Wheeling, Dealing, and Joint Venturing: On the Job in Corporate Development
Last time around you learned all about how to break into corporate development – from getting interviews to answering questions to following up successfully.
But just as with sales & trading, the more interesting part is what you do on a daily basis in corporate development, what the lifestyle is like, how much you get paid, and what you do afterward.
So let’s get started with part 2 of this interview and dive into all of those – plus how this interviewee got a unique experience in China out of his role.
A Day in the Life
Q: What do you spend most of your time doing at the pre-IPO tech startup you’re working at? Partnerships? M&A deals? Due diligence? Modeling? Bottling?
A: Most of my work has been for M&A deals and partnerships. I mentioned that there was corporate strategy and competitive analysis as well, but I don’t spend nearly as much time on those and most of my work is figuring out which products are hot and how competitors are performing in each area.
Most of the deal work consists of reading through documents, modeling (mostly merger models, valuation, and also looking at deal structures such as earnouts), and doing due diligence.
I’ve also been to China several times to meet with companies there and learn about our market abroad – even though the company hasn’t gone public yet, they’ve been looking for ways to expand more quickly.
As part of that I’ve also had to analyze industries outside of our core business and create presentations for the senior management team here.
They’re concerned with growth because it’s difficult to have a successful IPO without at least double-digit growth, and if you look at the biggest and most successful tech companies out there right now, they’re often closer to triple-digit growth.
M&I Note: An earnout is a deal structure where some of the payment is contingent on the performance of the acquired company.
So let’s say you’re paying $100MM for another company – if you include a $10MM earnout, you would pay $90MM in cash upfront and then the remaining $10MM later on if the company hits certain performance goals (20% revenue growth, $5MM EBITDA, etc.).
Q: Right. So it sounds like you don’t do much sourcing?
A: Not really – unlike, say, smaller PE firms, they don’t make me do any cold-calling and they don’t track how many companies I’ve contacted.
We’re well-known in the space, so if I have to contact someone I’ll just email them and usually get a response quickly.
I contacted other companies for 1-2 months in the beginning, but after that I’ve only been working on deals that were brought to us.
Since our market is well-established, it’s tough to come up with creative new ideas that the executives haven’t already thought of.
Q: So how much time do you spend on deal work vs. competitive analysis vs. researching new markets? You mentioned that you spend most of your time on M&A deals and partnerships, but what’s the split?
A: I would say:
- M&A Deals and Partnerships: 50%
- Researching Industries and Markets: 25%
- Competitive Analysis: 25%
If you’re wondering about travel, I’ve been to China 4 times so far in 2 years and I’ve traveled domestically about 2-3 times – not a huge amount, but once every 2 months or so I’ll go somewhere.
That’s enough to make each trip interesting but not so much that you never want to see an airport again like in management consulting.
Q: You lumped together partnerships and M&A deals – but I’m assuming that they’re at least somewhat different since you’re not acquiring 100% of a company in a partnership.
How does the work actually differ? Most readers are familiar with the M&A process but not partnerships.
A: The main difference is that there’s less due diligence and more deal analysis with partnerships.
When you acquire another company, you really need to know what you’re getting into – if the books don’t look right or they have some kind of random legal problem, you could end up with the next Enron or WorldCom.
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So you have to be incredibly thorough and bring in outside consultants, lawyers, and other advisors and spend millions to verify everything.
With partnerships, though, it’s more like you’re dating someone rather than getting married, so you don’t need to scrutinize every single point in their business.
But the deals themselves can get very complicated, far more so than the average M&A deal.
While some M&A deals can have complex structures – a cross-border deal where you acquire a subsidiary of another company or a reverse merger, for example – the average deal is pretty simple: you pay a mix of cash, stock, or debt for 100% of the other company.
But the average partnership has significantly more complex terms: for example, you might have an upfront payment that’s based on referrals or cross-selling one of your products, then you might also get paid a certain amount for back-end or subscription sales, and then you might get some type of bonus incentive for certain performance goals.
Since there’s more variety to the deal structures, you spend more time building models in Excel and figuring out the key assumptions and drivers.
Ladders, Hours, Pay, and Culture
Q: So if you like modeling, it sounds like working on partnerships might be right up your alley.
What about the hierarchy? Is it like the investment banking hierarchy where you have a rigid structure and narrowly defined roles? How easily can you advance, and is CFO or Group Head the ultimate goal?
A: The exact “ladder” depends on the size of your company – at mine, it goes something like this:
- Associate (also called Manager or Analyst, it varies depending on the firm)
- Senior Director
- Vice President
- C-Level positions
So the titles are somewhat different from banking – one key difference is that the “Vice President” title means a lot more here as it’s one removed from the top, whereas in banking it’s more of a mid-level role and “Director” is usually above VP in the hierarchy.
At F50 and F500 companies, there are more levels than this – for example, you might see multiple “Manager” levels and titles like “Senior Manager” or “General Manager” in addition to just “Manager.”
