by Brian DeChesare Comments (116)

Private Equity vs. Venture Capital

Symbol of scales is made of stones on the boulder
This question came up in the recent series on venture capital: just how are PE and VC different?

Technically, venture capital is just a subset of private equity.

They both invest in companies, they both recruit former bankers, and they both make money from investments rather than advisory fees.

But if you take a look beneath the surface, you’ll see that they’re significantly different.

Definitions

Technically, the term “private equity” refers to money invested in private companies, or companies that become private through the investment.

Most people in finance, though, use “private equity” to mean firms that buy companies through leveraged buyouts (LBOs) – so that’s how we’ll use it here.

There are a couple other categories of PE, so we’ll look at those at the end of this article.

What They Do

While both PE firms and VCs invest in companies and make money by exiting – selling their investments – they do it in different ways:

  • Company Types: PE firms buy companies across all industries, whereas VCs are focused on technology, bio-tech, and clean-tech.
  • % Acquired: PE firms almost always buy 100% of a company in an LBO, whereas VCs only acquire a minority stake – less than 50%.
  • Size: PE firms make large investments – at least $100 million up into the tens of billions for large companies. VC investments are much smaller – often below $10 million for early-stage companies.
  • Structure: VC firms use only equity whereas PE firms use a combination of equity and debt.
  • Stage: PE firms buy mature, public companies whereas VCs invest mostly in early-stage – sometimes pre-revenue – companies.

Side note: “Equity” above refers to using cash rather than debt, not to shareholders’ equity, equity value, or anything else (the terminology can get confusing).

Risk & Return

VCs expect that many of the companies they invest in will fail, but that at least 1 investment will generate huge returns and make the entire fund profitable.

Fred Wilson expects that out of 20-25 investments in his fund, 5-10 will fail, 1 will be a home run, 4-5 will produce solid returns, and the rest will be a wash.

Venture capitalists invest small amounts of money in dozens of companies, so this model works for them.

But it would never work in PE, where the number of investments is smaller and the investment size is much larger – if even 1 company “failed,” the fund would fail.

So that’s why they invest in mature companies where the chance of failing in 3-5 years is close to 0%.

Return?

You might now be wondering, “So which model actually produces higher returns?”

There is a lot of controversy over this one, but returns in both industries are much lower than what investors claim to achieve.

Most VCs and PE firms target 20% returns, but VCs have earned less than 10% returns over a 5-year period and many pension funds that invested in PE firms have also seen sub-10% returns.

One difference is that in venture capital, returns are heavily skewed to the top firms: if you think about their business model, that makes a lot of sense – invest in the 1 big winner and you’re set.

Plus, the best deals in VC almost always go to the top firms because the best deals have always gone to the top firms.

That happens in PE as well, but you can earn great returns without investing in the largest and most well-known companies.

Got Operations?

Some claim that private equity firms simply buy companies, fire people, saddle them with debt, and then sell the company without doing anything to improve operations.

While that can happen, it was far more common during the LBO boom of the 1980s.

PE firms may not always overhaul a company’s operations, but they certainly work to improve them and find ways to expand – especially when it’s a recession and there’s not much buying and selling of large companies.

In theory, venture capitalists should have a greater incentive to improve a company’s operations because they’re working with early-stage companies.

In practice, their involvement depends on the firm’s focus, the stage of the company, and how much the entrepreneur wants them to be involved.

Exceptions

There are always special cases:

  • Some VCs use debt to make their investments, especially for larger / later-stage investments.
  • Some “turnaround” PE firms buy less-than-stable companies and focus on operational improvement rather than financial engineering.
  • Sometimes PE firms acquire less than 100% of a company, especially firms that are “growth equity”-focused.

See the bottom of this article for more on these special cases and different types of PE firms.

Recruiting

As you know from the articles on private equity recruiting and venture capital recruiting, the process itself is similar for both industries.

If you’re coming in from banking, you get interviews via headhunters or by networking.

Unlike investment banking recruiting, buy-side recruiting tends to be a longer, more drawn-out process.

The size of the firm plays more of a role than the type of the firm: large PEs and VCs are more likely to use headhunters than smaller ones.

Interviews

Both types of firms focus on your background and deal experience, but the similarities end there.

You will almost always have to complete a case study or modeling test for private equity interviews – since you spend so much time doing analytical and modeling work, that makes sense.

VC interviews, by contrast, are more qualitative and fit-focused – especially for early-stage firms.

The companies you work with are so much smaller that detailed financial models don’t make sense – the focus is on relationships instead.

The People

Private equity firms focus on recruiting former investment banking analysts – the modeling and due diligence work you do in PE is very similar to what you do on transactions in banking.

Consultants and anyone with an operating background can get into PE, but it’s an uphill battle – they’ll always be skeptical over whether or not you know how to build an LBO model.

VC attracts a more diverse mix – you’ll see ex-bankers, consultants, business development people, and even former entrepreneurs.

