Venture Capital Internships

“I’ve been looking for investment banking summer internships this year but missed the recruiting season and was not able to find anything at boutiques or small firms around here.

I may get an offer to intern at a venture capital firm focused on renewable energy, via a family connection. Given that this is outside New York, how would a summer at a VC look compared to the typical i-banking internship?”

Inquisitor:

This is a great question and brings up a point that I have not addressed on the site (until now, that is).

A lot of undergraduates are interested in pursuing venture capital after (or before) investment banking. In theory, it sounds like a dream job - flying around in jets, meeting entrepreneurs and seeking out the next YouTube and then making hundreds of millions of dollars when Google swoops in and acquires your company for $1.6 billion.

The problem: that is not what working at a VC firm as a junior person is like. Instead, you’ll often be somewhere between an assistant and an investment banking analyst: you will support the Partners and handle administrative tasks. Sure, the hours and lifestyle will be much better, but you might end up doing even less meaningful work.

Case in point: I knew a girl who interned at one of the top VC firms a few years ago and spent most of her summer managing the Partner’s calendar, taking care of errands and traveling throughout the country. While the travel part may sound appealing, you don’t develop skills like financial modeling, sales, or even valuable relationships by being someone’s assistant.

As Guy Kawasaki pointed out on his blog, you want venture capital to be your last job - not your first (or second).

One exception: if you go to a later-stage VC or growth equity firm, those are closer to banking and private equity and will be looked upon more favorably/give you more options.

If this is your only option for the summer, sure, go ahead and do it - just don’t expect recruiters to treat a VC internship as “on par” with a banking one, because it is usually not even close.

On the New York issue, it doesn’t matter much for an internship - location is more relevant for the purposes of networking and deciding where you go next.

Private Equity In China

“I’ve been offered an internship at a small private equity firm in China. The team is very small (only 5 including me) and they focus on small and mid-sized businesses.

They said responsibilities will be similar to PE internships in the US - site visits, due diligence, financial modeling, meeting with owners, etc.

I have no previous finance experience, and would likely be looking for a job in the US once this internship is complete. Will this help me in terms of transitioning to a larger firm in the US?”

Inquisitor:

Internships abroad tend to be more “random” than ones in the US. I know because I interned abroad before and many friends have done the same.

So you usually don’t know exactly what you’ll be doing or learning until you’re already midway through the internship. It’s definitely more of a gamble than staying domestic and working at an established firm.

That said, I would recommend you go through with it and accept the internship anyway:

• You have no finance experience, so it will be quite difficult to break in unless you go this route.
• It’s just an internship and it can be spun any way you want during recruiting - expectations tend to be lower when describing internships vs. full-time jobs.
• There is the whole “China angle” aspect these days, which US firms will like.

Merely having the name “private equity” on your resume makes a huge difference and will get you access to recruiters and larger private equity firms, regardless of how much you actually learned.

Setting Up Firm Visits And Informational Interviews

“Could you explain the process of setting up a company/firm visit, and what I should expect? I’m living and interning abroad this summer and want to take advantage of the opportunity to meet with local firms here. I also wouldn’t mind working abroad in general.”

Inquisitor:

Expectations are not set too high when visiting firms, especially when you’re outside the US. It’s mostly about asking intelligent questions, doing some research beforehand and showing interest in what they do.

It’s about not screwing up more than doing anything perfectly (see: summer internships and proving yourself when you first start).

In terms of setting up a firm visit, I would just ask for it directly - “I’m very interested in learning more about your firm and will be in XX area on XX/XX - XX/XX - I wanted to see how we might set up an in-person informational meeting so that I could learn more.”

I definitely think it helps with recruiting, and more so at smaller companies than larger ones - very few people take the initiative to do this, so you can stand out with something relatively simple.

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“A recruitment consultant.  A headhunter.  Are you free to speak for a few moments?”

A headhunter! Wow. Ok. Sure you have time to speak!

“Um, er… yes” you mumble in a whispery voice as you stand up and walk away to find a little privacy. Like it isn’t suspicious enough that an unknown caller rings and after they introduce themselves you get all secretive and hide, but you obviously don’t realize this as it’s your FIRST HEADHUNTER CALL!!!!!

“Um, er… yes… I can speak now”

“Great,” says Rebecca, “Mike, I’m calling because you’ve been recommended to me and I would like to see if you’ll be interested in coming in to see a private equity firm for an interview.”

-The Kruelberg Kretin Saga - Episode VI: The Headhunter Call, The All-Nighter

With everyone on Wall Street getting fired and those who haven’t been fired looking at other opportunities, I’ve seen lots of discussion lately around headhunters.

There are many misconceptions out there about what headhunters actually do, how they get paid (hint: by the firms they work for), and who they work for (hint: not you).

I know there are some Mergers & Inquisitions subscribers who work at well-known financial services recruiting firms, so I’ll try to write this post without stepping on anyone’s toes too much.

What Headhunters Do

You might recall back when I explained what investment bankers actually do that I likened us all to Ari Gold.  We don’t create; we’re not there for the long-term; we just sell.

But if there’s anyone more deserving of the “Ari Gold” title than investment bankers, it’s headhunters.

Recruiters are hired by investment banks, private equity firms and hedge funds to find potential candidates for hire.  A lot of junior investment bankers get this wrong and think that the recruiter works for them.

I’ve seen questions like “Should I get a headhunter on retainer?” asked on forums and via email.

But unless you’re willing to pay them 20% of your base salary upon placement (what the firm retaining the headhunter typically pays), you will never have a headhunter “on retainer” so you might want to forget about that one.

Since they are paid on commission and the firm that retains them pays them, their loyalty is to the firm - not to you.

This is not necessarily a bad thing, but you should keep it in mind when making decisions about where to go next.

The Recruiting Process

Generally the headhunter either contacts you directly by phone or email and introduces himself/herself, then assesses your interest in the opportunities he/she has available.

If you can do so, I would strongly recommend meeting in person so you can present your “story” and so they can do a better job bringing you the appropriate jobs.  Meeting in person can also help to overcome a weaker finance background or a lesser “brand name.”

After that, they will pass your resume onto firms that hire them and will effectively act as the first screen in the recruiting process.

After your first interview, the role of the headhunter varies depending on which firm and which recruiter you’re dealing with.  Sometimes they will back off and let you continue discussions on your own, and other times they will talk to both sides throughout the entire process and try to make a “deal” happen.

Why They’re So Prevalent In Financial Services

Recruiters exist in every field, but they’re most prevalent and most influential in financial services for 2 reasons:

1. The highest salaries of any industry out there.  And since headhunters get paid based on base salary, it doesn’t matter that hourly wages might only be marginally better than those of McDonald’s. Even junior-level employees make over $100,000, and mid-level hires will get between $500,000 and $1,000,000.  Try finding that in manufacturing.
2. Incredibly high turnover at all levels.  Just look at what happened to UBS LA last year with Moelis’ departure.  Out of all the Analysts I started with 2 years ago, only around 10% remain in their original positions.  Some have switched firms multiple times in the past 2 years.

