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?

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Comments (64)

  • 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.

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  • CEO in IB - Cov
Feb 20, 2021 - 9:46am

MoDeLlInG iS MoRe CoMplEx. Shut the fuck up lmao. Imagine thinking that complex modelling is the only way to succeed in high finance. 

I'd take working on a $100M growth deal for Rihanna's lingerie brand any day over a $5B boomer waste management facility buyout with CoMpLeX MoDeLlInG.

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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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

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  • 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 IB - Gen
Mar 1, 2021 - 1:55pm

Do you mind elaborating more on your role? size of fund, comp, position, etc. 

About to start in IB ft this summer and am thinking about potential exits.

  • 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.

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?

Feb 26, 2021 - 3:35pm

There are actually quite a few firms that really emphasize hiring from IB .... just honestly best bet is to search through LinkedIn and see people's past experiences.

But, some funds that come to mind are below. And, Growth Equity can mean a lot of different things so really try to first decide what type of firm and thesis you're interested in. 

MegaFund:  Blackstone, KKRGeneral Atlantic, TPG Growth, Bain Capital - Tech Opps,

Tech/Enterprise Saas: IVP, Insight Partners, Spectrum Equity, Summit Partners, TCV, TA Associates, Greenspring, Adams Street, JMI Equity, Greycroft, SGE, Volition, GS Growth

Mid-market / Tech: LLR Partners, AKKR, Level Equity, Kayne Anderson, Silversmith, FTV, Norwest (Yes, they are traditional venture but their growth fund is mostly mid-market)

Venture: (Many VC firms have Growth Funds that hire from IB) - General Catalyst, Accel, Index, Menlo, Bessemer, Sequoia, a16z, Battery, CapitalG, DFJ Growth, LSVP, Redpoint

Other: Tiger Global, Coatue, SoftBank, DST Global

Mar 1, 2021 - 9:37pm

brotherbear

I won't lie--I'm high while writing this.

MY MAN

but in all seriousness, awesome write-up brotherbear, as always.

Array

Mar 5, 2021 - 8:59am

Here's my 2 cents on it. If you were a banking analyst with a solid role and deal experience who goes into a pure sourcing role as an associate on the buyside you will be fine, although you may still have problems recruiting for a post-MBA role. I had a friend who was at one of the top tier growth shops (think Summit, Insight, etc.) and did his MBA at HSW who still had a hard time finding a post-MBA role. I'm pretty close to some of the funds that rejected him and their feedback was that they didn't feel he had the ability to execute. So there in lies the problem. Sourcing is an important skill, extremely important if you ever want to rise to the top of a fund one day, but if you can't execute and don't understand transaction mechanics, modeling, etc. you're just some used car salesman. I see the effect even more pronounced in people who started as an analyst in one of these sourcing roles. To me, these candidates are absolutely worthless. If you want to be really valuable you need to be a pro at sourcing AND executing. These are the types of people that can found their own fund and bring the most demand in the market place. The idea that people are so 1 dimensional they need to silo themselves in a particular area is just a ridiculous excuse from stupid people imo. People that have no business being in the industry anyways. 

  • Analyst 1 in IB-M&A
Mar 5, 2021 - 11:24am

I'm assuming your friend was trying to pivot to buyout PE post-MBA? Because wouldn't his resume be perfect for senior associate/VP roles in growth? 

Mar 5, 2021 - 2:27pm

I can't second this enough. 

My background was in product management/engineering prior to growth equity/VC and I really had to figure out how to model passably and execute on my own. If not, you become a liability and can't push deals past the finish line. 

I feel like I can source better than the decent ex-bankers/consultants on my team because of my background, but I really had to cover up my weaknesses in order to be marketable to other firms and not be a nuisance to my team. That said, I always have others check when I'm doing some more complicated waterfalls, cap tables, etc. (it's never my strength), but you can't just ignore it in my opinion. 

  • Associate 1 in PE - Other
Mar 6, 2021 - 3:51am

I'm at a venture / growth shop. I'm split 50 / 50 between sourcing and execution. 

If you want to be at a shop that writes $50m-$150m checks into Series C+ pre-IPO companies, i.e. a BX Growth, then yes execution is king. There's good reason why many of the post-MBAs or senior guys come from buyout because the set of companies you can look at is far more limited than early-stage. You differentiate by being able to root out issues during diligence and/or structure a transaction better than the small set of peers (i.e. Tiger, TPG Growth, etc.) who can also write similar size checks. Large VCs like a16z who do these types of deals will typically have a group of ex-banker / PE guys on the roster (i.e. the legacy corp dev team) who have the late-stage know-how. 

The lines between venture and growth have been blurred now, but the earlier-stage you go the more you need to differentiate via sourcing. The set of companies is much larger and diligence is much lighter - if you do anything quantitative, at most it will be a small model, retention analysis, toying with the cap table, etc. If you are the one junior guy at Benchmark and see every other hot deal, then yes you can afford to spend most of your time picking, but else your job is to sift through pan after pan to find the gold nuggets that you pound the table for. You do this with a sourcing muscle and network, which is honestly only built through years of deal reps. This is why the analyst programs at JMI, KKR NGT, etc. are valuable because if you see 2K+ vertical SaaS cos in a year you start developing a strong sense of what separates the wheat from the chafe (and who you can tap into to find these deals).

tl;dr value to both sides of the coin but depends on your long-term stage / style preference 

  • Analyst 1 in IB-M&A
Mar 6, 2021 - 11:25am

Do you happen to know how comp and lifestyle differ at the execution-heavy shops that invest in later stage pre-IPO companies vs. the smaller peers you mentioned? 

  • Associate 1 in PE - Other
Mar 6, 2021 - 11:11pm

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