In the early days – the 1960s and 1970s – many VCs had entrepreneurial backgrounds, but today that is less true and many Partners have never even worked outside of finance.

Pedigree is important in both fields, but it matters less in VC – especially if you have a successful track record.

If you create the next big thing, sell it for $10 billion, and then want to become an investor no one will say, “But you only went to a state school! Sorry, go away.”

The Work

Especially at large PE firms, the work is not much different from banking: there is less grunt work, but you still spend a lot of time in Excel valuing companies, looking at financial statements, and conducting due diligence.

You do have more responsibility because you need to coordinate accountants, lawyers, bankers, and other PE firms when you’re working on a deal.

As you progress from “mega-PE fund” to “early-stage VC” the work gets less quantitative and more relationship-driven.

Some people actually dislike this because they hate cold-calling and constantly finding new companies, while others would much prefer to talk to people rather than work in Excel.

So it’s hard to say what’s “more enjoyable” – it depends on whether you gravitate toward sales, analysis, or operations.

The Pay

You will almost always make more money in PE than in VC because there’s more money to go around and fund sizes are much larger.

Theoretically if you’re at the Partner-level in VC and you find the next Google, you could have an outsized payday – but that is very rare.

If you’re coming in from banking, base salaries in both industries are around $100K with widely variable bonuses: at the largest PE firms you might be making in the low hundreds of thousands, whereas in VC you might get a smaller bonus than you would in banking.

The “ceiling” is hard to determine because no one likes to disclose compensation data unless they have to, but there’s a good WSJ article on what top PE guys make right here.

The numbers quoted there are misleading because they only include salaries and bonuses – no carry or ownership in the PE firm itself.

But overall, if you want to make the most amount of money in the shortest amount of time then you’re better off in PE.

The Culture

PE is very similar to banking and attracts some of the more extreme and cutthroat bankers.

VC tends to be more relaxed, partially because people come from more varied backgrounds.

People in PE more often come from pure finance backgrounds, whereas those in VC tend to be technologists-turned-financiers.

Overall the work hours in PE – especially at the biggest firms – tend to be much longer, whereas VC approaches a “normal” workweek.

Exit Opportunities

If you’ve done VC, the main exit opportunities are another VC firm, a startup, or business development. Even moving into PE would be difficult because they want banking or PE experience.

Private equity gives you more options within traditional finance, but it would be harder to move to a startup because Excel wizardry and financial projections don’t matter.

It would be difficult to move from either of these fields field back into banking or something else on the sell-side – it’s hard to tell a story about why you want to work more and get paid less.

Other Variations on Investing

I noted that there are a couple exceptions to the “rules” laid out above:

Growth Equity

These are hybrid firms – “in between” buyout firms and VCs – that do early-stage investments, later-stage investments, and sometimes the occasional LBO.

Examples are Summit Partners, TCV, and TA Associates.

They tend to invest in later-stage startups that already have revenue and customers and need capital to expand their businesses.

Distressed / Turnaround Investing

Distressed investing is more common in the world of hedge funds, but some PE firms do this as well.

Examples include WL Ross & Co., Tennenbaum Capital, and the turnaround arms of Apollo and Cerberus.

Just like Restructuring, these firms are counter-cyclical and require a much more specialized skill set.

Fund of Funds

These firms invest in other private equity firms, hedge funds, mutual funds, investment trusts, and so on – rather than directly investing in companies themselves.

Bankers and PE guys often claim that funds of funds are “boring” because you’re analyzing portfolios all day.

But if you’re looking to get paid well and have a better lifestyle, it might make sense to go to one of these rather than traditional PE.

What About Hedge Funds?

I get a lot of questions on this one – but hedge funds vary so much by the strategy they use that it’s difficult to generalize.

The main difference between PE and hedge funds is that hedge funds tend to invest in individual securities whereas private equity firms buy entire companies.

However, the lines between the two have blurred and these days a lot of firms actually make both types of investments.

I’m not going to delve into HFs here because this is a PE vs. VC article – just be aware that many investment firms are actually combination hedge funds and private equity firms.

Which One Should You Choose?

So, private equity or venture capital?

It depends on your goals – if you’re trying to make the most amount of money in the shortest amount of time possible, PE is better.

If you’re from a pure finance background and you like the work and transaction experience you get in banking, PE is better.

If you’re more interested in starting your own company one day, you prefer relationships to analysis, or you want a better work-life balance, VC is better.

Or you could just bounce around between both of them – what would finance be without high turnover?

M&I - Brian

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys memorizing obscure Excel functions, editing resumes, obsessing over TV shows, traveling like a drug dealer, and defeating Sauron.

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  1. it was really helpful!! thanx a lot… derstoyed all d bit doubts had…! thanx again

  2. Hi Brian, I recently applied for a fellowship program for a VC Fund in India. I am required to fill in an application form for the same wherein I have been asked to showcase some relevant work and activity. However, I don’t have experience in this field. I am currently working in an Auditing role. Can you please give some advice?
    Thanks in advance!