If you get paid a percentage of base salary whenever people switch firms and you work in the industry with the highest salaries and highest turnover rates, that translates into a lot of money for those who facilitate the moves - the headhunters.

Also, the world of finance is very small, both in terms of number of major firms and number of employees - even the largest private equity firms have only a few hundred employees.  Just look at Blackstone’s latest 10-K:

“As of December 31, 2007, we employed approximately 1,020 people, including our 65 senior managing directors and approximately 395 other investment and advisory professionals.”

Less than 500 “investment professionals” at the largest and most well-known PE firm out there.

Thus it’s easy for a few well-known recruiting firms to “own” all the relationships with buyside institutions and be responsible for all their new hires - you have an industry with high turnover rates and high salaries but very few people.

This would be much more difficult in a field like technology, where there are tens of thousands of employees at brand-name firms.

So, Should You Use Them?

Almost certainly.  In fact, if you ever want to work at a private equity firm or hedge fund, you don’t have much choice in the matter.

Since the firms are so small, they almost have to rely on headhunters to find candidates.  No matter how well-connected the investors are, you’ll never have a very wide reach within incoming investment banking analysts with only 10 employees.

You should definitely reach out to firms you’re interested in and see what develops as well.  But you probably won’t know people at every firm you might want to work at.

And that’s where headhunters come in: they provide the introductions that get you in the door and alert you to opportunities you might not otherwise know about.

I’ve had friends who have gotten interviews via connections and networking, without going through headhunters.  But very few have actually received offers at legitimate firms without going through them.

Buyer Beware

As I alluded to above, there are a few points to watch out for when doing your recruiting through headhunters.

Introductions, Not Decisions

Never rely on a recruiter to make a decision on whether or not to accept an offer.  As you can imagine, they will almost always urge you to accept it.  Unless there’s something else that would generate a higher commission.

When I was recruiting last year I had several opportunities that I wasn’t crazy about, but were there for the taking if I wanted them.  Needless to say, the recruiters I dealt with pressed me to take one of these even though I just wasn’t enthusiastic about them.

Recruiters are great for initial introductions and availing yourself of new opportunities, but do not fall into the trap of letting headhunters “sell” you on certain positions.  You should do your own diligence when interviewing and decide for yourself what makes sense.

The Tough Market

As you might have noticed if you’ve been alive lately, the market has completely tanked in the last year and hiring has slowed down everywhere.  In case you missed it, Bear Stearns even collapsed. So anyone looking to get into finance is suffering a lot - but guess who else is going through hard times?

That’s right, the headhunters.  When hiring slows down and the number of people being laid off exceeds the number hopping between firms, headhunters lose their main source of revenue.

So you have to be even more careful these days with how you approach the recruiting process.  When hiring slows down, headhunters will be even more persistent in getting you to accept offers that may or may not be right for you.

Coming From Non-Bulge-Bracket Banks

Some headhunters will ignore you or pay less attention to you if you’re not from a bulge bracket bank.  It’s just a matter of return on time for them - they are more likely to place candidates who come from “better” names, so that’s where they spend most of their time and energy.

Sometimes you can get around this by making a great impression during your interviews.  But from what I’ve seen, this is rather difficult and you’ll be at a disadvantage no matter what you do.

The solution here is to either network and contact firms directly, or to spend your time with headhunters who do focus on smaller firms.

Closing Thoughts

If you want to work in finance for the long-term, you’re going to have to work with headhunters, regardless of whether you’re jumping between firms or decide to start your own one day and need to find employees.

It’s fine to rely on headhunters for sourcing - either finding opportunities or employees that you would not have otherwise known about - they are quite good at this, and you probably should use them for sourcing.

Just don’t rely on them to make decisions for you.

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Thank you very much for your recent application to the Texas-Pacific Group. Your resume and glowing recommendation from your MD were both somewhat impressive. We applaud your efforts to transition from Banking into Private Equity, it is definitely the right move right now. We were considering extending you an offer, actually, but upon review of the quiz you inadvertently submitted to for the New York Post, we regret to inform you that we will be unable to offer you a position at our firm.

Please note that you did score an 87%, which is nothing to be ashamed of. It turns out to a B+ with our generous scaling, and you know what they say—at least you won’t be lonely at the fat part of the bell curve. We only take A’s though. Have you considered a position at Hellman & Friedman?”

-Only 87% Tool, The Leveraged Sellout

Ah, private equity.  The promised land.  What you slave away for as a banker: the chance to become the next Steve Schwarzman.  But unless you have an inside connection with Steve himself, you’ll have to go through a few interviews to get to paradise.

The Format Of Private Equity Interviews

They tend to be very similar to investment banking interviews - generally a phone screen or initial in-person screening interview, followed by a “superday” where you meet with a good portion of the Associates, Principals and Partners at the firm.

The difference is that the interview process goes beyond that - you can have multiple interviews with the same people, and you usually have to do some sort of Case Study, either in advance or on the spot, which you then present to a group at the firm.

Beyond just the Case Study, you will also typically be tested on Leveraged Buyout modeling, either on the spot at your interview or as part of the Case Study.

You should also keep in mind that 99% of PE firms are smaller than investment banks and do not need nearly as many people.  Thus they can afford to be much more selective about new hires.  Banks, by contrast, will tend to be less disciplined with recruitment.

Private Equity Interview Questions

Private Equity Firms care about two points when interviewing you:

1. Your background and “fit” with the firm, group and industry.
2. Your deal experience.

In addition, there may also be some rudimentary technical questions in the “screening” round just to verify that you actually know enough to do the job.  If, for example, you can’t calculate Total Enterprise Value, then you should not be doing PE and that’s an easy “ding.”

Some firms, particularly the mega-funds, like to go in-depth on technical questions and ask all sorts of obscure things that never come up on a regular basis.

“Fit” Questions

In terms of the “fit” questions, you want to have a good “story” around how and why you ended up where you are (just as with banking interviews).  Avoid stating the typical “bad” reasons to do finance jobs: money and prestige (even though many people do indeed do finance jobs for these very reasons).  And, of course, models and bottles (even though you can afford them now).

Instead, you want to focus on your interest in investing and if you’re coming from a banking or sell-side background, why you are more interested in investing as opposed to selling.  Standard reasons: adding more value, acquiring more in-depth knowledge, and gaining more responsibility.

One note on fit questions: in my reasons NOT to do investment banking post, I recommended against saying, “entrepreneurial work environment” as a primary reason for wanting to do banking.

For PE positions, this is more acceptable as it is a more entrepreneurial environment and in some cases members of the firm go on to work at portfolio companies or start companies of their own.  If you are a senior, partner-track hire, you don’t want to give the impression you will leave and do this, but for pre-MBA hires it’s not quite as taboo.

Since private equity interviews tend to be quite informal and more conversational than banking interviews, establishing rapport with everyone is essential.  If you can’t do this, your chances of getting the job are about as slim as JPMorgan honoring Bear Stearns offers.

Picking Deals To Talk About

Private Equity firms generally want Analysts with good M&A and LBO deal experience.  They don’t really care about IPOs or anything capital markets-related; they acquire companies, and that’s what they care about.  Yes, to exit an investment they could take a portfolio company public, but the bankers and lawyers handle most of that process so in-depth knowledge is not as important.

