PE - Small vs mid market vs mega

riverraver's picture
Rank: Chimp | 14

Looking for pros and cons of different types of PE firms. Small cap, mid market, large, mega...

Please elaborate on comp, type of work experience you get, hours, exit ops, etc.

Know this has been done before but looking for some updates. Especially looking for how hours compare to BB banking. Have heard mega funds are worse than banking...

Comments (19)

Apr 8, 2010

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Apr 9, 2010

Lower MM (<750mm)

Pros: May or may not have a better lifestyle (I have friends who work at small funds working 80-100 hour workweeks), deal flow is relatively robust despite market conditions so you'll generally get alot of deal experience, despite lower compensation you're generally in smaller cities so your money goes farther, lean deal teams and greater responsibility, larger likelihood of staying on long-term with fund without an MBA.

Cons: Lower compensation, may be out of major cities, may have bad lifestyle vs. lower pay, exit opportunities may not be as broad (you will not have the opportunity to join a megafund, for example), less infrastructure may mean you spend more time doing administrative work (structuring files internally, fundraising, even arranging your own travel).

Mid-Market (750mm - ~3bn)

Pros: Generally a pretty good lifestyle, compensation is good vs. hours, more infrastructure which means more administrative support and less time away from deals and portfolio work, generally have a structured training program, possible extra perks (private jets, catered lunches, own office space, etc.). Your exits are broader - you may make the jump to a megafund if you desire, although not quite as easy as mega to mega.

Cons: Probably pushed out to get an MBA after 2-3 years as an associate, less deal flow w/ more competition. Larger deal teams could mean worse lifestyle than lower MM funds - depends on the fund.

Megafund

Pros: Broader experience (more likely to do more complicated deals - public equity minority positions, take-privates, PIPEs, sophisticated deal structures), higher compensation with potential immediate-vest equity, broadest exits.

Cons: Banking comparable lifestyle, rigid hierarchy and deal teams, generally an MBA is required to move forward.

That's all I can think of off the top of my head.

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Best Response
Apr 9, 2010

A few things:

One, at a MF or upper MM shop you're constantly getting crushed. Like always, non-stop. Great experience? Yes. But for me personally, it detracted a bit from my performance. Before UMM PE, I was always maybe 70-80% jammed, I had 20-30% capacity to do my own shit. It was a chance for me to take initiative and separate myself from my peers. If you're in an environment where you are super motivated (moreso than you peers) and differentiate yourself by constantly moving and taking advantage of downtime, its challenging to stand out... because when everyone is jamming at 120% capacity, there's not much room for differentiation.

Second, you're not getting deeply involved in strategy/operations at 99.99% of the shops out there, MF, MM or otherwise. Most of your work will be done when you're initially making the investment, during the diligence process. The portfolio company work will come up on a transactional basis 99% of the time. I.e., company wants to raise debt, maybe pay a dividend, maybe do a bolt-on. If the PE guys are the smartest guys in the room with respect to operations/strategy, there is something very fucking wrong with that company/investment. You see sponsors more heavily involved in operations of the biz. on the semi-distressed side. The downstream PE guys like Sun Capital or Platinum Equity. They buy really shitty, barely solvent businesses for pennies and turn the screws on the cost structure to make it profitable. They are much more operationally involved but really only from a cost cutting perspective.

The real difference between the experience you get at a MF vs MM shop is a factor of the type/size of the investments you work on. If you were at KKR working on the Dollar General LBO the nuances of the investment/diligence process were very very different than if you were at a MM shop looking at a $10m EBITDA produce processing equipment manufacturer.

Don't underestimate the impact of institutionalization at thees large corporations. Its a completely different diligence process between a Dollar General vs. a $10m EBITDA business. The experience is different because you'll probably be a lot more hands on (for better or for worse) and get more of a feel of the business. But this cuts both ways, the smaller companies have less sophisticated infrastructure, less reporting processes, leaner support staff, and generally aren't going to have the same caliber of executive talent. When I was working in PE, one of my favorite parts of the job was getting to work with phenomenally talented executives on a regular basis. As a 20-something year old is the CEO of a $100m EV business just not going to be smart enough for you to learn from? Obviously not. But to work with a Mickey Drexler (and team) at J Crew is a pretty fucking cool experience.

It sounds like maybe you think PE may be the training program to become a CEO/start your own business from a strategy/operations standpoint. It is certainly not a good place to do that, but it is a great place to learn all the finance/investing shit and work with absurdly smart people. If you're looking to build a CEO/entrepreneur skill-set don't waste your time in PE, go directly to a start-up preferably one with at least a few rounds of funding.

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Apr 9, 2010

You're on a roll, @"Marcus_Halberstram".

Apr 9, 2010

@"Marcus_Halberstram" Yes.


Second, you're not getting deeply involved in strategy/operations at 99.99% of the shops out there, MF, MM or otherwise.


If you're looking to build a CEO/entrepreneur skill-set don't waste your time in PE, go directly to a start-up preferably one with at least a few rounds of funding.