    1. M&I - Nicole

      I’d just try to think of experience you think is most relevant. If you don’t have any experience in this field, I don’t think you can make up experience that they want…

  3. Hi –
    Would love to get some advice. I have been in the high tech world for over 18 years, majority at one of the top 3 global fortune 50 company (a household name) in a variety of roles (sales, operations, bus dev,, strategy – both on hardware and software side) in various parts of the world. I am looking to switch careers and get into VC or PE in the value creation side as an Operating partner as opposed to a financial henchwoman. I see a lot of execs leaving from my company who eventually end up in PC/HF/VC. Wondering how this world would view my experience. I am clearly not looking for an entry level position and would like to come in at partner level. What are my prospects and what is the best way to get in (i.e. should I offer free consulting/advisory services)? Any specific recommendations or names of headhunters (common in this space) or other ideas would be welcome. I have very deep and rich experience that I know firms would really benefit from but unsure how best to make this transition. thanks in advance

    1. M&I - Nicole

      I’d first connect with VCs and GPs at PE firms, and have a feel for what they’re looking for, and how you can potentially fit in. In terms of HHs we don’t have any recommendations but readers maybe able to jump in and help.

  4. Hi,
    I have worked in a bank for 15 years mostly as a financial analyist, and commercial marketing manager in Turkey.
    I know many company try to get funds from 500.000 USD and over.
    These are credible firms but local banks usually give up to 3 years medium term credits.
    They can give colleteral as building/house.
    I just want to find PE/VC companies that interested. And i want to be their agency in Turkey.
    Before i get to connect them …What a roadmap would you offer me to follow?

    1. M&I - Nicole

      I’d suggest that you approach VC/PE partners and see if they are interested in your idea first. If there’s enough interest, then you can work with one of them and figure out a roadmap.

  5. Silverback

    So am near end of my first 2 years in IB. Am currently interviewing for PE roles, but because I am in a utilities & infra team headhunters keep recommending me Infra PE interviews. Dont think its wise to turn them down, because some are v.good opps at brand name shops, and at very least I could do with the interview experience.

    But my ultimate goal is to hopefully move into VC after a few years of PE. Obviously tech PE would be the most ideal, but I’m just wondering if doing infra PE will rule out my chances of moving into VC?

    1. M&I - Nicole

      I am not 100% sure how infrastructure PE is relevant to VC to be honest. I’d say if you want to move to VC, perhaps going back to a target business school (i.e. Stanford) maybe the best bet. http://www.mergersandinquisitions.com/break-into-venture-capital/ is a good article to refer to.

  6. Hi M&I,

    You guys have been a life saver with this plethora of information. I can’t help but ask about the work/life balance in a VC firm. That is, how is it like working in one of these firms? The work hours, do they range from 8-4/9-5 that the typical white collar person has? And are these VC people stressed in any way more than their normal tech counterparts who are working in a company such as a startup or a big company like Google/Microsoft?

    I’m asking about how it’s like because work/life balance is really important to me. While money is a important factor in life, nothing’s more important than my spouse and soon to be born kids. I just want to know what the work/life balance is like and if the stress is anyway higher than other jobs.

    The last thing I want is to get into a job that really takes too much time away from them (currently a engineer at a tech company, opted not to get into HF or IB due to the horrible stories I heard from others, so you see where I’m coming from).

    I hope you understand and I appreciate the reply in advance. It means a lot

    1. M&I - Nicole

      It really depends on how good you are in picking investments as a VC. I think VC hours are generally better than IB (c. 60-hour weeks) http://www.mergersandinquisitions.com/venture-capital-on-the-job/, but I do believe you need to have a knack for picking out good investments as you progress, and you need to have a strong network of entrepreneurs because its also about knowing where the good deals are.

      If you’re good at what you do in VC, I think it can be very fun.

      Otherwise yes it can be stressful and you may not progress in the field.

      So to answer your question, yes work life balance in VC is generally better than IB and can be a great job. However I wouldn’t go into VC just for work-life balance. And I’d also check this VC Aptitude test out : http://guykawasaki.com/the_venture_cap/

      You may also want to explore PWM for work/life balance. http://www.mergersandinquisitions.com/private-wealth-management-private-banking/

  7. Hi, I want to end up in VC, and I’m really interested in consulting, but I think a background in IB would be very helpful as well. I’m contemplating doing both consulting and banking before b school and VC, and I’m wondering if it makes sense to work as an IB analyst for a year or two before moving to consulting? I assume it’s much easier than moving from consulting to banking anyway.

    1. M&I - Nicole

      Yes it’s probably easier to move from banking to consulting, though I’m not quite sure why you’d need to do both. Of course if you want to experience both worlds it’d be interesting to do so before bschool. You may want to take Guy Kawasaki’s VC test: http://electricpulp.com/vcat/

  8. Do you think Venture capital falls more into the operational, sales or analytical type of job?
    Also what about private equity??

    1. M&I - Nicole

      I think it’s a lot sales and relationship for VC roles. Of course, there’s some sort of analytical work involved and you’ll need to have the foresight to spot a good investment.