The first step here is deciding which deals to speak to.  As I wrote in my post on Private Equity Resumes, it’s best to pick either transactions that were unusual in nature or ones where you contributed a lot (or both).  “Standard” sell-side M&A processes are not great; divestitures, distressed M&A, and LBO deals are much better.

For the “complex” M&A deals, you generally have a lot of good qualitative issues to bring up in the interview (e.g., selling off parts of a company vs. the whole thing, figuring out standalone cost structure, dealing with subsidiaries and complex legal structures, closing before you run out of cash), while LBOs are good because you can talk about the numbers and why the deal worked from a financial perspective, as well as your knowledge of the process and debt-raising.

Oh, one last thing: you do NOT need closed deals or even announced deals.  Just make them anonymous if they’re not yet public.  You don’t want to end up in jail, or almost in jail, as a result of your interviewing efforts.

How To Talk About Deals

When you go through your deals, you want to start by giving a brief overview of the company, industry and major deal points:

You: “One deal I worked on was the $45B LBO of TXU by a KKR-led consortium of private equity firms.  The Company had around $10.9 billion of revenue and $5.6 billion of EBITDA and provided electricity to the Texas utility market.  The deal, struck at the height of the buyout boom, to a certain extent represented just how far private equity firms would go to find good deals, and also showed the cyclical attractiveness of the utilities sectors.  There were a whole host of major issues, from regulatory to environmental, associated with the deal.”

Interviewer: “Of course, that was all over the news in early 2007.  Let’s talk about the financial metrics of the deal, maybe you can walk me through the numbers here.”

At this point, you would go into the revenue and EBITDA multiples and industry-specific metrics you looked at.  Also go into the LBO analysis you did, the growth rates and margins you assumed, and the IRR your models predicted.

Interviewer: “I understand that, as part of the deal, the Company agreed to not build certain power plants.  Can you discuss that?”

Here you can go into the financial analysis you did to show the impact of not building those 8 coal plants they originally agreed to.  You really need to play up “unique” points like this where you did something out of the ordinary.  Explain the financial assumptions you made about each plant - required costs, projected power output and revenue generation, and then the effect eliminating them had on the LBO model.

You can also go into the regulatory and environmental considerations and all the deals that were struck with governments and environmentalists here, which are great to talk about.

Interviewer: “Great.  Let’s talk about the debt on the deal.  Can you walk me through what kind of package your bank(s) put together?”

Go over the basics - the total amount of debt raised, how many tranches and the kind of tranches - e.g., bank debt, high-yield, etc. - as well as the interest rates and covenants.  You can also go into different debt packages offered by various banks competing for the business and why one bank was chosen over the other.

Those are the major points to get across if you discuss an LBO with a private equity firm - basic overview, financial metrics and modeling, major issues and deal points, and the debt involved.  For regular M&A deals the discussion would be similar, but you’d be speaking about the accretion/dilution model rather than the LBO model and may not have to discuss debt at all.

Don’t go off on random tangents when going over deals.  Just remember, your hourly wage is just barely higher than a McDonald’s worker’s, whereas theirs is much higher.

But Wait, What If I Don’t Have Any Deal Experience?

If you come from a consulting or other non-investment-banking background, you may not have worked on any M&A deals.  If this is the case, you need to find close substitutes.  For consulting, these might be due diligence projects on deals or projects focused on operational improvement of a company.

If you’ve done equity research or some type of investment/asset management before, you want to discuss companies you initiated coverage on, invested in, or recommended investing in.

A dialogue similar to the one above should be your goal - you want to go through the basic overview, the numbers, and the “deal points” or main issues you confronted.  You also want to go over major risks and mitigating factors.  If we take the TXU example, investment risks might be all the regulatory issues and mitigating factors might be bribing all the environmentalist groups out there.

If you worked in corporate finance or corporate development before, you can speak about partnerships you worked on, integration work, or any other long-term project that consumed a lot of time and required significant analysis.

If you fall into none of these categories, why are you applying to private equity jobs again? :)  (You can get in from other backgrounds but it’s much harder.)

Case Studies

Another major point in most private equity interviews is the case study.  Typically, a private equity firm will give you an Offering Memorandum, filings, and other documents on a company and then you will make an investment decision one way or the other.

Usually you’ll create a PowerPoint or Word presentation and will submit some type of Excel model as well.

Case studies are a broad topic and I couldn’t do everything justice here, but here are a few of the major points:

• Make sure you actually make a decision one way or the other.  This may sound elementary, but you’d be surprised how many people complete case studies and don’t say, “yes” or “no.”
• Provide a summary page/slide in the beginning with your investment decision and back it up with 3-5 key points.  Also make sure you go over major risks and mitigating factors on this page, and give an estimate of returns as well.
• Keep this brief and to the point.  You simply don’t have time for anything else.
• Each page/slide should cover a separate point - industry, management team, financial performance, company’s products/services, major risks and mitigating factors, areas for further diligence, the output of your financial model, and how you would structure the investment/buyout.
• Don’t worry too much about formatting, just make sure it’s readable.  This may come as a shock if you are from an investment banking background.

At some firms, you will have to do this on the spot and you’ll have very limited time; at other places you will have a few days to a week or more time to craft this.  In any case, don’t go crazy and spend 100 hours doing this or anything - they understand you have limited time, so focus on what’s important and don’t go overboard with the rest.

And DON’T have your graphics department format your presentation.  That would be bad if your MD happened to walk by and see…

LBO Modeling

As I’ve alluded to throughout this post, some private equity firms will give you modeling tests and expect you to build an LBO model in real-time at interviews.

As with case studies, I would suggest keeping your models simple.  Go with the bare minimum that’s required because you don’t have time to get fancy.

In practical terms, this means do the following:

1. Basic sources and uses - don’t try to get fancy here with equity rollovers, PIK, 10 tranches of debt or anything.  Go with a simple view that has the purchase price and debt/equity used.  Maybe do 1-2 tranches of debt but keep things simple.  You need to get across that you understand the basic concepts behind an LBO model, not the super-advanced stuff.
2. Basic income statement - just do basic projections here, with revenue growth, SG&A or whatever expenses you have as a % of revenue and go down to EBITDA.  You can make a few basic assumptions to get to net income as well for the cash flow statement, but again don’t go overboard.
3. Basic balance sheet - Have the basics, like Cash, Accounts Receivable, Accounts Payable, PP&E and Debt, and use easy assumptions for these.  You should include acquisition effects like the new debt and any cash used as well as goodwill, but I would keep this as simple as you can while still making it, um, balance.
4. Basic cash flow statement - Net income, add back D&A and the change in working capital and subtract CapEx to get to your cash flow available for debt repayment.
5. Basic debt structure - just do the bare minimum in terms of Excel functions here and assume you can use all Free Cash Flow for interest/principal repayment each year.  Should just be a couple MIN functions.
6. IRR calculation at the end and maybe a few sensitivity tables on purchase price, exit multiples, and growth rates/margins.

