by Brian DeChesare Comments (139)

Private Equity vs. Venture Capital: What’s The Difference?

Private Equity vs Venture Capital

A long time ago, I wrote an article about private equity vs. venture capital – and many other sites not only copied the ideas, but also took direct quotes without attribution from the article.

But the joke is on them: because of this lack of critical thinking, much of their information is now wrong or incomplete.

Just as the distinction between public and private companies has blurred over time, private equity and venture capital have moved closer over the years.

And you need to understand that before you think about getting into or out of either industry:

Private Equity vs. Venture Capital: The Classical View

Both “private equity firms” and “venture capital firms” raise capital from outside investors, called Limited Partners (LPs) – pension funds, endowments, insurance firms, and high-net-worth individuals.

Then, both firms invest that capital in private companies or companies that become private and attempt to sell those investments at higher prices in the future.

Both firms charge their LPs a management fee of 1.5 – 2.0% of assets under management (the fee often scales down in later years) and “carried interest” of ~20% on profits from investments, assuming that the firm achieves a minimum return, called the “hurdle rate.”

(For more details, please see our private equity overview and the articles on private equity careers and venture capital careers).

But beyond these high-level similarities, almost everything else is different, at least in “the classical view” of these industries:

  • Company Types: PE firms invest in companies across all industries, while VCs focus on technology, biotech, and cleantech.
  • Percentage Acquired: Private equity firms do control investing, where they acquire a majority stake or 100% of companies, while VCs only acquire minority stakes.
  • Size: PE firms tend to do larger deals than VC firms because they acquire higher percentages of companies and focus on bigger, more mature companies.
  • Structure: VC firms use equity (i.e., the cash they’ve raised from outside investors) to make their investments, while PE firms use a combination of equity and debt.
  • Stage: PE firms acquire mature companies, while VCs invest in earlier-stage companies that are growing quickly or have the potential to grow quickly.
  • Risk: VCs expect that most of their portfolio companies will fail, but that if one company becomes the next Facebook, they can still earn great returns. PE firms can’t afford to take such risks because a single failed company could doom the fund.
  • Value Creation / Sources of Returns: Both firm types aim to earn returns above those of the public markets, but they do so differently: VC firms rely on growth and companies’ valuations increasing, while PE firms can use growth, multiple expansion, and debt pay-down and cash generation (i.e., “financial engineering”).
  • Operational Focus: PE firms may become more involved with companies’ operations because they have greater ownership, and it’s “on them” if something goes wrong.
  • The Recruiting Process: Large PE firms follow a quick and highly structured “on-cycle” process, while smaller PE firms and most VC firms use “off-cycle” recruiting, which starts later and takes longer.
  • Work and Culture: Private equity is closer to the work and culture of investment banking, with long hours, a lot of coordination to get deals done, and significant technical analysis in Excel. Venture capital is more qualitative and involves more meetings/networking, and the hours and work environment are more relaxed.
  • Compensation: You’ll earn significantly more in private equity at all levels because fund sizes are bigger, meaning the management fees are higher. The Founders of huge PE firms like Blackstone and KKR might earn in the hundreds of millions USD each year, but that would be unheard of at any venture capital firm.
  • Exit Opportunities: Working in VC prepares you for other VC firms, startups, and operational roles; if you work in PE, you tend to continue in PE or move into other roles that involve working on deals.

Private Equity vs. Venture Capital: Why the Lines Have Blurred

First, many venture capital firms have moved up-market into growth equity and other later-stage investing.

For example, both Accel and Sequoia, known as some of the top U.S.-based VCs, have raised growth funds of close to $1 billion USD (or more) and now pursue deals worth tens of millions or even $100 million+ via those funds.

At the same time, many traditional private equity firms have moved down-market into growth equity (e.g., KKR has a “Next Generation Technology Fund”).

And then asset managers like T. Rowe Price and Fidelity have also begun investing in growth-stage companies.