      PE is probably a bit more analytical and can be operational too – http://www.mergersandinquisitions.com/private-equity-recruiting/

  9. Curious what you’re thoughts are on CVC arms? Interviewing with the CVC arm of a Fortune 100 next week and, outside of a couple of case studies in my MBA program, you don’t really hear or read much about them.

    1. M&I - Nicole

      I haven’t heard much about CVC arms of firms, so I’d leave this to readers.

  10. Not sure how old this article is but I thank you for putting it all together, helped me make even more sense of VC after my MBA program’s (starting this month) VC fund presentation. I have been on track to concentrate in finance, pursue the CFA, and go the AM route but…I can’t shake the feeling that I’d be more passionate about VC. However, I’m worried about what I’ve have read/heard about how difficult it is to break. As a career changer, I’m sure AM would be the safer route, if I can pass the CFA exams. But I’m curious what you may think my chances are to break into VC if i decide to pursue that instead? I may have an opportunity to work on a student-run VC fund in the MBA program (non-target but top 40) and I already have an MPA from a top-2 school.

    1. M&I - Nicole

      I don’t think the CFA is too useful for VC roles. http://electricpulp.com/vcat/ should be a useful link

  11. Congrats to the M&I team!! A lot of great content produced on the website
    I know this article is a bit old but wondering if I am not missing anything in the Growth Capital vs. Larger PE/LBO fund exit opps debate for I bankers

    Currently working in M&A in a BB in Europe. Generally speaking, analysts around me seem to be more attracted by large PE firms (not only the like of KKR, Carlyle, BX but also the ones with supposedly better hours like Cinven, EQT, Advent, BC…) or HF and corporate development for those who want to improve their lifestyle above all.

    Very few are mentioning Growth Capital, which seem in my view more interesting (having to deal with the expansion of a company is always funnier/more interesting than focusing on operational improvement/decreasing the company’s cost base and putting some debt on. It seems also that more deals get done in growth capital).

    I guess it has to do with the prestige and the pay, but wondering if I am not missing anything else?

    Is the pay that different at larger fund vs. top growth capital players 3i, TA….?
    Is it just less well know as these firms don’t do the headlines as a KKR/BX?

    1. M&I - Nicole

      Good questions! Yes I’d agree with you that the firms you’ve mentioned are famous for other deals vs growth equity, though I believe many of these larger firms have growth equity funds. I am not sure of the pay, though I believe the prestige is due to the # of deals done. In US/Europe, funds are traditionally focused on distressed, turnaround, LBO deals; and such deals made the headlines, which increase prestige. Growth equity has not been as established, and hence not as prestigious. http://blogs.wsj.com/venturecapital/2013/08/07/with-growth-equity-outperforming-venture-capital-cambridge-associates-anoints-it-an-asset-class/ Of course, things are changing quickly with the growth of emerging markets.

      1. Very interesting thank you.

        1. M&I - Nicole

          You’re welcome.

  12. Hey great article! Just a clarification : when you say that VC and PE firms target 20% returns, do you meant 20% compounded annually?

  13. As an EE(Master’s degree) with some experience – can I ever break into a PE/VC firm? DO i need an MBA or some sort of training?

      1. Appreciate your prompt response. Getting to what matters the most to me right now – I now have 40-50 hour week schedule in my current Electrical Job(5 years of Exp.) . I have the job satisfaction for the most part but as you know people will have the ups and downs anywhere they work.Though I do not mind a career which will be more financially rewarding career than my current one (along with the growth potential )without having to trade my current hours/week :P Is there an career path that i could follow where I could leverage my technical knowledge as well – that way I won’t be looked upon as a fresher?

        1. M&I - Nicole

          Perhaps you can look at quantitative roles in Sales and Trading though you’ll have to demonstrate your market knowledge and your hours maybe longer than 50-hours/week. http://www.mergersandinquisitions.com/getting-a-finance-job-from-engineering/

          1. Thanks again !

          2. M&I - Nicole

            Anytime!

  14. dr sudeep singla

    Great article . Now I understand pe and vc precisely

    1. M&I - Nicole

      Thanks for visiting our site.

  15. Hi,
    Thank you for the great article.
    I am currently at a biotech startup scientist that is rapidly expanding, and would like to enter VC.
    Coming from a scientific background (as a PhD), is this at all possible and, if so, what would be the essential steps to take?
    Thank you

    1. Yes, it’s possible, but you’ll need to get educated on the market, basic finance and valuation concepts, and the investing process to have a good shot. Then you need to network extensively with people in the industry and find a firm that’s looking for someone with extensive technical knowledge, e.g. to evaluate the technology of potential investments.

  16. Hi Brian and Nicole,
    Thanks for the great article. I really want to ultimately break into private equity… but am currently an equity analyst for an asset management firm (long only). Started 6 months ago. It’s a relatively big player here in Europe. My question is – do I even have a shot at breaking into PE from AM?? If so — what should my next steps be? Just apply straight after a couple of years in my current job? Or would you suggest doing M&A in between so I have a better chance? I analyse investment opportunities all the time and look at balance sheets financial statements etc, the only difference is the companies are listed… I’d really be interested to hear your insights!