Apr 9, 2010
Marcus_Halberstram:

A few things:

One, at a MF or upper MM shop you're constantly getting crushed. Like always, non-stop. Great experience? Yes. But for me personally, it detracted a bit from my performance. Before UMM PE, I was always maybe 70-80% jammed, I had 20-30% capacity to do my own shit. It was a chance for me to take initiative and separate myself from my peers. If you're in an environment where you are super motivated (moreso than you peers) and differentiate yourself by constantly moving and taking advantage of downtime, its challenging to stand out... because when everyone is jamming at 120% capacity, there's not much room for differentiation.

Second, you're not getting deeply involved in strategy/operations at 99.99% of the shops out there, MF, MM or otherwise. Most of your work will be done when you're initially making the investment, during the diligence process. The portfolio company work will come up on a transactional basis 99% of the time. I.e., company wants to raise debt, maybe pay a dividend, maybe do a bolt-on. If the PE guys are the smartest guys in the room with respect to operations/strategy, there is something very fucking wrong with that company/investment. You see sponsors more heavily involved in operations of the biz. on the semi-distressed side. The downstream PE guys like Sun Capital or Platinum Equity. They buy really shitty, barely solvent businesses for pennies and turn the screws on the cost structure to make it profitable. They are much more operationally involved but really only from a cost cutting perspective.

The real difference between the experience you get at a MF vs MM shop is a factor of the type/size of the investments you work on. If you were at KKR working on the Dollar General LBO the nuances of the investment/diligence process were very very different than if you were at a MM shop looking at a $10m EBITDA produce processing equipment manufacturer.

Don't underestimate the impact of institutionalization at thees large corporations. Its a completely different diligence process between a Dollar General vs. a $10m EBITDA business. The experience is different because you'll probably be a lot more hands on (for better or for worse) and get more of a feel of the business. But this cuts both ways, the smaller companies have less sophisticated infrastructure, less reporting processes, leaner support staff, and generally aren't going to have the same caliber of executive talent. When I was working in PE, one of my favorite parts of the job was getting to work with phenomenally talented executives on a regular basis. As a 20-something year old is the CEO of a $100m EV business just not going to be smart enough for you to learn from? Obviously not. But to work with a Mickey Drexler (and team) at J Crew is a pretty fucking cool experience.

It sounds like maybe you think PE may be the training program to become a CEO/start your own business from a strategy/operations standpoint. It is certainly not a good place to do that, but it is a great place to learn all the finance/investing shit and work with absurdly smart people. If you're looking to build a CEO/entrepreneur skill-set don't waste your time in PE, go directly to a start-up preferably one with at least a few rounds of funding.

Awesome post - can you comment further on the nuances of the investment/diligence processes you mentioned

Apr 9, 2010

Here's how I've always viewed it:

Megafunds: Great for people who won't mind working just as hard as they did as analysts. The pros are that you make more money than in MM PE (at the trade off of hours), it's great branding for B-School and other finance jobs, and provides the optionality of "stepping down" to a smaller fund in the future.

MM PE: Hours are considered better than banking (you get home at a relatively decent hour on weekdays and you can more often than not count on your weekends!). Pay is a tab less (estimated ~50-80k less) than a megafund (at the trade off of free time). The biggest pros seem to be that it may be easier to track yourself on a long-term career path and you get to start living your life.

Can people who are closer to the process (i.e. recruiting now, already on the buyside, already have been on the buyside) weigh in their thoughts? I feel there is a lot of misconception when it comes to this topic, as people get caught up in just thinking about the KKR/Apollos/BX's of the world. Yet, I think when people are actually deciding about this while recruiting (after having spent a year in banking), their decision making processes and preferences have matured.

Apr 9, 2010

My first finance internship was at a smaller MM PE firm. Lifestyle wise what restbanker said is correct, & I wasn't privy to what they made, one of the MD's drove a Cherokee though...yikes haha. They only had one associate, he and I would usually be the last ones there & I always left by seven. One thing to keep in mind about smaller PE shops is that its much better if there is a specific industry or product you want focus on. If you just want money & prestige then its probably be better to shoot for a mega shop. One thing good about specializing in an industry is your ability to carve a niche for yourself, & seems like a faster track to becoming an MD. Note I do not work in the buyside.

"Cowards die a thousand deaths, but the brave only one,"
Bill Shakespeare

Apr 9, 2010

whats wrong with driving a cherokee, warren buffett drives a maxima

Apr 9, 2010
dayaaam:

whats wrong with driving a cherokee, warren buffett drives a maxima

I know an MD who drives a used cherokee who makes $5mm+

I know a VP who drives a Ferrari who barely makes a million

Judging people by cars is a waste of time; you'll end up surprised

Apr 9, 2010

Shit I know an analyst who drives a maserati who makes just enough to cover all of his credit card debt

Apr 9, 2010

Read the thread that Oreos posted above. It's invaluable and likely contains much of what you're looking for.

Apr 9, 2010

Truth is, no one really knows whether mega funds (I mean focused sizeable funds, not funds with great AUM but spread over a galaxy of sub-funds) are still gonna be a viable model to go from now on.

Apr 9, 2010
MiniMonkey:

Truth is, no one really knows whether mega funds (I mean focused sizeable funds, not funds with great AUM but spread over a galaxy of sub-funds) are still gonna be a viable model to go from now on.

I've heard actual associates/VPs say this during networking/coffee events recently- almost verbatim lol scary shit.

Apr 9, 2010
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