The main difference with promotions, compared to banking, is that the timetable is more random and you’re not following as strict of an “up or out” policy.
Whereas you could become a Managing Director at a bank in 10-12 years if you start as an Analyst, you’re not going to become CEO 10-12 years after you start working in corporate development – in fact, that might not even be an option at all.
Most likely you could become Head of Corporate Development or VP of Corporate Development, but you wouldn’t go beyond that unless you could show a track record of managing large groups of people and doing more than just deal-making.
Q: Wait a minute – if that’s true, then how do you become CEO? It sounds like you can’t advance to that position organically, so do you have to start a company yourself first?
A: I wouldn’t say you “can’t” advance naturally, but it’s hard to reach a C-level executive position from corporate development specifically.
Our CEO was one of the first investors in the company and was on our Board as an investor long before he took over the CEO role. Before that he had also been the CEO of another company, similar to Tony Hsieh at Zappos.
In the tech industry, your best option for becoming CEO is to start the company yourself, do well, exit, and then use your status to leverage your way into other CEO positions.
That may not be as applicable in industries like manufacturing where you don’t see conventional “startups” – at a company like GE you could advance from within the rank-and-file, but it might take decades to reach the CEO level (see: Jack Welch).
Q: So it sounds like corporate development, or joining a normal company in general, is not the best path to riches.
What about the hours? Do you have to pull all-nighters and work weekends like in banking?
A: Overall it’s a 9-6 job, but occasionally I get rough weeks depending on whether or not there are live deals. So I’d say the average is about 40-50 hours per week, which may climb to 60-70 with deals in progress.
I’ve stayed past midnight before when we’ve been working on live M&A deals and have been under pressure to get them announced and closed quickly, but I haven’t yet pulled a true all-nighter.
If we’re not busy they would probably even let me work from home occasionally – as I mentioned before, it’s a very small team so it’s not as if I’d miss dozens of meetings during the day.
So far, no weekend work except for when we come up on a tight deadline with a live deal.
Q: So you actually get to have a life outside work, how about that – are you sure you work in finance?
The hours sound much better, but doesn’t that mean the pay is also much worse? If you’re not working that much, you can’t possibly earn that much, right?
A: The base salary range for corporate development here is $90-$110K USD. We also get a bonus, but it’s much smaller than in banking – if you’re at a bigger company, you might be looking at $150K all-in compensation as a first-year associate in the corporate development team.
That’s still a great number, but it is less than what you’d earn as an associate in banking, PE, or at a hedge fund.
It’s tough to say how the pay changes as you move up the ladder, because it depends on your industry, the size of the company, and how the group works.
In general, you should expect more modest pay increases compared to banking – a 2nd year associate might earn $120K in base salary and a slightly higher bonus.
People above my level might make around $200-$300K all-in, and by the time you get to VP and C-level positions you get into the $500K-$1MM range, with some C-level executives earning in the low millions all-in.
You will see lower figures at earlier stage companies, with a greater percentage coming in the form of stock grants, options, and Restricted Stock Units (RSUs).
Q: I’m glad you brought that up, because I was just about to ask you about that one – can you tell us about stock-based compensation?
In banking this is something you never have to think about at the junior levels because your pay is limited to base salary + cash bonus, but at normal companies you may get paid with stock options as well.
How much are they worth, and what are the nuances you need to be aware of?
A: I’ve earned around $30-40K worth of stock options over my first 2 years here – that figure is based on my company’s valuation in its most recent round of funding.
That sounds like a nice bonus in theory, but at most pre-IPO startups these options are worthless until you can actually exercise them.
That is starting to change with people like Yuri Milner at Digital Sky Technologies, who invest huge amounts in late-stage companies and give founders and employees liquidity prior to the IPO, but if you’re at a lesser-known company (not Facebook/Zynga/Twitter/Groupon) don’t count on that.
Secondary markets have been growing lately as well, but again, unless you’re at a hyped company there may not be much of a market for stock or options that you hold.
Besides the points above, you also need to be aware of the type of compensation you’re getting, the company’s valuation, and the vesting period for any options you get.
Q: Right, and that information might be very difficult to find depending on the company. I know you could probably write a book on those topics, but can you tell us the key points?
A: Sure. First, there are a couple different types of stock-based compensation:
- Stock Grants: You receive x number of shares in the company, which vest over y years.
- Stock Options: You receive the right to purchase x number of shares in the company for y price, and those rights vest over z years.
- Stock Awards: You receive x dollar amount of compensation, and the company then uses that dollar figure to purchase y number of shares on a certain date, and those shares then vest over z years.
- Restricted Stock Units (RSUs): These are similar to normal stock grants, but there are restrictions on when you can transfer or sell the stock and the tax consequences may be different.
