What’s in a Growth Equity Case Study?

growth-equity-thumbnailThe exit.

Greener pastures.

The pot of gold at the end of the rainbow.

Why else would you suffer through investment banking?

This ancient post from Leveraged Sellout sums up how most bankers used to think about exit opportunities:

“Before I became so fervent about Private Equity, I thoroughly considered all my other career options: hedge funds and VC.”

But that’s not quite true anymore: corporate exits are looking better and better… tech startups are hot… and even putting aside those recent trends, the author forgot about growth equity.

Which is a shame – because if you can’t decide between traditional private equity and venture capital / tech startups, it might be right up your alley.

In this article, you’ll learn what growth equity funds do, what to expect in case studies, and you’ll get a full growth equity case study with a video tutorial, 18-page solution, and Excel file.

You just have to keep reading:

What is Growth Equity, and What Do Growth Equity Funds Do?

“Growth Equity” funds invest in companies that are somewhere between “brand new startup” and “established, boring company” on the maturity scale.

Pure-play growth equity firms will generally:

You can see the implications of these differences:

  • There is less emphasis on modeling / pure technical skills because the deals you work on will generally not involve debt.
  • Since the companies are more mature and since no debt is involved, there’s generally less risk of a complete disaster on any investment. So the question is “Can we achieve the IRR or multiple that we’re targeting?” rather than “Could we lose our shirts on this deal?”
  • You need to know a lot more about the market – how else could you decide if there’s enough growth to justify the returns your firm is targeting?

The recruiting process for growth equity firms could be a multi-part series, so we’re going to focus on one smaller part of that process here: the case study.

Yes, you’ll almost certainly get case studies in growth equity interviews, just like you’ll get them in any other type of buy-side interview.

Growth Equity Case Studies: What to Expect

As promised in the beginning, here it is: a complete 6-page case study on Atlassian, a software company based in Australia.

As always, I strongly recommend clicking through and/or viewing this in 720p and full screen mode to properly see everything.

This is one of the many case studies in the new Financial Modeling Fundamentals course set for release on December 19th, 2014.

You can read about the other case studies, deals, and companies covered right here.

And yes, I am giving away this case study, the Excel file, and the 18-page written solution for free (minus the video tutorials and transcripts).

Before you read the rest of this article, I strongly suggest reading the first few pages of the case study document above.

What is This Deal / Investment Case Study All About?

In mid-2010, Accel invested $60 million USD into Atlassian at a valuation of $400 million.

Then in April 2014, T. Rowe Price announced a $150 million USD investment in Atlassian, at a… slightly higher valuation of $3.3 billion.

Your job is to decide whether or not you would invest the same amount at the same valuation that T. Rowe Price did, assuming your fund is targeting a 20% IRR on its investment.

You can read all about the company itself on its website, but here’s the short version:

  • Product: It sells software products to other software developers: tools for project management (JIRA), collaboration (Confluence), source code control, peer code review, and release management. In short, it makes programmers more efficient.
  • Financials: It recorded ~$200 million AUD in revenue in FY 2014 (ending June 30th), with a revenue CAGR of 25% over the past 3 years. Its EBITDA margin was ~16%, with heavy spending on R&D (40% of revenue) but very light spending on sales & marketing (20% of revenue).
  • Why It Was “Hot”: High growth, profitable and cash flow-positive, relatively little capital raised for a business of this size, and a red-hot tech market.

If you look at press releases and commentary on this company, most reporters were ogling over the low sales & marketing spending due to the lack of commissioned sales reps.

As usual, though, most of the mainstream commentary missed what’s really important when evaluating this company from the perspective of an investor:

  • Business Model Shift – Atlassian is shifting from one-time purchase (“Download”) to a subscription-based model (“OnDemand”), similar to Salesforce.com. But the average product price is lower when purchased as a subscription, so the financial impact might be negative at first.
  • Sales & Marketing – Most enterprise software companies – the likes of Oracle – spend ~40% of their revenue on sales & marketing, mostly due to their commissioned sales reps. Atlassian only spends ~20% on sales & marketing, but at some point, that spending will have to increase and it will have to use sales reps to win bigger accounts.
  • Valuation – T. Rowe Price invested $150 million at a valuation of $3.3 billion USD, which equates to a 110x EBITDA multiple. No, that’s not a typo. So can they actually invest at that sky-high valuation and still earn the returns they’re targeting?

Step 1: Gathering Data

You’ve probably noticed by now that Atlassian is a private company, so how do you get all the required data?

I pieced together the numbers here from interviews, press releases, PrivCo.com, and other sources:

  • Annual Revenue: This was easy to find via in press releases (see the files above).
  • OnDemand vs. Download Revenue Split: I found customer count estimates via PrivCo.com and news stories; the revenue split is guesswork, but OnDemand revenue was minimal until the 2 most recent years, so my numbers aren’t that much of a stretch.
  • Annual Expenses: Similarly, a few press releases give estimates for the % of revenue that the company spends on different categories, so I combined that with guesstimates on the others.
  • Other Items: For the Balance Sheet and Cash Flow Statement items, I looked at other Australian software companies and applied similar percentages to Atlassian (e.g., median Accounts Receivable as a % of Revenue * Atlassian’s Revenue = Atlassian’s Accounts Receivable each year).

The Punchline: After spending hours backing into these numbers, an Australian reader wrote to inform me that you can actually get the company’s financial statements on this site:


I might eventually go back and revise this case study using the real numbers.