So, saying that you “work in private equity” is too general a statement to be useful.

You have to explain your specific group, the strategies you pursue, and which of the firm’s funds you work in.

Finally, many long-held notions about how companies “should” raise capital are no longer true.

For example, venture lenders now provide debt financing to many pre-revenue startups.

It’s completely plausible for a tech startup to raise a combination of debt and equity as it goes from pre-revenue to public company.

And while traditional leveraged buyouts still use both debt and equity, the equity percentage has increased significantly: From less than 10% in the 1980s to 40-50% more recently.

(Sources: This report from Piper Jaffray for older data and PitchBook’s stats for post-financial-crisis deals).

As a result, private equity firms can’t rely 100% on “financial engineering” to generate returns (as articles about this topic often claim).

In light of these changes, we can check which of the generalizations above are still true and which qualify as “fake news”:

Difference #1: Company Types

VCs do tend to focus on technology and life sciences, and PE firms do tend to invest in a wider set of industries.

However, VCs don’t invest exclusively in those industries.

The data varies from year to year, but small percentages also go into sectors like media and entertainment, energy, and consumer products.

Also, there are some sectors that traditional PE firms avoid: For example, few firms acquire commercial banks because of regulatory constraints.

Difference #2: Percentage Acquired and Deal Size

The points about the typical percentages acquired by each firm type (100%, or a majority stake, for PE and minority stakes for VC) are true.

But the copycat articles on this topic all cite the figure of “$100 million to $10 billion” for private equity deal sizes and “under $10 million” for venture capital deal sizes.

You should take these figures with a grain of salt.

First off, the “under $10 million” deal size applies mostly to Series A rounds (i.e., the first significant capital a company raises).

Once you get into Series B, C, and D, the deal sizes get far bigger.

Also, the average size depends on the industry: Cleantech and life sciences firms tend to raise bigger rounds than software startups because they need more capital.

On the private equity side, yes, the average leveraged buyout in a developed market is in the hundreds of millions USD, but plenty of deals are smaller than that.

Take a look at some of the charts from PitchBook to see – in the U.S., ~25% of PE deals each year are in the $25 – $100 million range. In other markets, that percentage is even higher because companies are smaller.

Finally, deals for over $10 billion have been rare in the decade following the 2008-2009 financial crisis; a “large deal” might be in the single-digit billions now.

Difference #3: Structure, Stage, and Risk

We covered this one above, but both firm types have begun doing growth-stage deals, which has changed the traditional risk/potential return profile.  So this one is more of a similarity than a difference.

Difference #4: Value Creation / Source of Returns

Nothing has changed for venture capital: returns still depend on growth and companies’ valuations increasing over time.

But things have been trending that way for many private equity firms as well.

When firms use 10% equity to acquire companies, “financial engineering” drives the returns – but when the average equity contribution is 40-50%, EBITDA growth becomes more important.

course-1

Excel & Finanical Modeling Fundamentals

Learn accounting, 3-statement modeling, valuation, and M&A and LBO modeling from the ground up with 10+ real-life case studies from around the world.

learn more

Difference #5: Operational Focus

Plenty of VC firms become more involved with a company’s operations than is commonly thought.

One example is Andreessen Horowitz, which has operational teams that assist executives with recruiting, sales, and marketing.

There are also plenty of private equity firms, especially in the middle market, that focus on operational improvements.

“Operational focus” is not a great way to differentiate PE and VC firms because it varies so much from firm to firm.

Difference #6: People and HR Strategy

At the junior levels, mid-sized and large PE firms do tend to hire mostly investment bankers, while VCs hire a more diverse mix.

But the lines start to blur when you move to the Partner or Managing Director level.

Many PE firms have “Operating Partners” with significant executive experience in a certain industry, and plenty of senior team members in venture capital enter the industry with banking/consulting backgrounds (especially in NY).