This is a very high-level overview of how I’d build a “simple” LBO model - you can look forward to a more in-depth guide and working Excel model soon (I hope).

Simplicity is very important because you’ll only have 1-2 hours, at most, for this exercise.

Selling vs. Buying

Beyond just understanding the format of interviews, interview questions and practicing case studies/LBO modeling, it’s important to keep in mind something else with private equity interviews:

Do an equal amount of “selling” and “buying.”

This was actually advice given to me by a well-known headhunter and may be the only good advice I’ve received from a headhunter.

While you definitely want to push your own case and “sell” yourself as much as possible in interviews, you also want to pretend you’re a buyer and do some diligence on the firm.  If it turns out there’s a big cultural misfit, for example, you want to bail out early on.  Or if there’s a lot of cold-calling involved and you hate that, you similarly want to forget about the firm.

Since PE hires are much more long-term than banking ones, you really want to do your diligence; it probably won’t be some 2-year job that you can forget about afterward.

People often overlook this and just take the first opportunity available to them, but this is a serious mistake with private equity recruiting.

Differences Between Private Equity And Hedge Fund (And Other) Interviews

Although I’ve described private equity interviews above, hedge fund interviews are similar and will also tend to involve case studies and/or investment recommendations.  They will be less focused on deal experience and more focused on fit and knowledge/interest in the public markets, and it’s probably not necessary to practice LBO modeling with a hedge fund unless it’s a PE-like one.

Venture capital interviews will be even more focused on fit and personality and less on finance/deal experience.  They will also want to see good market knowledge since startups are so dependent on the relevant market(s).

Corporate development job interviews will be somewhere in between VC and PE interviews; they won’t be as focused on modeling and LBO modeling is unlikely to come up, but they will want to hear about your deal experience and analytical skills.

Timeframe For Interview Decisions

Going back to the theme of private equity firms being far more selective than banks when it comes to recruiting, the interview timeframe is generally much longer.

There are some exceptions - for example, at KKR, Bain, Blackstone and other mega-funds, they make decisions quickly and move in weeks rather than months.  This is simply because they compete for mostly the same people and therefore start interviews early.

Middle-market and growth equity firms will take much longer to make decisions and often shove you through multiple rounds, dinners and breakfasts and all sorts of hoopla to reach a “yes” decision.

They treat you as an investment opportunity and have to do very thorough due diligence before making a “yes”decision.

This is logical, as Private Equity firms make much longer-term hires than investment banks do, and therefore approach you as more of an “investment” rather than a number-crunching monkey as banks would.

Final Words: How To Prepare With Limited Time/Resources

So how do you prepare for private equity interviews if you’re an investment banking analyst with limited time at your disposal?  I would suggest the following:

1. Make a list of all the deals you’ve worked on and decide which are the best 3-4 to speak about in interviews.  Make sure these are also the ones on your resume.  Your bias should be toward complex M&A deals and LBOs.
2. Refresh yourself on the details of these deals, including background information, financial metrics, debt packages/covenants and what you personally contributed.
3. Practice constructing simple LBO models.  Get it down to where you can create a basic model from nothing in half an hour.

Amazingly, even though this post is already lengthy I’ve only scratched the surface of buyside interviewing here.  There are lots of other topics I plan to explore and upcoming guides, so stay tuned.

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It can’t always be that bad, right? There has to be some upside. You can’t always have days where you pull all-nighters and are yelled at by 5 different Associates for 10 different things while being forced to fix printers and provide tech support, right?

Right.

I admit it; not every day is like that. That was indeed one of my worst days ever. So I’ve searched through old emails, talked to friends and former colleagues, and have pored through my own personal journal all in a quest to find my best day as an investment banker.

And I think I’ve found it.

6:30 AM - Wake up. Not because of the job, but because a friend staying at my place is leaving on vacation and has to get to the airport.

7:00 AM - Get in and begin going through emails for the day. We’re in the final stages of an M&A deal and I’m setting up some calls between the buyer, seller and other parties like the lawyers and accountants.

This sounds mundane now, but at the time I felt like I was kind of a big deal.

8:30 AM - 9:30 AM - Join an update call with the rest of my group. Associate asks me to go print a couple hundred pages of material during the call and deliver it to them. Hey, not every part of this day was good.

9:30 AM - 10:30 AM - Internal call with our banking group to decide on whether or not to take on a large, but highly speculative new deal. Remember, this was back when the market was frothy and times were good. Today, this probably wouldn’t happen.

Afterward, one of the Managing Directors pats me on the shoulder.

And you thought Analysts got no respect.

10:30 AM - 11:00 AM - Extended Starbucks break. Extended breaks can always be brushed off as, “I got caught up in a meeting” or “I was in X’s office chatting about Y deal.”

11:00 AM - 3:00 PM - Customer due diligence calls throughout most of the day. These are always amusing, because they usually consist of the private equity firm asking customers questions like, “So, what other alternatives did you consider and why did you pick this one?” and the customer responding with, “Actually I don’t even know what this company does, but it was cheap and we had already been using it for 10 years.”

In the background, the Associate on the deal and I are chatting over instant messenger and trying to decide which customer has made the dumbest comments thus far.

3:00 PM - 5:00 PM - Lawyers on both sides have made 0 progress on the Purchase Agreement in the past week. This is concealed because the language throughout the agreement has changed significantly.

However, everyone is brought to their knees when one young Associate at a well-known, prestigious law firm, points out that all the legalese is in fact 100% equivalent to what it was last week.

We decide to chat again tomorrow. Mocking of the lawyers over instant messenger proceeds in parallel.

5:00 PM - 6:00 PM - Another call held with private equity firm to discuss timing on the deal. Luckily, the Associate (and not me) sends out the incorrect call information so everyone is late and blaming him. Meanwhile I observe and smile with glee as I plug away in Excel in the background.

What, did you think this time slot was going to be me eating dinner? No sir, go to your 9 to 5 job for that.

6:00 PM - 8:00 PM - The deal is falling apart because of legal issues. When it happens, this is great because all you can do as an Analyst is merely sit back and watch. You don’t have to do any work. Client calls us to complain for a few hours and we listen and pretend to care.

Meanwhile, another deal in our office is also falling apart due to similar legal issues.

This might sound like a bad day. It certainly was a bad day for the firm, but it was great for me since I wasn’t really doing anything other than listening to calls and Internet surfing.

8:00 PM - 9:00 PM - The Grand Finale. Just as I’m getting ready to sneak out early, the CFO (I use that term with reservation; he was more of a glorified Controller) of the company in question calls me and asks my views on the process and what is going to happen.

Yes, you read that correctly. A quasi-CFO called an Analyst to ask for my thoughts and not just my Excel. I mentioned this was a very, very screwed up deal, right?

I’m sure stranger things have happened. Just not very frequently.

I get to ramble on for awhile while the CFO listens intently. Afterward I proceed to run around telling all my peers of my accomplishment.

9:00 PM - Go home extremely early and watch a TNT rerun of “A Perfect Day.” Don’t get me wrong, I’m a huge fan of Rob Lowe and The West Wing, but this movie… just wasn’t good, even for a made-for-TV movie.