(Interestingly, my own guesstimates were not that far off – I mainly got the Deferred Revenue balance wrong since it was much higher in real life.)

In a real case study, they will almost always give you the financial statements and other relevant information, so “data gathering” is less of a concern.

Step 2: Building the 3-Statement Model

The case study document provides very detailed guidance on certain points, but almost no guidance on other points.

Here’s what we came up with:


Historically, the # of Download customers has grown at between 17% and 28% per year; going forward, we make a conservative estimate of 20% growth next year, falling to 8% by the final year.

OnDemand is growing more quickly (147% decreasing to 44%), but even there, we assume 35% growth declining to 10% by the end.

Average customer value is tricky because it’s different from average product prices.

Yes, the company dropped its prices across the board in 2011, but that only caused a temporary drop in the average customer value figures in FY 2012.

If lower prices result in more users at each company, the average customer value might actually increase.

In the absence of solid guidance, and in light of the historical growth rates of 3% to 10%, we use 3% for the average customer value growth rate going forward:


[Click the image above to view a larger version.]

Expenses and Cash Flow / Balance Sheet Line Items

The case study instructions spell out most of what we need in this section. The main points:

The Gross Margin improves over time, partially because of more OnDemand customers and partially because of economies of scale; the company already has a ~90% Gross Margin, though, so this doesn’t make a huge difference.

We don’t think it’s reasonable to assume that R&D as a % of revenue declines just because Atlassian “can” afford to spend less on it.

That high R&D spending is baked into the culture of the company: you can’t just say, “Sorry, we’re going to fire a bunch of people because we don’t need that many engineers anymore.”

We also strongly believe that sales & marketing spending will increase over time, up from 20% of revenue to 25% of revenue by FY 2019.

The press glossed over this point, but there is a distinction between sales & marketing spending and spending on commissioned sales reps.

Even if a company doesn’t employ sales reps, it still spends something to market and sell its products.

Atlassian operates in a competitive market with a huge range of free and paid solutions, and at this stage the company has already grabbed most of the “low-hanging fruit” (e.g., word-of-mouth sales to fellow developers).

So it seems likely that its sales & marketing spending on both new and existing customers will increase over time:


[Click the image above to view a larger version.]

The rest of these items are straightforward: CapEx and D&A are not that important for most high-growth software companies, and the other BS/CFS items mostly use historical averages as percentages of the relevant Income Statement line items.

We are assuming that Receivables as a % of revenue and Deferred Revenue as a % of revenue both increase over time, primarily to reflect the historical trends and the shift to subscription-based software.

Step 3: Calculating the Returns

At the end, we calculate the IRR and MoM multiples:


[Click the image above to view a larger version.]

The conclusion is that this is a great investment for Accel, which got in much earlier at a much lower valuation, but a not-so-great deal for T. Rowe Price, which falls far short of the targeted 20% IRR.

Yes, we’re ignoring Equity Value vs. Enterprise Value in the exit calculation because this case study comes before those lessons in the new course.

But that doesn’t make a huge difference anyway: even if you factored in the cash build-up, it would be tough for T. Rowe Price to achieve its targeted returns.

Step 4: Answering the Case Study Questions

So what does all this analysis tell you about the case study questions posed in the beginning?

You should look at the case study document to see the answers firsthand, but in short:

We would NOT do the deal if we were T. Rowe Price because there’s a very low chance of achieving a 20% IRR over 5 years.

If they’re aiming for a 10-15% IRR instead, then the deal may be reasonable.

But to achieve a 20% IRR, the exit multiple would have to increase to 140-150x EBITDA if they wait until year 4 or 5 to sell.

How likely is it for a $459 million company growing sales at 12% to be valued more highly than a $200 million company growing at 34%?

Even if you vary other assumptions, such as the total customer count, sales & marketing spending, or the exit multiple, a 20% IRR is unlikely.

To achieve a 20% IRR:

  • The company’s customer base has to triple over 5 years.
  • Its average sales & marketing expense per new customer also has to increase by 50% less than expected; and
  • The exit multiple has to remain the same as the purchase multiple – even though Atlassian’s growth rate and margins are both lower by Year 5.

In terms of qualitative factors, some points are positive and some are negative:

  • Growth / Market Size: Other companies such as Box, Dropbox, and Square were growing at faster rates and serving much broader markets. There are ~11 million professional software developers worldwide, but that’s still a much lower number than the total potential customers for those other services.
  • Competition: All these markets are highly competitive, but one advantage Atlassian has is that fewer huge tech companies pay attention to its market because it’s relatively niche.
  • Substitute Products/Services: Very few of these companies have much of a “moat,” but as a direct comparison Github is better-positioned than Atlassian because of the social aspect: it’s arguably more like a social network for developers than a true enterprise software company.
  • Pricing Pressure: While Atlassian’s market isn’t as competitive as cloud file storage, there is still downward pricing pressure due to the sheer number of very similar tools; the company already dropped its prices once, and it may do so again.

Overall, the market / qualitative factors aren’t positive enough to outweigh the negative financial analysis, so they further support our “No” recommendation.

Whither Growth Equity?

So that’s the point of a growth equity case study: you’re typically looking at “solid” companies, but are they solid enough?

It’s not so much about “Does this deal work? Or will we lose all our money?” as it is about “Could we achieve our targeted IRR or MoM multiple under reasonable assumptions?”