Difference #7: The Recruiting Process

There are “on-cycle” and “off-cycle” recruiting processes for junior-level roles.

The difference is that the hyper-accelerated, “on-cycle” recruiting processes apply primarily to bankers working at large banks in the U.S. who want to work at mid-sized-to-large PE firms.

In other regions and at smaller firms, “off-cycle processes” that start later and last longer are more common.

Most venture capital recruiting is also “off-cycle” – even some of the biggest firms take weeks or months to evaluate candidates.

PE and VC firms also look for different qualities in candidates: PE interviews are mostly about your prestige level, deal experience, and ability to crank through modeling tests.

Venture capital interviews are more qualitative, and interviewers care more about your ability to network, bring in deals, build rapport with founders, and understand markets.

Difference #8: Work and Culture

It’s true that you do more technical work in private equity, you spend more time coordinating deals, and the work environment is a bit closer to banking.

However, one point that’s often overlooked is that you also spend more time monitoring portfolio companies – which many people view as “boring.”

Another often-overlooked point is that you’ll pass on 99% of deals in both industries.

So, the work and cultural differences may be slightly overstated because you’ll still spend a lot of time reviewing potential investments and turning down most of them in both fields.

Difference #9: Salary & Compensation

No private equity vs. venture capital comparison would be complete without discussing moolah.

There are three main components to compensation in both fields: base salaries, bonuses, and carried interest.

In general, you’ll earn significantly more across all three in private equity – though it also depends on the fund size.

For example, in the U.S., first-year Associates in private equity might earn between $200K and $300K total.

But VC firms might pay 30-50% less at that level (based on various compensation surveys).

To give some more context, in the infamous Ellen Pao vs. Kleiner Perkins trial, we learned that Junior Partners at KP earned a $400K base salary and a $160K bonus, while Senior Partners earned ~3-5x that (due to carried interest).

Those figures are from one of the largest and most successful venture capital firms, so they are not necessarily representative of others.

You might expect that Junior Partner-level pay ($400-$600K) at the mid-levels in private equity at a decent-sized fund.

And past the mid-levels, the ceiling goes much, much higher: people like Steve Schwarzman routinely earn hundreds of millions per year.

The “average” Partner or MD in private equity likely earns in the single-digit millions, but that’s highly variable and dependent on carried interest and firm size/structure.

Difference #10: Exit Opportunities

It’s true that your exit opportunities are more specialized with VC: for example, it’s difficult to go from VC to PE but easier to do the reverse.

But these difference may be slightly overstated.

At the junior levels, most people in both fields tend to stay in those fields, go back to business school, or join a portfolio company (or other normal company).

Hardly any post-banking hires go back into banking, few people join hedge funds, and even fewer people do something completely off the beaten path.

Promotion in both PE and VC is tricky because many pre-MBA Associates roles are not necessarily Partner-track.

Even if you’ve done well and you want to stay at your firm, you may have to move somewhere else or get an MBA to advance.

Private Equity vs. Venture Capital: Which One’s Right for You?

That is the wrong question.

The right question is: “Which one do *you* have a reasonable chance of getting into?”

If you’re in the U.S., you need to be at a bulge bracket or elite boutique in the right group (industry group, M&A, or LevFin), and you must have attended a top undergraduate institution and earned a high GPA there to maximize your chances of getting into private equity.

If you don’t meet some or all of those criteria, you’ll have to use off-cycle processes, network aggressively, and target smaller firms.

The compensation will be lower, but at least you’ll be in private equity.

In other regions, it’s a bit easier to get into the industry because the process is less structured, and there aren’t as many headhunters blocking your path.

On the other hand, you could get into venture capital from a much more “random” background: You don’t need experience at Goldman Sachs TMT, a 4.0 GPA from Princeton, and a Nobel Prize to win an offer.

I’ve seen people get in from consulting, smaller banks, finance/business roles at normal companies, and even engineering roles (upcoming interview!).