    1. M&I - Nicole

      If you were doing fundraising for AM, you may be able to transfer to help PE fundraise. Since you’re an equity analyst in AM, it may be best if you could gain the necessary IB/deal experience in order to move to PE. Yes moving to IB will help. I’d suggest you to move to IB in a year or so when the opportunity presents itself.

  17. Thanks. Very clear so really helpful.

    I’m working in the SME space in Kenya and read this morning about this PE merger: http://www.jacanapartners.com/category/news. Any thoughts or suggested links about PE vs. VC in emerging markets?

    Thanks, again.

      1. A truly responsive/interactive blog! Wow. You are an inspiration. Thanks for the link.

        1. M&I - Nicole

          Thanks for visiting our site!

  18. Hi,

    Thanks for setting up this site. It’s really helpful.

    If I was able to get a Venture Capital Internship this summer (I have some connections there), would it hurt my chances at a Investment Banking Full time analyst role next year? I’m not sure I could make it to the big firms. Since I don’t have any network there. I want to work in Equity Research in future. And have just started contacting Alumni and working towards building a network. I know I am a bit late at the cold calling, etc.
    I go to a target Ivy for masters but my GPA is around 3.2 since I took some really tough courses in my first semester. My undergraduate GPA was 3.9 but I did not go to a top school and it was not in the US. I’m looking for roles in the US. I don’t have any finance experience before. I have tons of experience in Non Profits. I was doing research for them.

    Are groups like Public Finance, Equity Research, Capital Markets more difficult to break into?

    Thanks. I really need some advice.

    1. M&I - Nicole

      It depends on hiring needs – I think it may be tough to break into ER and Capital Markets these days given the state of the markets. Re public finance, you might want to speak with people in the industry. Having relevant experience will help you. I’d suggest reading up on the stock markets and knowing your stock pitch (how to analyze stocks, which stocks to buy etc) if you want to break into ER. Perhaps you can also check out Corporate Social Responsibility teams at banks – that may interest you

  19. Hello – Working in MO role for sales at IB and looking to jump ship after 4 years. Have a very entrepreneurial mind but looking for ops to prolong my finance / econ degree, and think that VC might be the best way to go. Whast the best way to get in? I have a lot of connections that Im working on but do you know of any specific recruiters that focus on this industry? DO you think this wil lbe a difficult move?

    1. Most recruiters don’t focus on VC – connections are your best bet. Yes, sales at a bank to VC is a tough transition so you need to sell it on the right way… focus on transferable skills like networking, building a client book, etc. and then show you’ve learned about the industry and finance on your own.

  20. In terms of equity research, what are the main differences in terms of approach and product between an investment bank and PE/VC fund ?

    1. M&I - Nicole

      I don’t think PE/VC funds have equity research arms but they do have their own internal research teams that do due diligence on potential investments. I believe their angle of analyzing investments would be slightly different because they’ll be analyzing an investment in the angle of “Is it a good investment or not? Should our fund invest in it or not?” In ER, analysts would analyze investments in the angle of “Is this stock an overweight/underweight or neutral? Are we upgrading or downgrading the stock?”

  21. Josethomasmuricken

    Hi, quite informative.
    I am currently in India. I work as an intern at a Deal Tracking firm covering VC/PE and M&A deals here. Besides, I do hold ACCA and currently pursuing CFA too. How do you think, such a background help to have a career in VCs or PEs in the future.

    1. M&I - Nicole

      Not really. An MBA from a target might help in your case http://www.mergersandinquisitions.com/mba-investment-banking/

      1. Josethomasmuricken

        Nicole, I was actually more interested in knowing how a deal trackers background be translated to a possible role in PE/VCs. Does an experience in a DEal Tracking firm hold good, as such an experience would include being in constant touch with IBs, VCs PEs law firms and top tier B schools as they are the clients and doesn’t people at VC/PE appreciate candidates who have a thorough knowledge of the industry and proven analytical mind(by being ACCA & CFA certified), stand a chance against MBA graduates, who might not even have relevant industry knowledge. The reason I posted here is coz there isn’t any proper thread that discusses this matter. OR is it because a dealtrackers job profile might not be well understood here?

        1. M&I - Nicole

          Yes you can gain contacts through your background and you can leverage your background to meet contacts in the industry. However, I am not quite sure if your background is relevant to PE/VC/IB roles.

          Most PE firms want candidates with IB experience. – http://www.mergersandinquisitions.com/private-equity-recruiting/
          Most IB firms want candidates with previous IB experience/experience in modeling companies etc
          Most VC firms want candidates with experience in starting businesses, or experience in an industry for a long time –
          http://www.mergersandinquisitions.com/break-into-venture-capital/

          Yes I may not understand what the details of your job entail, so readers may have more suggestions.