Here, Atlassian is clearly a great company that has done extremely well without raising much outside capital.

But there is a difference between being a great company and being a great investment.

This one falls just short of being a “great investment” – assuming that T. Rowe Price really is aiming for a 2.5x multiple and a 20% IRR over 5 years.

For Further Reading

Make sure you check out all our previous coverage of case studies and interviews in private equity, hedge funds, and other industries to compare and contrast:

Private Equity, Growth Equity, and Venture Capital:

Hedge Funds and Asset Management:

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Oil & Gas Project Finance in Singapore: All the Upside of Asia, with None of the Risk?

Oil Gas Project Finance SingaporeA power plant.

A toll road.

A new oil field that may or may not survive a military coup or a government collapse…

…and a bank contemplating which one it should lend to.

That’s a good way to describe Project Finance in Asia: lots of opportunity, if you don’t mind the occasional hiccup along the way.

We’ve covered Project Finance before, but it’s very different depending on the region you’re in, and our reader today has had unique experience in Oil & Gas and Project Finance in Singapore and mainland China.

He also broke into the finance industry coming from a consulting background – proving that even if you start out your career mining for gold in Saskatchewan, you can still end up in a much warmer place.

Here’s his story, and your crash course on Project Finance in Asia:


Q: Can you summarize your background and how you got into Project Finance?

A: Sure. I had always been interested in oil & gas because my uncle used to work for one of the biggest oil companies in China (think: CNPC, Sinopec, etc.).

So after I graduated from university (one of the top schools in China, followed by a Master’s program in the US), I joined a consulting firm and advised energy companies on compliance and regulations.

Then I did an MBA degree at a Top 20 school in the US and completed an internship at another oil & gas consulting firm, where I first got exposed to capital raising, cash flow projections, P&L forecasts for oil companies, and so on.

That type of work made me a lot more interested in investment banking. Afterward, I moved to Singapore because I thought Asia would be one of the highest-growth regions for oil & gas.

I took your online courses to learn more about valuation and modeling, then did a ton of networking and joined an oil & gas company in a business development role; eventually, I transitioned into Oil & Gas Project Finance at a large bank here.

Q: Previous interviewees and commenters have said that “networking doesn’t work” in Singapore – what was your secret?

A: With the recruiting process, you have to look at two things:

  1. The effort you’re putting in, i.e. how many professionals you’re contacting and staying in touch with; and
  2. Your unique background and how you can add more value than other people.

I followed the strategies here for informational interviews and reached out to people via LinkedIn, my alumni networks, and so on – but I was way more persistent than other people.

To give you numbers, I got to know over 60% of all oil & gas project finance bankers in Singapore – if you’ve spoken with that many people in one region, you’re bound to start getting interviews.

Then, I leveraged my background to stack the odds in my favor:

  1. Language – Most of the clients I deal with are Chinese and speak Mandarin. I knew that my Chinese background and language skills would be very useful in Singapore, whereas they wouldn’t help as much in the US or Europe. You really need to listen, speak, and write like a native mainland Chinese person to develop relationships with these clients, particularly the state-owned enterprises.
  1. Oil & Gas Knowledge – Since energy is so specialized, you really need to know the industry in and out and understand the key drivers, risks, and challenges. I learned some of this in consulting, and then I learned more on my own by reading industry publications and by networking with professionals.
  1. Modeling Knowledge – All employers, no matter how big or small, want someone who can hit the ground running; they don’t have the time or money to train you. So if you don’t already have these skills, get them!
  1. Exposure to Both Renewable and Conventional Energy – I’ve had a lot of O&G-related work experience, but my undergraduate degree was in environmental science, and some of my consulting projects were renewable energy-related. This unique combination of “tree hugger” and “oil man” also made me stand out against candidates that had a narrower sector focus.

Q: Logistically, how did you get the interviews that led to this role?

Did you ask about working there, or did they come to you?

A: I had met with bankers at my current firm before and expressed interest in roles here, but nothing came of those initial conversations.

But then late last year, someone on their team left and they needed a replacement ASAP.

I was referred to the Group Head of China at this firm, and I went through a few interviews there with people at all levels. During the interview with the Group Head, they also gave me an oral and written language test to see if I really understood how to communicate with Chinese clients.

I didn’t hear anything for a while, but then suddenly they emailed me on Friday night, sent me a case study, and asked me to submit my response within 10 hours (i.e. by early Saturday morning).

It wasn’t that complicated – an analysis of a company’s cash flows, a build-up of the three financial statements, and a recommendation of the amount of debt to raise – but if I hadn’t completed your online courses or networked with professionals in the industry, I couldn’t have finished it in less than a day.

Q: Yet another reason why you should be careful with the bottles when you’re in the midst of recruiting…

A: I actually had to cancel a session of bottles that night and switch to “Red Bull mode.”

The Asian Landscape

Q: Tragic.

So what does Project Finance in Asia (ex-Japan) look like, and how is it different from other regions?

A: There are 2 hubs here: Singapore and Hong Kong.

Most Project Finance teams in Asia are actually headquartered in Singapore, with team sizes ranging from single digits to dozens (our team is one of the largest).

If you look at the league tables in Asia Pacific, the top 10 Project Finance banks tend to be Japanese, Australian, or European names. You won’t see the usual bulge bracket banks as much.

Among European banks, you’ll see BNP Paribas, Crédit Agricole, ING, HSBC, Standard Chartered, SocGen, and Natixis quite a bit.