If you can network like a fiend, you have good knowledge of tech or healthcare, and you can prove that you can do the work, you have a pathway into VC.

And if you can’t decide, don’t worry: You could always just stay in banking.

If you enjoy suffering, that is.

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.

Break Into Investment Banking

Free Exclusive Report: 57-page guide with the action plan you need to break into investment banking - how to tell your story, network, craft a winning resume, and dominate your interviews

We respect your privacy. Please refer to our full privacy policy.

Comments

Read below or Add a comment

  1. Hi Brian, how easy is it to move from growth equity to venture capital? Looking at team profiles on VCs’ websites, I can’t see any with growth equity experience, even though the two areas seem to have close links.

    1. Possible, but not the easiest thing because the skill sets are different, and VCs do not care about a lot of what you do in growth equity.

      1. Thanks Brian. Any info on how the skill sets differ, and what VCs don’t care about?

        1. VCs care less about accounting/finance knowledge and more about market/product knowledge.

  2. Avatar
    Ronak Shah

    Is there a possibility of getting into either of these after undergrad at a prestigious university? If so, would there be a future at the company without having to complete a MBA?

    Thanks for writing these articles.

  3. Hi Brian

    How often do you see former consultants in PE in London and NY? Other than Bain Capital that is? I’m currently a consultant but keen on going into energy PE after.

    1. It happens, but it is not that common unless you look at operationally-focused firms. Look at any mega-fund’s “Team” page and maybe ~10% of Associates will have a consulting background. Energy PE might be more feasible because they really only want people with energy banking (or sometimes consulting) experience.

  4. Brian, great read. Any insight on getting into a specific VC firm? Background is varied (former college instructor turned CPA and currently in Big 4 M&A diligence/consulting). VC firm is highly specialized in clean tech and environmentally conscious companies.

    1. We tend not to get as specific as individual firms. There are some articles on general VC and growth equity recruiting, which may be helpful (you can do a search). An upcoming article will also cover recruiting at life sciences VC firms.

  5. Avatar
    JackVale

    Hey Brian,

    Could you advise on what Banks allow penultimate internships for students graduating but pursuing masters degree? (which means still 1 more year till graduation)

    Example: Person X graduates from undergraduate studies in 2019 and decides to pursue 1 year finance master degree at Cambridge graduating in 2020. Is it possible to have internship during the 2019 summer?
    Cheers

    1. Most banks would allow that as long as you indicate that you’ll still be in school after the internship ends… so make sure the Master’s program is listed at the top of your resume and that you give a graduation date after the internship is over.

  6. Avatar
    Tech IB

    I’m 23, one year out of college with a biology degree and 3.83 GPA from a non-target school. I have experience in software development and I’d like to break into investment banking, specifically in technology.

    What would be the best way to break into investment banking, given my background, that gives me the best chance of success?

    1. It will be almost impossible without relevant internships or other finance experience. Your options are:

      1) Do a Master’s in Finance degree at a good school, get internships before/during the program, and enter at the Analyst level.

      2) Work for several years, apply to top MBA programs, do a pre-MBA internship in finance, and use that to get in.

  7. Hi Brian – Long time reader and big fan. You mentioned in the article “few people join hedge funds,” would you say this is because there are less hedge fund opportunities available, less people are interested in working at a hedge fund post 2008 or are there other reasons why?

    1. A combination of all of those. Hedge funds have had terrible performance post-2008, so many have been shutting down. There is a lot more uncertainty in your career as a result. Also, the “deal skill set” doesn’t translate as readily to hedge funds. Traders are better-equipped for many HF roles. We received quite a few questions about hedge funds 4-5 years ago, but not many lately (meanwhile, 99% of bankers still want to get into PE).

      1. Thank you, Brian. Appreciate the response.

  8. Brian,
    Most of the references to PE on your site are in terms of mega-funds/elite PE firms. When it comes to lesser known firms, do you lose a lot of the benefit in terms of making the switch from IB to PE? I assume this is definitely the case if you are moving from a BB to a lesser known PE, but what about from a MM to a lesser known PE? Is there a big drop-off in pay from top PE to lesser known? Thanks!

