Why the hate towards growth PE / sourcing (e.g. KKR Tech)?

Hello all,

I have been looking through some recent posts on KKR Tech and find it surprising that a lot of people view it negatively. Is it similar to a VC-type role?

I am new to the industry, so can someone tell me what are the negatives? What's wrong with sourcing deals - I thought a lot of the partners are actually young, which suggests you can climb the ladder relatively quickly?

If you know anyone in this type of role, can you describe what's expected of a junior? Do you need a lot of modeling skills like you would in traditional PE or are DD and people skills more helpful here?

Comments (40)

 
  • Intern in IB - Gen
Feb 19, 2021 - 8:25am

Will not comment on traditional Growth PE vs. Growth PE at MF, but on Growth PE vs. MF Buyout as a junior, explaining some of the negative sentiment:

- Medium to heavy sourcing (cold email/call) at Growth, little to none in buyout

- Modelling is more complex for buyout transaction

- Larger comp gap between growth and buyout the more senior you get

- Possible to go from buyout to growth easily, not the other way around

 

On the other hand, positives for growth are:

- Trains your soft skill as a junior, which is probably the most indispensable quality in this industry

- Sector/Companies could be more interesting than what buyout PE look at

- Better W/L balance

 
  • Prospect in IB-M&A
Feb 19, 2021 - 1:45pm

Why is comp different at the senior level between buyout and growth? Assuming fund sizes are equal and headcount relatively equal, wouldn't comp be consistent if equal returns? 

 
  • Intern in IB - Gen
Feb 19, 2021 - 2:00pm

Agree, however MF PE buyouts have naturally larger AUM than growth funds, scale is most often beneficial in the asset management industry. It's harder to scale growth: given the lower average ticket size, having a similar AUM would imply investing in more companies, therefore also requiring more FTEs, which would then bring down average comp/FTE.

 
Feb 20, 2021 - 1:31pm

I just wanted to take the time to let you know how much I love this comment.  Thank you for your contribution, sir.

Array
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  • Principal in PE - LBOs
Feb 22, 2021 - 8:34pm

I mean I completely agree with this comment but no need to be a dick about it. I feel like this is a bit of projection here. 

 
Feb 21, 2021 - 5:21pm

how complex is the modelling pls? if it's that complex surely it could be outsourced to Indian and Chinese kids for the pricley sum of $5 p/d

 
Most Helpful
  • Principal in PE - LBOs
Feb 19, 2021 - 9:49am

Finance hardos don't have the social skills to hack it in a sourcing role so they act like it's inferior to being a model monkey

 
  • Associate 1 in IB-M&A
Feb 19, 2021 - 10:11pm

Exactly.

I'm on the deal gen side of my firm. Work with managing partners and VP's closely everyday.

Compensation is more than the execution side analysts/associates because we make it rain.

You get to bring in deals, build relationships with successful CEO's and the exit ops are pretty amazing if you're good (VP/partner in tech, PE, VC).

Way more fun than sitting in a dark room modeling all day.

 
  • Intern in PE - LBOs
Feb 19, 2021 - 11:52am

I've done a sourcing role and a typical modeling role before. They suit different personalities. Do you want to spend your day talking to people, pattern matching, building relationships, and understanding markets and constituent companies closely? Or do you want to spend your time solving complex math problems, working with advisors to coordinate data flows, and building a numeric thesis for the attractiveness of a company?

 

Money is fine no matter where you go and never count on WLB in an investing role that's not venture. It comes down to 1) what do you like thinking about and are you spending your days thinking about what you like thinking about, and 2) what types of people tend to be attracted to the type of work in question and do you like being around those types of people.

 
  • Intern in PE - LBOs
Feb 20, 2021 - 6:32pm

 

Ok intern

It's a fake title but anyways, Director, shouldn't you be starting a family or something instead of shitposting?

 
Feb 20, 2021 - 3:51pm

Tbh anyone who hates on sourcing roles is an idiot that doesnt not understand the PE or VC industry. Literally anyone with above room temperature IQ and ability to press a few buttons can build a model to analyze a deal. The hard part is not analyzing the deal, its convincing the entrepreneur to get the opportunity to analyze the deal. 

You cant find a unicorn deal if you dont source and your hardo ability to run IRR sensitivity analysis is useless if you dont got any deal flow or financials to analyze.

