also seem to value modeling less as opposed to operating/entrepreneurial experience. Part of this is that early-stage companies don't need highly granular models (garbage in, garbage out). Instead, they require broader awareness of industry trends combined with an ability to contribute materially on the operating side (VC portfolio companies will naturally have less mature management structures).

Finally, there are many VC firms that operate with only 1-2 partners + 1-2 associates, leading to broad range of responsibilities early on but also a very inconsistent career path (potential for quick advancement if fund grows, or staying in the sub-partner stage for a loooong time)

I didn't look at a ton of VC roles, so there may be other differences I am missing.

These three points were hammered home to me by headhunters. One other that I noticed was that VE has a surprising number of partners with legal backgrounds. Not sure why this is, but maybe the legal aspects of early stage transactions are more complicated?

 

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