Regional banks are also expanding their presence in Project Finance, especially firms like DBS and OCBC, along with UOB.

Q: And is everyone from Asia?

Or do you see people from Europe / the US / other parts of the world?

A: It depends on the bank and the size of the team – we have bankers from more than 6 countries, but other teams might only have professionals from one or two countries such as Japan or Singapore.

You’ll tend to see more Europeans and non-Asians at banks such as HSBC, Standard Chartered, and the French firms.

I don’t know why the French are so active in Project Finance, but you run into them everywhere.

Q: Great. And how is the overall deal market different?

A: The main differences:

  1. Deal Size – The average upstream oil & gas deal in Asia is much smaller than the average deal in the US. The total value might be approximately $200 – $300 million USD, and $1 billion+ deals are rare.
  1. Liquidity and Pricing – The US market is dominated by a handful of US and European banks, and possibly a few Japanese banks. But there are fewer prominent clients in Asia, so you’ll see everyone imaginable “chasing after” the top names such as Petronas and Sinopec. As a result, those few companies often get better terms and cheaper financing.

This also explains why firms with large Balance Sheets, such as the Japanese banks, dominate Project Finance in Asia: deal volume has to compensate for lower fees.

  1. Competitors – You won’t see many foreign banks doing Project Finance deals in the US, partially because it is a developed market – but in Asia there’s a much more diverse group of banks competing for deals.

The bond market here is also less developed, and the country-specific risk in Asia-Pac tends to be a lot higher (except for places like Australia and Singapore).

Deals can get scrapped or infinitely delayed because of legal or political issues in these countries.

Q: So within oil & gas, do you see more asset-level deals (Project Finance), or corporate-level deals (normal loans and bonds)?

A: They’re not mutually exclusive, so it really depends on the client’s financial strength.

If the client is very strong (think: Petronas or Sinopec), then it can raise significant capital via corporate loans or bonds at a lower cost than with Project Finance loans.

It’s also faster to close those types of deals (1-7 months from start to end).

But if the client’s track record and credit rating history aren’t quite as strong, or if the company and/or its project partners don’t have as much liquidity, Project Finance is often the better route.

For instance, if a company does not have much cash and it needs to build a CapEx-intensive project, PF provides a good structure because deals often use 60% to 80% debt, which is more like a Leveraged Finance deal.

The downside is that it takes much longer to conduct due diligence and close Project Finance deals (~18 months on average). If you get hit with land acquisition “hiccups,” deals can even drag on for 5 or more years.

A lot of emerging markets are ramping up their infrastructure spending on assets like power plants and toll roads, so you’ll see more Project Finance activities there as well.

On the Job as a Senior Associate

Q: So let’s move from the industry landscape to the job itself.

What’s an average day in your life as a Senior Associate like?

A: There is no “typical day” in Project Finance, as our work is driven by client needs and the corresponding compliance requirements.

But here’s an example of how we are paid to be “abused” by clients in a single day:

I get in at around 9:00 – 9:30 AM, and I usually check emails and news in the first hour.

Between 9:30 AM and mid-day, I respond to clients’ requests and work on deal-related or compliance-related tasks such as “getting to know our customers” (not the most exciting part of the job, but you do get to know the residential address of your clients’ senior directors).

Each bank has internal compliance policies and protocols you have to follow; no one wants to lend to a client with a track record of sanctions, scandals, or broken covenants. This takes up around 20% of my time.

In the afternoon, I spend my time on conference calls with clients and other lenders, and also work on models and written deal documents. This takes around 30% of my time.

Then at night, I spend my time working on presentations and pitch books for clients in order to present our financing recommendations to them. This takes up around 20-30% of my time.

Then there are internal credit applications we have to complete in order to win firm-wide approval to lend money – this involves filling out the application, communicating with internal and external parties, and answering follow-up questions. It takes up around 20-30% of my time.

Most people here leave around 7 – 8 PM (maybe a 55-hour workweek on average), but I’ve been leaving more like 10 PM to midnight because I joined the bank more recently and want to take the time to learn everything in-depth.

Q: Great – and what about the technical work itself?

How is it different from what you do in other groups?

A: It’s similar to what your previous Project Finance interviewee described: everything is cash flow-based, and the models are much more detailed and granular.

Keep in mind that valuation multiples are not really “valuation” – they’re shorthand for valuation.

If you know the discount rate, a multiple always implies a specific long-term free cash flow growth rate.

So we avoid multiples-based valuation altogether and focus strictly on cash flows.

The concept of “Terminal Value” doesn’t exist because we project cash flows for decades into the future – until the resource itself runs out or the asset stops operating.

You’ll see spreadsheets here with 2,000+ rows, and you might go as granular as modeling the revenue and cash flows from thousands of separate customer contracts or oil wells. And then you need to call in consultants to verify each line once you have the initial numbers.

That level of detail is rare in M&A models because you don’t have the time or the motivation: a lot of analysis is done at the last-minute and the bank is not risking its own capital, so bankers don’t care as much about footing all the numbers.

In Project Finance, there’s also a lot more focus on downside scenarios: even if the asset collapses or has to be shut down, can we still get our money back?

If not, how can we mitigate risk and make the deal more appealing? You need to explain these mitigants clearly in your credit application, or you’ll be grilled by the credit team.

