Switching into PE/VC?

Rhyme,

You never cease to amaze me. As a programmer too, I think this is one of the most creative posts I've ever seen!

Allen

Rhyme,

Another classic, thanks for conveying the message in a creative medium...

So... how many calls did you make to land your gig?

~Sam

Remember there is always dumb luck for a few people in any job search. However, I would say PE/VC/HF jobs arent the type people typically fall into...maybe a few at H/S do but at the other schools probably not so much.

That was a funny post, Rhyme, I wonder if it was funnier if you have a background in programming languages.

I think there needs to be a distinction made between PE and VC. While in actuality VC is a subset of PE, the term PE nowadays almost always refers to LBO PE firms. PE hiring is becoming a little more institutionalized than VC ever will be, but it still is quite unlike IB/MC or other traditional career paths.

For VC I think the “network” angle is as important as rhyme says it is, I really don’t know. However, for LBO PE it’s a combination of that plus your previous experience and pedigree that will get you interviews, usually via recruiters. To get jobs in LBO PE you are competing with those who have pre-MBA work experience doing (in order of general competitiveness, according to me):

1) BB IB / Top MC + Mid-Large Cap PE
2) Mid-Large Cap PE
3) BB IB / Top MC
4) Small no name PE / MM IB
5) Small no name IB / Non-Top MC / Big 4 Transaction or Due Diligence
6) Industry / Corp Development / Big 4 Other
7) All other career switchers

Keep in mind that almost all of these people will also have good academic pedigree including: a respected undergrad (high GPA), test scores (SAT + GMAT), and a top MBA. It is possible that pedigree, e.g. HBS MBA, could help you jump a level relative to the above ordering, but the problem is that pedigree is already there in almost all of those groups. The good news is that the smaller and less established the PE firm, the less this ordering applies (not because they would rather take someone from #6 and #7 over #1 and #2, but because there aren’t so many of #1 and #2 to go around.)

While there might seem to be a good amount of PE shops, they are staffed very lean and definitely don’t want to train their junior professionals. In my limited experience, I’ve heard a lot of guys that are in #5 or below and not going to a H/S/W say that they want to do PE and I have to refrain from telling them that they are pretty unlikely to get a job in PE, because I don’t want to be “that guy”. But the reality is that it’s very, very tough. However, networking can be the great equalizer. I would encourage all those from #5 and below to give considerable thought to doing IB first before putting their eggs in the PE basket.

Great post rhyme.

Pray->God(); // Warning call to null pointer? There is no god?

Hahaha.. how do you begin to come up with this stuff?

Haha rhyme - that's great!

This brought to mind some other threads (think they were rhyme's) about the sequence of recruiting and how it works - waiting for PE/VC until the very end of the year must be ridiculously tough unless you're fairly certain that you'll land a position!

wow thanks cougar! The hierarchy is esp helpful - I didn't realize that there was even a perceived difference btwn previous experience in IB/PE and the firms themselves. It's also interesting to hear that those without previous PE or IB experience are at such a disadvantage when trying to break in. Is the reasoning (from the company perspective) really that they don't want to train newbies? Is the training that complex or costly?

It's also good to note that doing IB opens so many doors - it can really be a stepping stone for many careers!

I'm not 100% sure on this, but my guess would be that their philosophy is "why train people if we don't have to?" Most of the large PE firms only hire a handful of new people every year, and smaller/medium size PE firms may only hire 1-2 people the whole year. With all of the people at the top of the "heirarchy" interested in PE, they can cherry pick whoever they please. Supply exceeds demand - and by a lot.

I don't quite understand the appeal of PE/VC (well, I don't know much about them period), can someone explain?

Why is the demand so high?

Interesting, fulfilling, and challenging work (for most) coupled with outsized compensation.

Yup what terp said

challenging & outsized compensaton I can see

interesting & fulfilling... can you be more specific?

The way I see it, being in venture capital or a growth-oriented private equity firm is like being a risk-free entrepeneur who runs 5 companies rather than 1. VC/PE firms will invest in an early to mid-stage company, and they will then take a seat or 2 or 3 on the board of directors of the company and they will advise the management team on best practices, growth, M&A, etc. They will leverage their firms contacts to help entrepeneurial companies build a more corporate-type infrastructure, get appropriate lawyers, get good management practices in place, etc. Their function can actually be described as somewhat similar to management consultants - except that they have their skin in the game and a (generally large) stake in the company.

Larger PE firms that do leveraged buyouts are generally focused on buying larger, established companies where they see an opportunity for either financial engineering or fundamental changes that would significantly increase the value of the company. People with top investment banking backgrounds generally thrive at these firms.

Junior-level people at these firms generally get paid attractive salaries and have a lot of exposure to entrepeneurial companies and ventures. They can leverage this experience to start their own entrepeneurial PE/VC backed venture in the future, or to work their way up to partner at the firm.

Partners at these firms generally get paid carried interest on the investments. Let's say that a PE firm raises a $1 billion fund. The typical fee structure is 2/20. Meaning that 2% of the $1 billion ($20 million) is a management fee that is generally used to pay base salaries and bonuses, office/support costs, etc. and 20% is the portion of the returns that the partners will split up between themselves. Assuming that they return 25% to their investors ($250 million), they would get to keep 20% of this (or $50 million) and divide this up between the partnership (at a fund of this size, most likely 4-5 partners). This is taxed at the capital gains rate (15%) rather then normal income tax rates (which is the cause of a lot of uproar on Capitol Hill currently, and I believe the capital gains rate is changing to 20%).

Not sure if that all made sense. I'm tired. I think a few others on this board have more knowledge about this than I do and they can and should feel free to chime in with their opinions.

that helped alot +1

good stuff terp06, you are wise beyond your years.

thanks for the succinct exlpanation - terp06

Good explanation Terp.. thanks for the help!