It is a fitting title though, even if my day wasn’t quite perfect.

So that’s a good day as an Analyst: laughing at other peoples’ misfortunes, not having to do any real work, talking to the client on the phone over something they view as important, and leaving early to watch a bad made-for-TV movie.

Are you living the dream?

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Typically I stay away from explaining the actual job because I think it’s more interesting to write about how to break into banking or just how high investment banker salaries are, but feel free to send in more questions on what investment bankers actually do.

Nonprofit To Private Equity

“Hi there.  For the past 5-10 years, I’ve done nonprofit work, specifically in microfinance and international development.  I’ve done a lot of consulting and due diligence work and have worked with many international governments.  I’m trying to change careers now and want to work at a boutique private equity firm focused on emerging markets.

How hard is it going to be to transition into private equity, and will my background help me at all?  I realize this is a very nontraditional career path.  Also, how critical is it to develop financial modeling skills before starting?”

Inquisitor:

You certainly have a unique background.  It’s going to be tough to break into very large private equity firms, but it sounds like you’re not interested in them anyway.  The boutique PE firms you are targeting will definitely be your best bet, although you will still face an uphill battle.

The biggest issues will be your lack of financial experience and not being used to the lifestyle/environment at PE firms, so you should focus on how to overcome those and present a “story” that shows you can handle the hours and have studied some finance independently.

One advantage you have is your consulting background - many consultants get into private equity, so if you can spin yourself as being an “international/emerging markets consultant,” you can get your foot in the door more easily.

I don’t think they would expect you to be able to model like a bulge bracket investment banking analyst or anything, but it is important to develop some of those skills before you start interviewing because they will ask you to build models in interviews.

It’s not that difficult to learn how to build a relatively simple Leveraged Buyout Model, so you should focus on that as well as learning the necessary accounting/finance concepts (mostly how to link the 3 statements and how different items flow through the statements).

I would focus on using your alumni network and all the friends/contacts you have.  It’s probably not worth contacting headhunters for someone in your position as they’re most helpful for people with traditional backgrounds.

It’s going to take some time to get in and it will be an uphill battle with your background, but I would continue to focus your efforts on networking and developing a “story” that proves you can handle the work and know enough about finance to jump straight into the job.

For more on interviewing, networking and resumes, check out my posts on getting an investment banking job, networking into investment banking and private equity resumes.

Much of the advice in those posts applies to any job in financial services.

Good luck!

What Do Accounting Firm Do?

“I’m interested in M&A/advisory work after I graduate.  I’m curious to understand what roles the auditing firm (PricewaterhouseCoopers, Ernst & Young and Deloitte), the investment banks, and the strategy consulting firms (McKinsey, Boston Consulting Group and Bain) play in M&A work.  Who does the valuations, negotiations and integration work?  Is it spread out among the three or does each one compete for different parts?  I’ve talked to people on all sides and they give conflicting reports.”

Inquisitor:

Generally here is how it works for a sellside M&A deal:

1. The investment bank will do the upfront marketing work and prepare sales documents for the company, contact buyers and set up management meetings.  They will also do some valuation work to set price expectations.
2. The bank will conduct an auction process with multiple rounds of bids until the buyer is finalized.
3. As each buyer moves further into the process, they will bring on board accountants, lawyers and consulting firms to do diligence on the seller and look at the seller’s accounting, legal issues, market dynamics and pretty much anything else of interest.  Audit/accounting firms will be involved with due diligence and verifying that the seller’s financial statements are accurate.
4. The bank and the law firms involved will negotiate the purchase agreement with the buyer and seller.  Generally the accounting and consulting firms are not involved with this at all, it’s really just the investment bank and the law firm.
5. After the parties reach agreement and the deal gets done, the accounting firms will again get involved in deciding how to allocate the purchase price and perhaps with some of the financial integration work.

The likes of PwC would never be involved with the negotiations or the marketing/positioning of a company.  Even with valuations, they just allocate the purchase price and value intangibles like customer relationships, patents and intellectual property rather than valuing the whole company like bankers do.

The only exception occurs when an accounting firm is hired as the financial adviser on the deal.  Most of the big accounting firms have financial advisory practices, and in that capacity they act as the M&A bankers on the deal.  However, they are not as well-known or well-developed as the bulge brackets‘ M&A divisions.

Startup Business Development Internship vs. Marketing Internship

“I’m debating between two opportunities this summer, and I’m wondering which one will ultimately look better on a resume for applying to banking jobs next year.  My two choices are to either do Marketing / Public Relations for a large, blue-chip company and handle advertising and working with a sales executive, or to go do business development for a tech startup.  The blue-chip one sounds more prestigious, but the business development one could give me even better experience.  Which do you think I should do?”

Inquisitor:

I think it really depends on what the Business Development internship will offer you - specifically what you’ll be doing on a daily basis.

If it’s just going to be assisting the other people and you won’t learn much about making deals happen or evaluating partnerships/acquisition opportunities, I would go with the big company marketing opportunity.

However, if you do get a great deal of responsibility it would be better to just go with the startup.

From an interviewing / banking resume selection perspective, seeing the title “Business Development” in your work experience to me implies that you did something much closer to banking compared to a Marketing/Public Relations type role.

However, many startups are poorly managed and are not great learning opportunities.  Others, by contrast, are fantastic environments in which you can grow and develop, so it’s critical to do some diligence of your own and figure out what category this one falls under.

I would lean toward doing the Business Development internship because it is more similar to a banking job, but I would ask a lot of questions first and establish exactly what your role will be, because it’s often vague at startups.

If you get the hint that it’s poorly managed or you’ll just be doing menial tasks, go with the marketing internship.

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-Hicks Musings, The Leveraged Sellout

One common question I’ve been getting lately goes something like this:

“Inquisitor, I just started as a freshman at Harvard.  I am majoring in economics and finance and I’m in the stock market club, the investment banking club, and I even borrowed $500,000 of my Dad’s money to invest in my personal accounts.  So far I’ve earned a 50% return in 6 months.

How can I make sure that I work at Blackstone by the time I’m 25?“

Another variant of this same question:

“I am only doing investment banking so that I can pay off all my student loans in 2 years, but I have no interest in ever doing it again.  What are the exit opportunities like for Associates at boutique banks who want to get into hedge funds?”

For those breaking into investment banking, the exit opportunities are always a big motivation.

It makes sense on paper: you go from working 90-100 hours a week and doing mindless work to working 60 hours a week and doing meaningful work 100% of the time, right?  Right?

The Hours

Lifestyle is a common reason for switching from investment banking into private equity or hedge funds.  Specifically, people assume that they will actually be able to have lives for once rather than sitting in front of a computer for 18 hours a day.

Private Equity Hours

If you go to a large private equity firm, like Blackstone, KKR, TPG or Bain, this assumption is false.  You will be working banking hours for another 2-3 years - bet you can’t wait for that.

I’m amazed at how many people don’t realize this until they get to interviews with these places or until (gasp) they actually start working there.

If you go to a smaller PE or growth equity firm like Summit Partners or TA Associates, then you won’t be working 100 hours a week.  But you will still be doing 60-70 - significantly more than a normal job - and on top of that you will have to travel quite a bit, so forget about a consistent schedule.