    1. The main downside is lower compensation at the smaller firms ($200-$250K rather than $300K for first-year Associates, with some variance depending on the region and firm type).

      But the hours may be better, and you may get more promotion opportunities. The work isn’t that different, but arguably you do more technical work at the biggest firms (though that’s heavily dependent on your group, market activity, etc.). Most people would say the work at a PE firm of any size is more interesting than what you do in IB.

      We tend to focus on the large firms and then explain how others differ from them because it’s easiest to start at the top and explain the differences from there.

      1. Gotcha, that’s very helpful. Impressed with the website, but even more impressed that you make the time to reply to everyone’s questions and comments. Makes this site something special.

  9. Great article. If an undergrad can make it straight into VC as an analyst for a couple of years, how easy is it to make the transition to move to PE? Especially where technical skills are concerned. Furthermore, is VC -> distressed a possibility? If no, what are the steps required in between?

    1. It is almost impossible to move from VC to PE or to distressed because the skill sets are too different (you don’t do anything with debt in VC, for the most part).

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

    1. Avatar
      Goatsemannen

      Just curious: What was your conclusion, VC or PE?

  11. 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. Avatar
      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…

  12. 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. Avatar
      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.

  13. 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. Avatar
      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.

  14. Avatar
    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. Avatar
      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. https://www.mergersandinquisitions.com/break-into-venture-capital/ is a good article to refer to.

  15. 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. Avatar
      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) https://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. https://www.mergersandinquisitions.com/private-wealth-management-private-banking/

  16. 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. Avatar
      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/

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

    1. Avatar
      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 – https://www.mergersandinquisitions.com/private-equity-recruiting/

  18. 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. Avatar
      M&I - Nicole

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

  19. 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. Avatar
      M&I - Nicole

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

  20. 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. Avatar
      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. Avatar
          M&I - Nicole

          You’re welcome.

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

  22. 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. Avatar
          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. https://www.mergersandinquisitions.com/getting-a-finance-job-from-engineering/

          1. Thanks again !

          2. Avatar
            M&I - Nicole

            Anytime!

  23. Avatar
    dr sudeep singla

    Great article . Now I understand pe and vc precisely

    1. Avatar
      M&I - Nicole

      Thanks for visiting our site.

  24. 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.

  25. 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. Avatar
      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.

  26. 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. Avatar
          M&I - Nicole

          Thanks for visiting our site!

  27. 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. Avatar
      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

  28. 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.

  29. 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. Avatar
      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?”

  30. Avatar
    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. Avatar
      M&I - Nicole

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

      1. Avatar
        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. Avatar
          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. – https://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 –
          https://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. Avatar
            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. Avatar
            M&I - Nicole

            Anytime!

  31. 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. Avatar
      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. Avatar
          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

  32. 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. Avatar
      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. Avatar
          M&I - Nicole

          Good luck! Let us know how it goes!

  33. 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. Avatar
      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. Avatar
          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. Avatar
            M&I - Nicole

            I agree. Go for it!

  34. 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. Avatar
      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

  35. 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. Avatar
      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

  36. 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!

  37. Avatar
    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.

  38. 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

  39. 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

  40. 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.

  41. Avatar
    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.

  42. 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):

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

  43. 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.

  44. Avatar
    homermatrix

    CaN YOU write an article about hedge fund?

  45. 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.

  46. 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.

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

      1. Avatar
        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.

  48. 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.

  49. 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…”

  50. Avatar
    erkkkul

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

    1. Probably 60-70 hours per week

  51. 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. Avatar
        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.

  52. 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.

  53. 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.

  54. Avatar
    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

  55. 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.

Leave a Reply

Your email address will not be published. Required fields are marked *