          1. josethomasmuricken

            Thanks Nicole.I will have to figure out somehow. There is a chance that our firm might move on to more research oriented work as part of diversification.Hope every effort I take, adds up in the coming 3-4 years.. Am doing my bit to build a good profile and shall keep on updating myself with insights from experts like u. Hope u know the good u r doing to a select community living here in India and elsewhere. Thanks again.

          2. M&I - Nicole

            Anytime!

  22. Great article!

    So if you are set on moving on from IBD to VC , what department is the best bet? TMT?

    Also if I have the opportunity to work in Israel for a while,in a VC , do you think it is worth it?

    Thanks

    1. M&I - Nicole

      Yes, I’d think so.

      Your decision depends on quite lot of things… what you want to achieve, whether you want to experience living/working in Israel or not, and what other options you have available….

      1. I see.

        I know it can sound a bit strange , but as someone who is indifferent towards what department/product group to join doesn’t make sense to gravitate more towards TMT , natural resources , healthcare instead of FIG and Real estate or industrials since thats more where the future will be? Or do you think other crucial factors should be taken into consideration as well?

        The question is for someone who does not have a preference , but just look to be in the right industry group in the near future in order to make the transition onto the buy side less complex.

        Thanks

        1. M&I - Nicole

          If you dig deeper, you might realize you are more interested in a particular industry group.

          If your end goal is to break into VC, I’d choose TMT

  23. Hi I’am a current high school student(Senior) and a career in finance is what interests me the most, not just for the money but for the hardwork and discipline a person must have to be to thrive in the financial world. Private Equity and Venture Capital are the ones that i find more appealing in the financial industry. I will appreciate some advice from anyone that has been able to break through or knows someone who did. i plan to get a BA with a heavy concentration on finance. Would that be a good first road to take or should i just worry about my major,school prestige,and networking? also i’am hispanic and i wonder if there is a disadvantage for being a hispanic my communication skills and great bt witha sligth accent but understandable. any advice from you guys would be helpful to me. thank you for your time.

    1. M&I - Nicole

      Break into a target school if you can. This will drastically increase your chances of breaking into PE/VC. Majoring in Finance & Accounting will help.

      For VC roles, they generally want people who are more “tech” oriented with an operations background. I’d also try to start your own company because VCs value entrepreneurial experience. Perhaps you could move to the West Coast (Silicon Valley) where most VCs hang. Look into various startup events etc – VCs and entrepreneurs hang there

      1. Thanks for the info but i will consider this option since i want to go into PE.
        I am planning to go to FIU or UM which none of them are target schools but there is a great deal of multinational firms from around the world in Miami.I want to gain some experience there before jumping to the Prestigious firms in NYC. i know big European and latin american firms recruit from these universities because they are local and have somewhat of a prestigious financial and business programs.

        1. M&I - Nicole

          Good luck! Let us know how it goes!

  24. Firstly, thank you for all of your helpful information. I am currently at a top Bschool (M7 outside of HBS/Stanford), and I accepted a summer offer from a BB (BarCap/CS/Citi/BAML) and am debating which group to join. To give some background, I worked at a start-up that ended up getting backed by a mega growth-equity shop. Ultimately, I would like to couple my operating experience with banking experience and move to growth equity so I was hoping you could help me answer the two following questions:

    1. How likely is it for me to actually MOVE to growth equity (not later stage PE or VC) after some time in banking and how long after I join as an associate should I make the move?
    2. What group would you recommend I join? I’m leaning towards Healthcare/LevFin/FS. Thoughts?

    I am excited for the summer, and who knows…I may end up loving banking and consider it a career, but I would really appreciate your insight regardless.

    1. M&I - Nicole

      1. Depends on your performance and network. People usually move after 2 years
      2. I’d choose the group based on your level of interest and how well you click with the group

      Congrats and good luck!

      1. Thanks for the response. Is a post-two year move typical for even associates? Would join say, financial sponsors be a good idea considering my goals? Again, thanks so much

        1. M&I - Nicole

          It depends on the individual – I can’t comment on whether it is typical or not

          Why Financial Sponsors?

          1. It’s for the summer and I think FS would be good in providing me with a very broad exposure since it is industry and (almost) product agnostic. I also thought it would be good in allowing me to begin to work with PE shops. What are your thoughts?

          2. M&I - Nicole

            I agree. Go for it!

  25. Hi!
    I am thinking of going into accounting before hand and get my CA(i live in canada). I can do auditing and get my CA or go into financial advisory and get my CA-industry. The auditing one means I can sign off on audits but I would not if I go into FA. Which one would be best to do to get into VC/PE(I am feeling VC more than PE).

    What would be some of the challenges associated with being an accountant beforehand? What are some big canadian VC firms and PE irms? For PE do you have to specialize in one industry, or can you look for any industry?