So you’ll see models with 10-15 different scenarios that take into account factors like cost inflation, project delay, volume and pricing changes, and so on.

It’s rare to show that many different scenarios in IB models and presentations, partially for time/motivation reasons, and also because it doesn’t exactly look good to march in and show a client all your “Downside” cases.

Q: Yup, very true. Any other differences to note?

A: There’s also a difference between being the Financial Advisor (FA) and Mandated Lead Arranger (MLA).

FAs act on behalf of the sponsors / borrowers to structure financing schemes, and they help raise capital from different sources at the optimal terms.

MLAs act as lenders to review project structures, obtain internal credit approvals, and enter into loan documentation to finance the project with loans.

Typically, the bank acting as FA will also participate as the leading MLA.

The client mostly cares about how much capital you can commit to the project, and at what cost.

Q: Great, thanks for sharing all that. What about advancing on the job?

Is it any different if you’re working at a Japanese bank in Singapore?

A: At the junior level (below VP), financial modeling and documentation skills are critical for your professional growth.

At the VP-level and above, skills such as deal origination and client relationship cultivation become more important.

And just like in other finance roles, you also tend to get promoted every 2-3 years here.

One difference is that there’s more hierarchy at Japanese banks. If you know anything about their culture, this shouldn’t surprise you.

Levels include:

  • Associate
  • Senior Associate
  • AVP (Assistant Vice President)
  • VP (Vice President)
  • FVP (First Vice President)
  • SVP (Senior Vice President)
  • Deputy Manager
  • General Manager

So you may get promoted more slowly due to the additional levels.

On the other hand, there’s also more job stability in Project Finance and at Japanese banks in general.

Your chances of suddenly being fired, downsized, or “restructured” are lower than in traditional IB roles – certain Japanese banks didn’t even cut their Project Finance teams during the last financial crisis.

Q: Interesting points there.

Do you have a sense for how the European banks differ?

A: I can’t speak to the cultural / work hierarchy differences, but here are a few observations on typical clients and regional / industry strengths:

  • Japanese Banks: They are most comfortable with big-name clients, and tend to offer debt with lower pricing and longer tenor.
  • HSBC and Standard Chartered: They target clients with weaker financial profiles, and charge higher fees for the greater risk they take on.
  • French Banks: BNP Paribas and Crédit Agricole are very strong in upstream oil & gas financing; BNP even has a dedicated Reserve-Based Lending (RBL) team to cover that segment. Crédit Agricole is more active in the EMEA region. SocGen has a solid track record on financial advisory to liquefied natural gas (LNG) projects.

Moving Up, Moving Out, and Moving On

Q: Since you’ve worked in a few different oil & gas and advisory-related roles, it might be interesting to compare them.

What was it like doing business development at the oil & gas firm vs. doing Project Finance for oil & gas companies at a bank?

A: I wouldn’t say one was “better” or “worse” – it comes down to what you’re looking for:

Work-Life Balance: On the corporate side, you have a much better work-life balance. Hours are not much longer than a standard workweek, and you’ll almost never be in the office until midnight, let alone 2 AM.

Pace: At a corporate, you’ll only work on 1 or 2 deals at a time over the course of 1 or 2 years. You won’t even work on other transactions until you close the deal you’re working on.

At a bank, it’s much faster-paced and you’ll end up switching deals, dropping clients or potential financings, or suddenly having to create a pitch at the last-minute.

Personality: At a corporate, you won’t meet as many “alpha”-type people who are driven to close deals as soon as possible.

In banking, well, you know that classic M&I story about the VP who punched through his car door window, right?

Nature of the Work: The analysis tends to be simpler at a corporate because you focus on simpler metrics like the IRR or NPV of projects. If they pass your threshold, you’ll move forward.

But at a bank, you look at credit ratios like the DSCR – Debt Service Coverage Ratio (unfortunately, not the “Drink Service Coverage Ratio”) – and the LLCR (Loan Life Coverage Ratio), to make sure that projects generate enough cash flow to repay debt.

You also get exposed to a variety of deals, and you need to evaluate everything from the economics to the legal side. You also have to deal with compliance and internal procedures.

You put a lot more work into each deal since you have to figure out how it fits in with the rest of your portfolio – and you need to complete more tasks and coordinate with other parties/lenders to close the deal.

Q: Great, thanks for that comparison and for the reference to that classic story.

Any thoughts on how Project Finance compares to traditional investment banking roles?

A: In short:

  • Pay: The base salary is about 10-20% lower than IBD base salaries, and junior-level bonuses represent about 6-10 months of your salary.
  • Hours: They’re much better than in IB. Weekend work is pretty rare, and you even get to go home before you want to pass out.
  • Skill Set: PF is way more technical as you need to drill down to every last detail of models, contracts, and documents. IBD is more of a sales-driven business so sales acumen is critical for senior bankers, although financial modeling is still important for junior roles.

Q: Sounds good!

Finally, what are your exit opportunities like if you work in oil & gas project finance in Asia?

A: Most people tend to stay in oil & gas project finance; sometimes they move to Hong Kong because the taxes are also low and because there are more generalist groups there (in case they want to move to another industry).

Moving to traditional buy-side roles is difficult because there aren’t too many energy-focused buy-side funds, or even credit-focused buy-side funds, in Singapore.

Sometimes people join Leveraged Finance groups at banks or go to corporate roles, but moving into traditional IB industry groups or private equity is less common.

Q: And what are your own future plans?

