2.5h model test at a MF growth equity team. No idea what growth equity modeling is. What could you even possibly do for 2.5h with no debt???? Twiddle my thumbs????
Only know how to do an LBO model where returns are through leverage... Will I be doing a DCF...? Any clue?
Thanks,
MG
No clue, but following. Good luck
Thank you Frodo
I’ve had a similar exercise for growth equity. In my case, it was just a normal LBO model without actually using debt, but I think the purpose was to see if I knew mechanics. It required the various schedules you’d except for an LBO. It did, coincidentally, also include a DCF portion.
Thanks, this is informative. For the DCF portion did you have to calculate WACC / or cost of equity or did they just give you a WACC to use?
They gave me a cost of capital, but I built sensitivity tables to be safe.
Had a similar experience - the logic behind the operating model will probably be more complex to model than your standard 3h LBO.
If it's an industry-focused group, I'd make sure you're familiar with the relevant operational terminology/metrics.
It's tech and software. I don't think those have particularly unusual line items other than deferred revenue. Am I missing something?
Maybe it will have other things to contend with like convertible notes you have to remember that becomes equity and need to adjust ownership %.
I doubt this will be in there, but I wonder if you will need to account for if the company needs to raising money again in say year 3 if you assume a 5 year exit. In that case you’ll just have to make assumptions on additional funding required, and how much you would go in for and remember to adjust that in the IRR. If something like that shows up, would be good to show an extra line on avg cash burn to show you thought about it (re: how much runway does this latest financing round take the company, and what if they run out?)
Scenario analysis on the actual financials, probably. Growth equity is typically in less mature businesses, so you need to create scenarios where revenue growth is lower than forecast, margins don’t expand, etc.
Getting the cap table/waterfall right, creating multiple P&L scenarios, and building an exit transaction can take some time. If you have extra just make sure formatting is perfect.
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