 
Feb 20, 2021 - 4:39pm

I think they attract very different people and it's more about where you can leverage your skills best as an investor. It can take a while to figure out what you are good at though!

 

 

 

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  • Intern in IB-M&A
Feb 23, 2021 - 10:27am

Going back to the comp question, why is it that people say senior comp is lower in growth? I get the AUM argument at the junior level probably corresponds to higher base comp, but at the senior level, comp is mainly based on returns/carry? My understanding is its a lot easier to hit a massive home run investment in the growth space vs buyout, which should in theory correspond to higher comp? 

 
  • Intern in IB - Gen
Feb 23, 2021 - 4:36pm

Think late stage growth (GA/TA/etc.) target the same 25% IRR as PE generally, massive home runs don't happen as often as one thinks in growth, and carry is calculated based on equity deployed eventually.

 
Feb 23, 2021 - 10:51pm

It's really just an AUM game in the end. The carry generated with a $10B fund that 2x is a lot bigger than carry on a $2B fund that 2.5x. That also means a partner at a $10B growth fund like Insight or GA will probably be making more than a partner at a $1B MM PE fund. 

At the end of the day though, if you make it to the partner level in growth or buyout, you'll make a ton of money if the fund performs. I'd focus on which style of investing you like more and go from there.

 
Feb 24, 2021 - 1:14am

I think there are a few misconceptions here. Perhaps I can provide some concrete examples. Whatever you call your fund, whether it is PE/VC/Growth/RE/Private Credit/Whatever, the economics don't change. The terms that you can extract from LPs ('limited partners' or what most of you might call 'investors') do change, but only slightly. The standard terms in a 'master limited partner agreement' are not '2 and 20'. The Limited Partner Agreement (LPA) for newer funds (what people in the business call 'emerging managers') is quite different from what you'd expect for a fund on their third or fourth fund. This is why 'private placement' groups and 'capital introduction' teams exist at BBs and boutiques alike. 

I won't lie--I'm high while writing this. I apologize if it's a bit stream of consciousness, but the points I wrote above largely hold true regardless of my sobriety. 'Growth' as a subset of private equity is really a proxy for late-stage venture for most asset allocators. You see--you have to consider how LPs think about the funds. When I talk about LPs, I mean endowments, foundations, family offices, RIAs, UHNWIs (basically the same as family offices, but there are a lot of people my age without 'family offices' who invest nevertheless), sovereign wealth funds and pension systems. Most LPs don't have large venture portfolios. In many instances they don't have any exposure to VC at all--for good reason. What's that reason? Most venture returns suck. There are very few VCs that consistently return top quartile or top decile returns.

Let me talk to you about Chris Sacca. I suppose many of you have seen him on Shark Tank. He was in debt (not just broke, but in the hole) when he raised his first venture fund. He doesn't talk about this enough because he's embarrassed by the fact that his first fund was just $6 million. He did it so he could prove to the world that he was a good investor. He didn't have to. He just had to prove that thing to the people who originally believed in him. He killed it. He netted a monster return for his investors. His money comes from investing in Uber. He got lucky, but at the same time, he didn't. He couldn't possibly have lived on the management fees from a $6M fund. That was never the point. 

He's rich now because he bet big, he was right, he won, and he kept getting it right thereafter. This is the dream for venture and eventually growth investors. 'Growth' is a bullshit concept to most people. I don't view it as a real asset class and most LPs don't have a separate allocation to it. Very few funds do it well. Catterton is exceptional. I invest in almost every deal they show me. If some college or MBA kids shunned them, they'd be fools. The same is true for Accel-KKR. The same is true for a handful of other funds, but the idea that growth PE is somehow worse than buyout is just silly. 

You first have to understand fully how a GP at a fund is paid. There is a preferred return at all funds below which the GPs get paid nothing at all. That preferred return is normally 8%. There is a good reason for this. Most pension funds require something like an eight percent return to be fully-funded over time. If you don't understand how this works, I suggest you study more. 

 
  • Analyst 1 in IB-M&A
Feb 24, 2021 - 1:49am

Best thing I've read on this board in a while and actually helpful. Have a couple questions for you on growth/VC funds if you don't mind:

1: Besides Accel-KKR what other names would you put on that list?
2: Seems like VC firm recruiting is much more unstructured than PE and not sure what my options are as an IB analyst. What are some firms I should look into that traditionally take bankers?

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