    1. M&I - Nicole

      I’d do FA though I don’t think FA/auditing is directly relevant to PE/VC. If you want to do VC, check out http://blog.guykawasaki.com/2006/11/the_venture_cap.html

      Challenges – attention to details. Other than that, you might want to be used to working in a “routine” environment

      Canadian VC and PE firms – http://www.cvca.ca/ should help

      PE – depends on the firm

  26. Good post!

    As a senior at college with investment banking internship experiences previously, I am considering joining private equity after graduation.

    While I was browsing through the profiles of directors on Blackstone/KKR websites, I noticed that most of them came from investment banking after around 20+ years of work.

    My query is, where are those guys who started at PE right after college? May I interpret it as a sign that joining PE at entry level is the opposite of “a blessing in disguise”?

    Thanks for the enlightenment

    1. M&I - Nicole

      I’m sure you will be able to learn a lot joining a PE fund at entry level so I wouldn’t worry too much about it. If you do well and like the industry, all the better

  27. Brian,
    I’m an undergrad who needs to write a graduation thesis. I already have a FT offer for next year in BB IB (yes, I did my homework alright, thanks to you in part). My question is, what would make a good topic to write about to talk in my interviews with PE/VC firms (and also put in my resume)?
    What would they find interesting or would make me stand out as “knowing” more about the field?
    Thanks! I looove your blog!

  28. Bo Heckles

    Brian- I am late to the game in VC & PE. I have an MBA in finance and a JD in tax and have been working as a tax attorney for past 5 years. Have interest in moving into PE. Do you have a suggestion for someone getting a late start but wanting to move into the arena?

    1. That is tough but your best bet is to go to some type of smaller PE firm where tax and legal knowledge are more important due to the deals they work on… maybe get in if they’re looking for someone to handle that stuff internally and then transition over to working on deals.

  29. Hi,

    Is there a significant difference in switching from an ibd coverage role to PE than from Corporate Finance to PE?

    i have an opportunity to move from my current Corporate Finance role of executing M&A transactions to a country coverage role to originate as a 2nd yr analyst. This coverage role is at a bulge bracket. Im not sure if the bulge bracket exposure outweights the CF execution as a much lower brand house.

    Thanks from ur advice.

    1. Not really, corporate finance and IB are similar esp. if you execute M&A deals

  30. This is probably unrelated. What would be exit ops for IB associates then? Not as good as analysts? Like much harder to switch to PE? so the choices would be HF, VC and corp development?
    Thanks!

    1. Yes harder to switch to PE and HF, others are more do-able. But exit opps would be similar overall just more limited and harder to switch

  31. Hi Brian,

    I’m currently a first year undergrad from a non target in the UK, looking to go into M&A.

    If I was to secure some experience/unpaid internship at a VC firm this Summer, how well would this position me for next years internships? Would it be comparable to an M&A internship?

    Thanks

    1. It would help, not as good as an M&A internship but much better than something unrelated to finance.

  32. Lucanius

    I just discovered your website. It’s really provided a lot of good info, thanks a lot!

    I was wondering what the connection of IB to Asset Management is. Is it a good idea to start it of in a IB, if you have the aim of eventually becoming a mutual fund manager or to advise rich clients in their investments? I though it could help getting the investment know-how and to get more leverage if you come from a well-known bank.

    1. It might help a bit but asset management is quite different and arguably closer to sales & trading; most people would tell you to start out directly in asset management instead.

  33. I am working in a KPO for past 4 years as Banking sector analyst, have also looked into the Tech sector and have an MBA in Finance.

    Now I am looking to join a PE firm. Can you suggest me if there is any scope of me getting to any PE? What kind of questions do they ask and what is the recruitment procedure they follow?

    1. It will be tough if you’ve been in KPO – they will assess whether or not you can understand/run deals, do modeling work, value companies, and so on, and whether or not you have any investment ideas of your own. More on recruiting in India and Pakistan (Pakistan for PE coverage):

      http://www.mergersandinquisitions.com/investment-banking-india/
      http://www.mergersandinquisitions.com/investment-banking-pakistan/

  34. I have recently completed MBA in Finance. I have also cleared CFA Level-2. At this juncture, I have 2 options to begin my career – Either join a Bank in corporate banking profile or an analyst at a small PE firm…. Can you put across Pros & Cons of each option?

    1. The bank is probably better from a networking / brand name perspective, but you will get more responsibility at the PE firm. Go to the bank if you’re not sure what you want to do, go to the PE firm if you’re 100% set on PE.

  35. homermatrix

    CaN YOU write an article about hedge fund?

  36. Working at a small PE firm is good to put on my resume? I am worried that it is not a well-recognized experience.

    1. If the alternative is putting nothing finance-related, then a small PE firm is good to write. If the alternative is Blackstone or KKR, then a small PE firm is not as impressive. For most people, something beats nothing, so you should list it.

  37. I was wondering if when you join a PE firm, they only expect you to stay a couple of years before going to business school and moving on. As a current college freshman I am not sure whether I would like to stay in banking and making it up to MD at a ib firm or partner at a PE or hedgefund. If I actually wanted to stay at a PE firm or ib firm for a long time, would this be possible without going back to business school or would I have to do that. Thank you.