A: I’m planning to stay for at least another 3 to 4 years to gain more deal exposure and experience working on bigger projects.

But eventually, I want to move into oil & gas advisory at a bank or go to the buy-side.

Q: Great, thanks for your time.

A: My pleasure.


  1. says

    A really informative article Nicole, really appreciated for the info.

    I had some queries which I was hoping you could help me solve. I currently reside in the Middle East (Dubai), been born and bought up here (not of Arab origin though) and will graduate in 2 weeks from one of the Top Scottish Universities which have their campus here. Achieved a 2:1 equivalent degree (Bachelors, Finance major) and interning currently at one of the big 4 accounting firms in the Financial Accounting Division.

    I may have a chance to move into consultancy at the same firm which is kind of a long shot, but they would like to however keep me as a full timer in the same position I’m interning in, while a US based management consultancy firm is reviewing my profile as a ‘potential’ analyst in their firm.

    If I take the current job I’m working in right now (accountant) I can probably leverage the ACA Course as part of my signing with them and get that, which would mean I would be with this firm for the next 3 years minimum.

    I have already contacted banks in the region, but received no positive replies, as they all look for associate roles, which I understand I’m not fit for yet, from this website.

    What do you propose I do considering this scenario, which is the best way to break in IB?

    • M&I - Nicole says

      I would see how it works out with the other consulting opportunity. Otherwise a target degree at a masters maybe useful

      • Chirag says

        So I suppose getting into consultancy is my best bet for now, other than the masters degree I mean. Thanks for the insight. You guys rock!

        • says

          Yes, that’s accurate. Consulting is definitely more helpful than accounting for getting into IB… assuming it’s management consulting and a relatively well-known firm. Another option, though, is to stay at the Big 4 and move to something like Transaction Advisory Services (TAS) instead and then move over from there.

  2. John says

    Hi Brian,

    I’ll be participating in a BB (MS/JP/GS)’s S&T game at my school tomorrow. I was wondering if you had any suggestions of strategies I should review/ways I can prepare myself to really stand out and make an impact in the game? This firm is one of a few that offers s&t sophomore internships, so I figure performing well in this could be a huge advantage for me.

    Thanks for the help!

    • says

      Not familiar with the specifics of that game, but there are some tips and a full guide here: http://salesandtradingcareers.com/

      From what I know, you have to track the expected value of each turn very closely and write down everything that happens (track the future price, max and min values, and for each trade, the quantity, price, net calls, and net puts). It’s mostly mental math + familiarity with options, so I don’t know if there’s a quick way to improve that skill on short notice.

  3. Jaime says

    Very interesting article!. What about internships in project finance? I am trying to break in in Hong Kong, but can’t find internship programs in this area.

    • says

      They exist, but I don’t think they’re particularly common because they usually want more experienced people. You’re probably better off doing a DCM or LevFin internship first and then using that to move to Project Finance later on.

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How to Succeed On the Job in Investment Banking: Are You a STARR or a TWAT?

Investment Banking on the Job Success“That new analyst we just hired will definitely be a STARR.”

“But that one from last year is turning out to be a TWAT so far.”

I looked at my 2 banker friends in confusion.

“Um… what are you talking about? I’m assuming those are acronyms?”

They looked at me like I was crazy.

I explained that I had already left the industry, so I was no longer up on all their jargon.

But my one friend didn’t accept that as an excuse.

He replied, “The easiest way to predict someone’s success on the job is to figure out whether he/she is a STARR or a TWAT early on.”

Hook, line, and sinker… now they had me.

“OK,” I said, “Stop building this up and just give me the full explanation.”

Say What?

They explained that a TWAT is a Technical Wizard with Antisocial Tendencies.

The TWAT species of the IB Analyst genus displays many of the following traits when found in nature:

  • Excel Wizard – He/she has been using Excel since middle school, when he/she first managed the family investment portfolio. He/she knows VBA and uses it extensively in his/her models, including multiple scenarios whenever possible.
  • Finance Guru – He/she graduated summa cum laude from a top school, and knew more than most of the instructors in summer training.
  • Relentlessly Competitive – He/she is hesitant to help out other analysts because he/she views them as competition; when he/she learns new tricks or shortcuts, he/she always keeps them a secret.
  • Anti-Social – He/she doesn’t participate in social events or go out with co-workers, doesn’t have a wide co-worker network, and often wastes senior bankers’ time with basic questions as a result.
  • Poor Communicator – He/she sounds nervous or “young” when speaking, and cannot coherently explain all the technical wizardry to senior bankers, who sit there dumbfounded as they try to recall what VLOOKUP means.
  • Overlooks Administrative and Logistical Responsibilities – For example, he/she may not print enough hard copies, may get addresses wrong, or might mix up meeting dates or times. If it’s not related to Excel, who cares, right?
  • Leaves His/Her Fate in the Hands of Staffers and Senior Bankers – He/she constantly gets staffed with the worst senior bankers, and rarely gets anyone to support him/her during bonus season.

You might look at this list and say, “OK, but who would consciously act this way? You’d have to be an idiot!”

But this behavior is often not a conscious choice: you end up acting this way as a result of specific, subtly incorrect decisions you make when you start working.

While the TWAT Analyst is recognized for his/her technical prowess, he/she is a poor team player and is disliked by associates, VPs, and senior bankers.

The STARR, which stands for Strategic Try-hard with an Awesome Reputation & Relationships, stands in stark contrast.