And when a deal heats up and you’re close to acquiring a company, your hours may remind you of what it was like to be an investment banking analyst: weekend work and sleeping under your desk for a few nights each week.

Hedge Fund Hours

Hedge funds tend to be better than private equity in terms of consistent schedules.  You work market hours, and weekend work is not required unless you work at a PE-like fund that acquires companies.

However, some travel can still be required for doing “channel checks” (e.g., checking to make sure that the toy retailer you’re acquiring still has Wii stockpiles even in its Minnesota office).

And if you’re at a West Coast hedge fund, you now get to wake up at 5 AM every day so that you’re at work before the market opens on the East Coast.

Bottom Line

Some exit opportunities can indeed offer a better lifestyle, but you’ll never be working 40 hours a week in any of these industries.  And you’ll almost always have a difficult time getting a consistent lifestyle with anything in finance.

Before diving into your next job, figure out what the lifestyle is really like so that you aren’t surprised by the mandatory weekly visits to the Yukon Territory in the middle of winter while doing diligence on an oil company.

The Pay

Yes, private equity and hedge fund pay tends to be higher than those investment banking salaries you always hear about… but that’s not the whole story.

Private Equity Pay

At private equity firms, you will make about as much per year as post-MBA Associates at banks make (e.g. significantly more than you made as an Analyst).  At smaller places and growth equity firms, the difference in pay is not as huge, but it does tend to be higher than banking at the equivalent levels.  At bigger places, it can be much higher than entry-level banking Associates; some even guarantee $500,000 or so per year.

However, the pay difference is much greater at the Managing Director/Partner level than it is at the more junior levels of private equity and investment banks.

So it would not be rational to want to switch into private equity solely because of higher pay, unless you are a very senior hire.

Hedge Fund Pay

Hedge fund pay can vary wildly between different funds.  The standard seems to be a base salary of $100,000 for those coming in directly from banking, plus a bonus that will take you to the $200,000 - $300,000 total compensation level (very similar to private equity Associates).

This is much higher than what you could get as a 3rd year investment banking analyst, and is about on par with what post-MBA Associates at investment banks make.

Depending on the fund, their performance, and your performance, the bonus could be significantly more or less than this; if you have really bad luck, you might just get nothing as the fund collapses before your eyes! (ok, this is unlikely)  And if you do really well, you might make closer to $500,000 total.  That scenario is unlikely except for the largest funds.

However, as with private equity pay, there is a significantly greater difference at the Partner level, where top hedge fund managers can pull in over $1 billion in cash per year.  That is more than private equity Partners make and far, far more than even the CEO of Goldman Sachs made last year.

It should also be noted that hedge fund managers making $1 billion are exceptions rather than the norm and most managers don’t make anything close to that, though in general they still make more than investment banking Managing Directors.

Exceptions Apply

One exception to all these salary figures is prop trading and certain small hedge funds / prop trading firms that could potentially pay you an unlimited bonus.  I know of at least one place that actually pays you 50% of what you earn from trading, and there are several recent college graduates earning millions of dollars per year there.

But most people going into buyside jobs are not going to suddenly be earning millions of dollars at age 24.  Your salary will almost certainly increase, but the really substantial increases over investment banking salaries come at the more senior levels.

The Work Itself

This is where people have some of the most incorrect ideas about private equity and hedge fund jobs.

Yes, there is a lot of stupid grunt work in investment banking that everyone hates doing… changing periods and commas in presentations, editing text in documents 500 times… formatting PowerPoint graphs.

The amount of stupid work you do certainly decreases when you move onto private equity or hedge fund jobs.

But guess what?

If you don’t like Excel or you think analyzing companies, doing valuations, or modeling are boring, you’re not going to like the buyside very much.

The work is just not that different.

You still do financial modeling… you still do diligence, and you still have to do some annoying grunt work.  When private equity firms acquire companies and work with banks, for example, the Associate will be tasked with writing “bid letters” and working with banks on financing, which can often require a lot of number scrubbing and attention to detail.

Sourcing

Not only is the work fairly similar to what you do in investment banking, there is also a new type of work that most people despise: sourcing.

“Sourcing” is a euphemism for cold-calling.  This is more prevalent at growth equity places (Summit is notorious for making its Associates cold-call companies all day) than at large private equity firms.

It may sound impressive at first to say that you’re in charge of bringing in deals.  You may even think to make it part of your private equity resume.

But actually, you’re just in charge of cold-calling; the Partner still owns the deal, even if you “sourced it.”  Some private equity firms do pay their Associates a bonus for closing deals they generated, but it’s paltry compared to what the Partners will make off it.

Managing Directors in finance source deals via their long-standing relationships and through regular communication with prospects.  They don’t cold-call every company on the Inc. 5000 list until someone says, “yes.”

You, by contrast, will be doing this, or at least some form of it.  And it’s one of the most common reasons why people don’t go into private equity or at least avoid the firms with a “sourcing model.”

The Social Aspect

This is one of the most overlooked aspects of investment banking vs. buyside jobs.  With banking, you have a group of other Analysts working alongside you and you chat with them in your downtime, go to Starbucks together and enjoy models and bottles with them outside work.  It’s almost like living in a dorm in college all over again.

With buyside jobs, this disappears.

You might be the only Associate; you might even be the only person under 30 in your office, depending on the firm.

Private equity firms and hedge funds tend to be much smaller than banks and don’t have as much of a need for an army of Analysts and Associates to do work… there simply isn’t as much work to be done.

This may sound less significant than the other factors I list above, but don’t underestimate it.

I actually know of some 2nd and 3rd year Analysts who were reluctant to leave for this very reason - yes, the pay and upside might be better, but not having any close friends in the workplace can make for a bad experience.

The Bottom Line

I don’t agree with those who think investment banking is only a stepping stone to working in private equity or at a hedge fund.

Doing the job only because you think those options are going to be completely different experiences is a bit absurd.  They’ll be better in some ways, but they can also be worse in some respects as well.  No one in banking ever yelled at you for not cold-calling enough companies.

If you want to work in private equity or at a hedge fund, it’s better to go there directly; if that is not possible, just do banking for a year and switch over (harder to do now with the market downturn).

But What About Venture Capital And Other Jobs?

I know someone is going to bring this up unless I discuss it here.

Venture capital and corporate development jobs can indeed offer a significantly better lifestyle than either private equity or hedge funds.

However, you will likely take a pay cut compared to what you were making as an investment banking analyst.  You could actually be as senior as a VP in banking and make less than a 3rd year Analyst!

Plus, you still have the issue of the work not being that much different and the social aspects referenced above.

Don’t get me wrong: if you want to still have a good salary and a much better lifestyle, venture capital or corporate development could be right for you.

But do recognize that, as with any other choice you make, there are tradeoffs between all these options and nothing is “the best.”

Feedback

What has your experience been with buyside jobs?  Am I off on anything here?  I’m curious to know what others think about these issues.

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The investment banking internship recruiting season continued in full force in February 2008, and many readers asked questions on how to decide on summer internship offers and also how to get them in the first place.