    1. It really depends on the firm. These days it’s actually more common to stay and continue without going to business school, but that may change depending on the economy / hiring environment.

  38. Is it possible to get into PE/VC with consulting experience?

      1. Georgi A.

        Consulting or PhD (which usually is also a type of consulting gig in EU) are two of the regular career tracks into PE and VC in Europe, especially in Germany.

  39. Can you say a little bit more about working at a fund of funds? I haven’t been able to find much in the way of solid information about them. You mentioned getting “paid well” and having a “better lifestyle,” but if you look at it from an outsiders’ perspective, most people in finance get paid reasonably well, and the lifestyle is miserable compared to most other professions.

    Also, would it be possible to direct me to a source where I can learn more about them?

    1. I’ve never been able to find much information on funds of funds – perhaps you can ask on WallStreetOasis and see if anyone there knows more. The lifestyle and pay are comparable to private wealth management, i.e. 60-65 hours per week, six-figure income going to maybe low six-figures when you’re more senior.

  40. M&I,

    Have an interesting scenario for you, would like to hear your thoughts:

    Just completed my 1st year at a MM IB, top bucket, blah blah blah. Have been going through the standard recruiting for VC/growth equity shops in the area for a summer 2011 start — it’s really just started, but has gone well so far. Very recently, I was introduced to a tiny, early-stage (seed through round two) VC looking for an immediate start. Wanting to move into VC ASAP (I want to get out of banking), I have started the interview process and have moved very quickly (I believe I’m the most qualified candidate and the fit is exceptional). With all that being said, I would still like to continue interviewing at these more “prestigious” VC firms with the potential of getting a summer 2011 start.

    Here are my thoughts: Leave IB for the small VC at the end of August, but continue interviewing and hope to get a summer 2011 offer from a more prestigious VC. I obviously will be up front about my intentions with the VCs I am interviewing with — what do you think their reaction would be? I have had a terrific experience in IB and don’t really think another year will do much for me. I feel as though I’d be better off moving into VC and getting a year of experience evaluating deals and establishing an overall understanding of the investment community.

    I’d love to hear your thoughts. As an aside, I am far from a “prestige whore” — my main reason for wanting a more “well-known” VC firm is for access to deals (and better companies). The small VC I’m considering joining is unlikely to ever have the opportunity to invest in the next big thing because it’s name won’t carry much weight.

    1. Your reasoning makes sense but I think it would be tough to pull off / convince the other VCs that you have good intentions. You would probably want to wait at least 6 months – 1 year before interviewing with other VCs or they may say, “I wonder if this guy will just take off once he joins us, too…”

  41. erkkkul

    What are usual hours for a small/MM PE shop?

    1. Probably 60-70 hours per week

  42. Any idea when they started using the term “private equity” instead of LBO to refer to their firms/industry? I would guess the LBO got a bad stigma about it in the 80s and so they decided to use PE as a euphemism, but I’d be interested to hear if someone knew.

    1. Not sure offhand but that sounds like a reasonable guess.

      1. Banker Chick

        As far as I know, PE don’t only do LBOs. It’s a very good tool, but in some cases, like in south American regions, debt is too expensive, so they go more for operational improvements and can’t do LBOs.
        PE is composed of VC (early-stage) and buyouts (growing firms). Depending on the fund, they specialize in the latter or do both.

  43. 1) When is PE recruiting season?

    2) What exit opps do you have after 1 year of banking experience?

      1. So you can go into PE, VC, HF after just one year of banking experience? and would you be able to get a decent Corp Dev position or just entry level after one year?

        1. It depends on what you’ve done over that year – I know plenty of analysts who have moved on after 1 year and gotten good positions and others who haven’t. For larger firms it’s rare to take analysts after only 1 year but it can happen; out of those possibilities it’s most feasible to go to corp dev after 1 year because they don’t respect the “rule” that you have to stay in banking for 2 years as much.

  44. Are the majority of people in PE and banking are quite unpleasant to be with?

    1. Depends what you mean by unpleasant. The way people think in these fields is very similar and personality types tend to be mostly Type-A hyper-competitive people. But not everyone is unpleasant / difficult to get along with.

  45. steve-p

    unrelated but… what would you consider surfing web and fetching info regarding venture comps and their universe, scope, etc just so that your boss can meet some important people and talk about them, and hopefully get a deal here and there?

    does it fall under random category that you should avoid at all cost along with coffee and laundry?

    1. Yes that is random work but it’s much better than doing nothing or having no internship at all. So deal work or even pitch books would be better, but sometimes you just can’t do those.

      1. What do you mean by dealwork?

        1. Working with clients that hire your bank to sell them or to buy other companies

  46. Unrelated but… if you have networked a lot with a bank and you get an interview there, do those relationships help you past that stage or is it only about how you do in those interviews?

    1. Mix of both, but it’s mostly dependent on interview performance at that stage.

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