When encountered in nature, the STARR species displays many of the following traits:

  • Outgoing and Socially Adept – He/she will organize group dinners with analysts, gets to know every analyst in the office, and has a good network.
  • Always Positive Attitude – While any sane person would get bitter working at an investment bank, the STARR does a masterful job of concealing his/her bitterness, and expresses enthusiasm with each new assignment.
  • “Good Enough” at Excel – Before joining the firm, he/she had some exposure to Excel, but he/she doesn’t know VBA and doesn’t know every shortcut 100% perfectly. However, the STARR makes sure his models are always very well-formatted.
  • “Good Enough” with Accounting and Finance – The STARR is often a non-finance major, so most of his/her knowledge comes from self-study or classroom training. But he/she has developed a strong understanding of 80% of what is required on the job – even if he/she does not know all the advanced nuances.
  • Always Prepared – Before any meeting, the STARR is adept at checking logistical details such as dates, times, and the number of attendees, and is always ready to speak to data and models.
  • Relationship Strategist – Instead of spreading himself/herself too thin, the STARR spends most of his time working for only a few “Defenders” – senior bankers who respect and mentor juniors – as opposed to “Pillagers,” who burn down villages and take all the loot for themselves.

While the STARR is only in the middle of the pack in terms of technical prowess, he/she is excellent at submitting deliverables on-time, and at working with senior bankers who will fight for him/her during bonus season.

Why Does This Matter?

In 9 out of 10 cases, the STARR will rank higher, earn a higher bonus, and also get better exit opportunities than the TWAT.

And if you look at the senior bankers who have been promoted to positions such as Group Head, many of them have minimal technical knowledge but are excellent at relationship development and sales.

The conversation I quoted in the beginning took place a long time ago, but this concept has only become more important over time because the quality of junior bankers has declined.

Put simply, it’s easier to become a STARR, earn a higher bonus, and get better exit opportunities

if you use the right strategy from the start.

How to Become a STARR

While the lists above seem clear-cut, in practice it’s easy to make subtle mistakes that put you closer to the “TWAT” end of the spectrum.

Becoming a STARR is a broad topic, but we’ll start this series with an overview of the 5 most important points: starting off on the right foot, executing assignments, and managing your relationships with the support staff, other analysts, and senior bankers.

Starting Off on the Right Foot

The first 3-6 months on the job are critical because you never get a second chance to make a good first impression.

However, many new hires fail to understand that the time you spend on “reconnaissance” is just as important as the work you deliver.

Here’s how the 2 Analyst species approach the first few months differently:

  • STARRs: They will take the time to understand which senior bankers are good/bad to work for, and which ones bring in the most deal flow; they also will establish a reputation of being reliable and having a good attitude.
  • TWATs: They will spend this period less focused on reconnaissance and more focused on ‘proving themselves’ by volunteering for as many assignments as possible, and/or otherwise trying to show off their advanced technical skills.

It sounds nice to prove yourself as a “workhorse” by volunteering for as many projects as you can; in practice, it often backfires because you take on too much, or because you work for senior bankers who don’t care about you.

To get around this, the STARR will spend time figuring out which senior bankers are “Defenders” and which ones are “Pillagers.”

“Defenders” tend to offer responsibility, client interaction, solid reference calls, and mentoring, while not requiring face time or unnecessary fire drills.

“Pillagers,” by contrast, tend to force 35 iterations of a presentation when 5 will do, and often wait until Friday night to review drafts and offer feedback; they also force junior bankers to work for the sake of appearing busy.

New senior hires and bankers who are dry on deal flow fall into the “Pillager” category most often.

As a newbie, your job is to observe what other analysts and associates are saying about senior bankers, and then to gravitate toward Defenders as much as possible.

Executing Assignments

We’re not going to cover the actual work product in the form of Excel files or PowerPoint slides here, because you’ll learn more effectively with videos.

Outside of formatting, finishing on time, and getting the correct answers, new hires frequently overlook the chain of command when completing assignments.

In other words, they direct their questions to senior bankers when they should be asking other analysts, or they ask support staff or analysts inappropriate questions.

Example: Let’s say that you started working 3 months ago, and now you’ve been tasked with preparing an internal memo for your bank’s Leveraged Finance (LevFin) committee to help a client raise debt.

You would obviously go to a 2nd or 3rd year analyst first and ask for an example memo from them…

BUT let’s say you do that, and then you run into a problem: the memos the 2nd year analyst shared with you were all for high-growth, low-profit businesses, whereas your client has a long history of strong cash flow.

At this point, the TWAT Analyst would attempt to “figure it out” by himself, or build multiple cases into the model, or, even worse, show the VP what he/she has gathered and ask for guidance.

The STARR Analyst, by contrast, would instead reach out to another analyst in the LevFin group and ask for more relevant example memos.

The STARR does that even if he/she barely knows the other person (e.g., they just met briefly during training), or he/she has to get a referral from someone else on his team.

By the time you show this memo to your VP, he’ll be impressed and will make a mental note that you were able to figure it out by yourself – at least, if you’ve done it the STARR way.

Support Staff Relationship Management

Many new hires overlook and undervalue the support staff because they have no say in bonuses or promotions.

But this is a huge mistake because support staff will save your life in situations with urgent deadlines (e.g., if you need to make last-minute formatting changes to a client presentation).