Lately, RSUs have been getting more popular in the US because the SEC requires private companies with over 500 shareholders to disclose their financial information – but if you have RSUs, you don’t count as a normal shareholder.
So that loophole has allowed companies like Facebook to remain private and not disclose financial information for long time periods.
In terms of options, the key point to be aware of is that there are ISOs and NSOs – Incentive Stock Options and Nonqualified Stock Options – with different tax consequences, namely that ISOs are much better for you since they’re taxed upon stock sale and may receive long-term capital gains tax treatment.
The biggest issue here is getting information from your company in the first place – they’re not going to share the cap table with you, so at best you might be able to get the most recent valuation from them or the total # of options outstanding and the average exercise price.
M&I Note: The “cap table” or “capitalization table” is a detailed breakout of shares, options, and RSUs owned by each employee and investor in the company and the accompanying grant date, vesting period, and exercise price information.
If you had the cap table, you could calculate how much everyone would earn when the company is sold for a certain price.
As you can imagine, this is highly sensitive and usually only the CFO and CEO have access to it.
Q: OK, enough about stock options – I’m sure we’ve confused everyone enough by now.
What about the culture at your company? Are people laid-back or is it more intense like in banking?
A: It’s very laid-back, and no one is screaming at you 24/7, punching through car door windows, or interrupting your Saturday night plans to call you back to the office.
There’s still pressure to perform and you can’t just slack off and expect to get ahead – but since you’re not at the mercy of psychotic clients all the time, you don’t have as much stress.
You still need solid attention detail, but the numbers matter more than the formatting and it’s not the end of the world if you forgot to change the font size on page 51 of your presentation.
Most people here are older than me, so that creates some differences compared to what you see in banking. And since my department is small, I’ve mostly hung out with others sitting around me but who don’t work directly in my group (we have bullpen seating).
Overall you don’t get to know your co-workers as well as you do in banking, but you do get more social interaction than if you were at a small PE firm where it’s just you and the Partners.
China, Job Satisfaction, and Exit Opps
Q: You mentioned before how you had the chance to travel to China and meet with companies there – how did that come up? Did you jump, or were you pushed?
A: I never asked about it – they brought it to me after I joined. The CEO was very interested in emerging markets and wanted us to look into expanding there.
I had no expertise in China and didn’t have the language skills to conduct business there – but at most companies, someone knew English or we had a translator.
It was pretty much just the VP of Corporate Development and I finding interesting companies in the region, emailing them to set up meetings, and then traveling there to meet them.
We didn’t come in with a particular purpose or say we were looking to acquire or partner with them – it was more exploratory and we spent most of our time trading information, building the relationship, and seeing if we could help each other out in any way.
Q: I see. I guess you didn’t make the mistake of asking about cross-border China deals on your first day of work!
What’s the best part of your job? How do you like it compared to banking?
A: Overall I like it, and I’ve enjoyed the day-to-day stuff more than what I did in IB. If you want to move into an operational role after doing banking, corporate development is the way to go since you work with senior management across different departments.
It’s a much broader role than being an analyst or associate in IB/PE/HF – and at a startup you really have to be a jack-of-all-trades rather than just an Excel jockey.
The 2 best parts of this job:
- You get to work on something over the long-term and you have a singular focus – building your company. In IB/PE you’re always looking at different deals and you’re not really “building” the business over time in the same way you do at a product-based company.
- You get a lot of exposure to executives. Until you advance pretty far up the ladder in banking, you’re never going to interact with Group Heads or the CEO – but I’ve done plenty of that in my role here.
Q: So what’s next for you? Are you going to stick around there or move elsewhere?
A: I mentioned this in part 1, but I’m planning to apply to top business schools in the future.
I’ve always been interested in investing, so I see myself going to a mutual fund or hedge fund in the future if I can get into a top school and gain access like that.
Q: Right, but wouldn’t that be like going back to banking in that you’re just looking at one-off deals rather than building “long-term value”?
A: Yes it would – but there’s also a disadvantage to working at a normal company, which is that the deals you can do are more limited and they must be related to the company’s core business.
Overall I definitely enjoyed this experience and if I had to go back, I wouldn’t do anything differently (i.e. go into PE/HF instead) – but in the long-term I do see myself as more of an investor than an operator.
Q: You mentioned applying to top business schools – what are the key challenges you’re facing vs. the typical banker/PE guy?
A: Someone who went to an Ivy League school, then worked at a bulge bracket bank, and then a mega-fund has top names on their resume, so it’s tough to compete there – although my current company is well-known, my undergraduate university and bank don’t have the same brand-name recognition.
So rather than competing with the banker crowd directly, I get around that by positioning myself differently.
There aren’t as many people in my position, and my industry is unique – so that lets me tell a story they haven’t heard a million times before and give different long-term goals compared to what everyone else is saying.
Q: Awesome – good luck with that, and thanks again for your time.
A: Sure, no problem – enjoyed the chat!
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