I covered a good amount of investment banking lifestyle material as well, as including the perennial question of just how high investment banking salaries are.

Getting An Investment Banking Job / Getting A Private Equity Job

For those seeking investment banking jobs or summer internships, I wrote the most detailed, freely available guide to superday interviews out there. Why bother with an over-priced Vault guide when you have this? (Well, assuming Vault guide isn’t free for you anyway).

And for those struggling to get investment banking interviews in the first place, either because they are from non-target schools or are trying to break in from other industries, I wrote a guide on using networking to get into investment banking.

Beyond just investment banking summer recruiting, private equity recruiting for the summer of 2009 is also starting up. For those looking to break into the industry, I wrote a guide on how to write the ideal private equity resume and how to write about your investment banking and deal experience.

Finally, beyond just the usual resume advice, I also launched a resume review service at the start of this month for those who are looking to improve their resumes. Those who have used the service so far have been very pleased with the results and I’ll add some testimonials to the page eventually.

Deciding On Investment Banking Summer Internships

I also received many questions on how to decide on summer internship offers this month, so decided to run 2 reader Q&A columns.

One was focused on how to choose an investment banking summer internship, while the other focused on breaking into investment banking with a Ph.D. background, whether to choose a boutique or bulge bracket summer internship, and how to handle informational interviews.

I hope these have answered many of your questions in these Q&A features, but as always, contact me if anything else comes up.

Investment Banking Lifestyle And Investment Banking Salaries

I did not focus on lifestyle questions as much this month, but did manage to cover the worst time to be an investment banker: Friday at 4 PM. That’s when everything bad happens and when the investment banking analyst gets his weekend work. And if you’ve ever wondered why attention to detail is so important as one of the qualities a banker needs, I covered that as well.

I also settled a longstanding question over whether or not investment bankers or McDonald’s employees earned a higher salary. It turns out, contrary to popular belief and a widely circulated email several years ago, investment banking salaries are indeed higher than what you could earn at McDonald’s, even on an hourly basis.

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Even if you remember nothing else out of the Vault guide and all those other investment banking interview guides out there, you remember attention to detail. The one quality all prospective investment banking analysts really need.

“But wait,” you might say, “If all you do is crank out Excel and Powerpoint all day and an Associate is checking your work all the time, why is attention to detail so important?”

Make no mistake. It’s a game of diminishing returns. Attention to detail will never win you that new deal that results in $50 million of fees.

But a lack of attention to detail can easily derail projects. Or at least make you look stupid in front of everyone.

The Setting

It was a few months after I started, and it was the first investment banking deal I ever worked on. Times were good back then. Private Equity Firms were actually doing deals; there was no credit crunch; more people than Bill Gates had thoughts of buying Yahoo. And investment banking bonuses were at their highest levels ever.

A private equity firm was contemplating buying a division of a huge company we were representing, and we were deep in due diligence meetings with both sides. During due diligence, the buyer makes sure that the seller isn’t trying to screw them with funny accounting, legal problems or plain old lies about the business.

Since it was a divestiture, the key question was what the division of the company looked like as a standalone entity. Were the expenses accurate? Could it really generate that much revenue on its own? How many employees were going to come along for the ride?

The Answers

The role of an investment bank, at least in M&A, is to introduce buyers and sellers and “sell” both sides on doing the deal. Once you get past the initial meetings, the usefulness of a bank goes downhill faster than a Jamaican bob-sledding team (exceptions apply of course; sometimes banks really do make a difference all the way til the end).

In this case, we had to hand-hold and help management answer these key questions. We’re talking very detailed financial information, down to how a company would actually think about buying offices and furniture.

Needless to say, when investment bankers have to figure out how much chairs cost, you have some issues.

The Problem

The “leader” (I won’t say CEO) of this division had his own channel with the private equity firm and tried to do everything on his own.

One morning, he sent out a completely new version of the model to everyone without running it by his trusted investment bank first.

This was 2 hours before the next diligence meeting started.

The Associate on my team saw this and just said, “Check EVERYTHING! The meeting is in 2 hours! Make sure it’s perfect!”

Perfection…. Or Not

It’s hard to check a model with 20 or so detailed worksheets in under 2 hours. But rather than adopting brute force and hitting “F2″ in every single cell to see that all the formulas linked correctly, I decided to use the “eyeball method” to check Excel due to my time constraints.

I found a few mistakes with this method, and thought I had found everything….

Meeting Minutes

After printing about 30 copies of this 20-page long document, I went and delivered them to everyone in the meeting room. This had detailed, line-by-line expense projections down to individual employees.

Everything was going fine… until one of the many accountants in the room (Private Equity Firms hire big teams to conduct due diligence) saw an error - one of the formulas had not been copied across correctly and everything was divided by the wrong constant, throwing off someone’s salary by around $200,000 per year.

So What?

It seems like a minor mistake in the grand scheme of things. And it was the company’s fault, not mine. No one from the private equity firm blamed me or even said anything about it, but everyone from my investment banking team glared at me simultaneously while the Associate thought up different ways to crucify me (if this had been UBS LA, I would have actually been executed).

Up The Chain

Attention to detail. Not only can it embarrass you in front of clients, but it will also make you look bad to your superiors. And they, in turn will look bad to their superiors, all the way up the chain until the Managing Director is scolding a Vice President for some formatting error, and the VP is scolding the Associate, and the Associate comes over to your cube and tries to take away your models and bottles.

And that’s the real reason you’re tested for attention to detail in superday interviews: bankers don’t want to hire an Analyst whose screwups result in their investment banking salaries being cut in half because of an employee salary being off by $200,000.

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For more on adventures in the world of private equity and due diligence, check out the excellent Going Private blog.

-Steve Schwarzman, Fortune Magazine Interview (March 5, 2007)

If you want to be like Steve here and become King Of Wall Street, your first step will be tailoring your resume to get those private equity interviews and break into the industry.

Sure, you did a great job with your investment banking resume. You got into a top group on Wall Street, or even if you didn’t, you at least managed to land a job at a boutique investment bank.

But if you want to be King, you have to think about your resume once again.

And with private equity recruiting season having just started, I figured a discussion of private equity resumes would be a good way to start the week.

In many ways tailoring your resume for buyside jobs is similar to crafting the perfect investment banking resume.

But it’s different in one critical aspect: you have to focus entirely on your investment banking experience rather than trying to be inclusive of everything else you’ve done.

Sure, for MBA admissions or jobs outside finance, show the whole picture. But for private equity jobs, your investment banking and deal experience are all that matter.

Private Equity Resume Structure

About half your resume should be comprised of your current investment banking job. Minimize your pre-banking experience. Yes, they will cover this during interviews, but the purpose of a resume is to get your foot in the door.

Education should be at the bottom of your resume now (unlike with investment banking analyst resumes), and the top of your resume should start with your contact information and then immediately jump into your Work Experience, starting with your investment banking job.

Writing About Your Investment Banking Job

Start this section with one or two brief sentences about your overall responsibilities and the types of deals you’ve worked on thus far. You could also include information on any special projects that were not deal-related but nevertheless contributed to the firm in some way.