A TWAT Analyst will view support staff as a “resource,” and will ask them for help with tasks big and small, sending over documents and presentations whenever work is required.

Technically, there’s no “rule” that says this is inappropriate behavior.

But… the support staff also speak with each other, and they have their own priority lists.

They will be FAR less likely to help you if they know you as “the guy/girl who sends poorly defined, complex tasks at the last-minute.”

The STARR Analyst, by contrast, will tend to do as much as possible before offloading work.

He/she will show the support staff more appreciation by mingling during holiday parties and company events, and by doing small things such as buying holiday gifts.

Example: Let’s say you have to create a “public information book” (PIB) to prepare a senior banker for a meeting with a potential client.

This consists of printing out pages from the company’s website, looking up funding information, Googling related companies and competitors, and assembling it all in one package… not exactly Ph.D.-level work.

A newly hired TWAT Analyst would likely offload this entire task onto the support staff, assuming they actually help with these tasks (it varies by bank).

By contrast, a newly hired STARR Analyst would finish most of it, send over a preliminary version, and ask the support staff member if he/she could review it and see if anything is missing.

Sometimes it makes sense to offload the entire task:

  • If you’ve already been there for a while and/or are a 2nd /3rd year analyst or beyond, sure, offload away.
  • Or if it’s a last-minute urgent request and you physically don’t have the time to finish it, offload it.

But if you get in the habit of sending over every possible request to the support staff, they’ll get in the habit of prioritizing your tasks at the lowest level or ignoring you altogether.

Remember: middle and back office staff members are more valuable than you are initially.

Analyst Relationship Management

To make your analyst relationship management successful, pretend it’s the exact opposite of midterm/finals preparation at a competitive school.

There, you purposely avoid helping “the competition” by sharing tips and tricks; you might ruin the curve!

But when you start working, you have to do the exact opposite and be helpful to others … because you never know when you’ll need to ask for help.

The TWAT Analyst incorrectly believes that if he/she helps anyone else, his/her end-of-year ranking will decline because other entry-level hires will have higher relative scores.

This logic is flawed because 99.9% of other peoples’ rankings has everything to do with them and nothing to do with you.

TWAT Analysts will also repeatedly ask for help from the same senior analyst(s), instead of spreading out their question-asking and expanding their network in the process.

STARR Analysts tend to do one or more of the following:

  • Share the Pain – If they see a co-worker getting killed and have some downtime to spare, they’ll offer to help. Don’t do this all the time or it will lead to burnout, but it’s worth checking 1-2x per week if someone else might need help.
  • Share the Wealth – If they discover a useful macro, a comprehensive guide, or industry research that’s relevant to someone else’s deal, they’ll send it over.
  • Stick Together – If a co-worker’s VP or MD comes looking for him and he/she is not there, they’ll cover for the person and text him/her; if they hear senior bankers criticizing the analyst’s work, they’ll let him/her know about it.
  • Make Life a Bit More Pleasant – If they have a free afternoon on the weekend, they will organize a fantasy sports team, a game of basketball, or some other low-time commitment social activity and invite everyone to participate.

Senior Banker Relationship Management

Understanding that senior bankers often hold the keys to exit opportunities, business school, and more, STARR Analysts will proactively demonstrate a positive attitude:

  • They’ll say, “Sounds good, will do!” instead of just “OK” when accepting instructions. This sounds small, but bankers will judge you based on attitude until they see your deliverables.
  • If they see the senior banker in the hall, they’ll ask how a recent meeting for a project you worked on together went, and if they can help with any follow-up (assuming the banker is a Defender).

The STARR Analyst will also think carefully and act deliberately before contacting any senior banker:

  • Questions: The STARR will only ask the senior banker if he/she is the only person at the bank who can answer the questions, and if there are dire consequences for being incorrect; also, the STARR will include all his questions in a single email or a single office visit rather than wasting time by asking them separately.
  • Presentations of Deliverables: STARRs will come with a long version and a short version prepared, and will anticipate likely questions and points of contention before stepping into the room – see our article on effective communication.

To test yourself, walk through the presentation and see if you can answer questions such as:

  • What’s the purpose of this analysis?
  • What is the conclusion? How does the conclusion change if the drivers or assumptions are adjusted?
  • What’s the biggest weakness in your analysis?
  • What areas do you need more data on?

And whenever an email with an attached deliverable is required, the STARR will always summarize the points above in a few sentences and then offer to discuss it live if necessary.

Are You a STARR?

Maybe not yet, but you can start moving in that direction now – as long as you remember the full list of differences between both species of Analysts.

This just scratches the surface of on-the-job success, so up next will be:

  • Different types of senior bankers (Pillagers vs. Defenders), and how to avoid getting “pillaged.”
  • Staffing strategies to work with the best team and get the best referrals.
  • Tips and tricks for Associates and for non-IB roles.

For Further Reading


  1. Jia says

    Brian, this is definitely one of the most useful article you wrote. Most people just don’t get this. Will you write a similar one for buy side?

  2. AdamG says

    Scary how accurate this is. I fell into the trap of being a TWATT during my first year – is there any way to recover as a second year once the reputational damage is done?

    • says

      Yeah it’s tough if you already have that reputation, but one trick is to work with newer hires and/or people you haven’t had much experience with so it’s more of a blank slate. Or, you could just approach people you have worked with before, tell them you made mistakes in your first year, but you’ve realized the error of your ways and are prepared to be a more effective team member on future assignments now.

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