There should be three key pieces of information you relay in this introductory sentence:

1. Number of deals worked on
2. Types of deals worked on - M&A (sellside and buyside), IPOs, Follow-Ons, Convertibles, Debt
3. Skills gained - LBO modeling, accretion/dilution modeling, DCF skills, valuation

I hesitate to give a sample sentence here because I don’t want every single investment banker out there to have an identical resume.

Once you’ve picked this as your summary, you need to decide on deals to write about and then go into detail on your transaction experience - this is the heart of your private equity resume.

Choosing Your Deals

An experienced banker once told me that it would be “difficult to get a private equity job without closed deals on your resume.”

Nothing could be farther from the truth. When private equity firms recruit in between the middle of your first year and beginning of your second year, they don’t expect that everyone will have closed deals by then. Some analysts never even close deals at all!

When picking deals to write about, what you personally contributed to the deal is more important than the size or “prestige” of the deal. Yes, it’s nice to have $50 billion M&A deals under your name, but if all you did was a simple valuation or basic research for the other team members, don’t make it a focal point of your resume.

Always lean toward picking the deals where you learned the most and were the most unusual vs. choosing larger deals that were pretty standard and didn’t give you much unique experience.

For private equity jobs, also try to write about M&A deals rather than capital markets transactions - what you do on a daily basis is MUCH closer to M&A than anything else. Debt might be ok to write about as well, but avoid IPOs and FOs if at all possible.

Writing About Your Deals

This will be very M&A-biased because that is what private equity firms look for. I’ll start by giving an example of how NOT to write about a deal, much like I did with investment banking resumes and internship experience.

How NOT To Write About A Deal

• $5B Sale Of Company Y To Company X
  • Drafted Offering Memorandum and Management Presentation and tracked status of deal with potential buyers
  • Managed due diligence process between Company Y and different buyers and responded to all inquiries

So what’s the problem with this? It’s too generic. The two items listed here would be expected of any investment banking analyst working on a sellside M&A deal. That’s what you as an Investment Banking Analyst do - you write the sales documents, maintain buyer logs, and send documents to interested parties.

There’s nothing here that makes me think, “This deal looks like a great experience!” And it commits the cardinal sin of not being results-oriented and specific.

The Right Way To Write About A Deal

You need to focus on what was unique about the deal. Did you influence the negotiation process somehow? Did an analysis you created result in a lower/higher price or get new buyers interested? Did you analyze the market in a way that led to more interest or a better price?

If you can’t think of anything unique to write about, pick a different deal. Sometimes it just isn’t possible, and there are many generic deals that are not good material to talk or write about.

Here’s how I would re-write my example above:

• $5B Sale Of Company Y To Company X
  • Worked directly with CFO to build complex operating model of company involving 40 different properties across multiple states
  • Created market analysis showing favorable trends in casino construction despite subprime-related problems; led to 2 private equity buyers remaining in the auction process until the final round

It is still the same length as the previous attempt, but this one is about 500 times better. It shows what you did that was specific to the deal, and what some of the results of your work were. And it skips all the generic stuff that is part of any sellside M&A process.

I would actually try to expand on what I’ve written above and go into even more detail, assuming that’s possible.

Writing About Unannounced Or Dead Deals

This is fine. Just don’t mention any names or anything that could be tied directly to the specific deal. You’ll more than likely have to do this anyway when applying for private equity jobs.

Sometimes this can be tricky if it’s a very large or well-known deal that everyone has speculated on but has not been announced yet (e.g. Yahoo / Microsoft before the bid became official). In these cases I would avoid mentioning specific numbers or dollar amounts and instead use percentages and be a bit more general (without being generic) to make sure you’re not disclosing anything confidential.

Parting Thoughts

Successfully tailoring your resume for private equity jobs is similar to creating a successful investment banking resume. Be specific, quantify, and focus on results. Focus on deals, whether announced or unannounced, and what you contributed that was unique to each deal.

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And one name that comes up repeatedly is UBS LA. Just reading about the firm on the UBS LA Vault message board is enough to strike fear into the hearts of young wannabe bankers everywhere:

“This office is not for the light hearted. Plan on working on average about 18 hours a day, 7 days a week… If you screw up on something, you can generally expect never to be staffed with that team again unless there is really a staffing crunch. This office is not that forgiving of mistakes and once you build a bad reputation, it will always stay with you.”

People obsessed with “ranking” the bulge brackets will usually say Goldman Sachs TMT (Technology, Media & Telecom) or Morgan Stanley M&A are the “best groups.” But UBS LA has traditionally been #3. Why is it so good? Why do Analysts there work 18 hours a day, 7 days a week? Why are mistakes punished with execution?

Rainmakers Supreme

More than location, it really comes down to making rain. And specifically, the Managing Directors who led the LA office. Back in the days when LBOs were actually happening (before the dark times), Ken Moelis, head of the LA office, brought in some of the biggest deals in the industry. Univision, Harrah’s, Hilton, Adelphia, Petco, Albertsons - all giant LBOs that were among the biggest since KKR’s Nabisco buyout in 1987. And they were all UBS LA deals.

Other stars included Navid Mahmoodzadegan, Head of Media Investment Banking. Dealmaker (a private equity and deal magazine) named Navid “Top Rainmaker” in 2006 and put him on the “Top 40 Under 40″ dealmakers in 2007. He was part of many of the buyouts mentioned above, and had big name clients, including Adelphia, Clear Channel, Liberty Corp., NBC, Susquehanna Media, Univision and Westwood One.

The bottom line: UBS LA was where many of the most significant deals of the 2000’s happened, and was superb for LBO and M&A experience.  Just working there could give you a golden private equity resume.

Then There Were The Analysts

From my friends who worked at UBS LA, I can tell you that the Vault account above is no exaggeration. Their lives were pretty miserable, and they suffered worse than most investment banking analysts. Things were bad, even by banking standards. Some of the senior people were actually… crazy. As in, needed-medication-to-stay-sane-crazy. So it wasn’t a place you would want to go to for models and bottles.

The upside was that placement for UBS LA Analysts tended to be spectacular. Many of them went on to work at KKR, Blackstone, Apollo and other prestigious private equity firms and hedge funds. You suffered a lot but could get an awesome job afterward.

The Rise And Fall Of The UBS LA Empire

If you are reading carefully, you have noticed how I keep referring to UBS LA in the past tense. What happened to this empire?

Moelis, Head of Banking and the LA office, left to form his own firm, Moelis & Company. And he brought many of his stars with him, including Navid Mahmoodzadegan.

Why?

There was a deep cultural divide between the UBS LA office and the conservative Switzerland UBS. The LA office pursued every deal under the sun and always wanted to offer aggressive financing to get them done, but the parent company - conservative, European UBS - was very reluctant to use its balance sheet to get deals done.

Plus, the senior bankers realized they could make way more money on their own in this frothy market environment and saw little reason to stay there.

So Is UBS LA Still Good?

Yes, but not as “legendary” as it once was. If you have the chance to work there, by all means do so. Just don’t expect that it will be a sure-fire ticket into KKR.

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