by Mike Moran, CFA Comments (94)

How to Break Into Commercial Real Estate and Build an Empire

Commercial Real Estate Groups

This is a guest post from Mike Moran, CFA, a portfolio manager at a long-only asset management firm. He started Life on the Buy Side to teach you what it’s like working in asset management, hedge funds, and more.

When it comes to commercial real estate, you’ve got two choices: do something extremely risky, or do something boring and conservative.

OK, you could also pick something middle of the spectrum – but what fun is that?

If you have your sights set on building a real estate empire, you’re going to have to take the leap and embrace the risk with open arms.

Here’s how to do it:

Risk, Reward, and Reality

With commercial real estate, it’s easiest to think of investment opportunities from least risky to most risky and then analyze the players in each category:

Core Investing is all about stability and getting high single-digit returns by operating existing assets. There’s little risk when a building is already operational and generating rental income – think of the GM Building in New York or a class-A regional mall as example investments.

Since these are stable assets that provide a steady income stream to the owners, pension funds are the main investors in core funds – firms that specialize in acquiring and operating existing properties.

You also see Real Estate Investment Trusts (REITs) – both publicly traded REITs and private REITs – in this space, as well as core real estate funds run by real estate investment managers such as AEW and RREEF.

REITs are like private equity firms but for buildings rather than companies – they acquire, operate, (possibly) improve, and then sell properties to earn high returns.

Getting Riskier…

After you leave this Core Investing space, you get into Value-Add and Opportunistic Strategies – this is where the investors try to make substantial improvements and renovations to existing properties rather than just acquiring and operating them.

Returns are typically in the 15 – 20% range, but may go higher depending on how risky the strategy is. Some REITs and core funds managers dabble in this space, but you mostly see private equity shops like Blackstone here – a high single-digit return is horrible for PE, so it makes more sense for them to focus on riskier strategies.

At the riskiest end of the spectrum is real estate development, and the players there are all over the map.

Some REITs have large development pipelines and invest significant resources into constructing new properties – examples are AvalonBay [AVB] (apartments) and Prologis [PLD] (industrial), which often have multi-billion-dollar pipelines.

Private equity can sometimes be active in development, but usually only as the capital partner to developers.

There are also large private companies like Opus that focus on real estate development without the pressures that come from being publicly traded.

Risk = Reward?

Based on the descriptions above, you might think that real estate development offers the highest potential returns and the highest pay since it’s also the riskiest.

But you’d be wrong: It’s a boom-and-bust business, and developers are also the first people to get fired in a downturn.

While Prologis had a $4B development pipeline at the market peak, it dwindled down to less than $500MM after the market collapsed; three of Opus’ five major subsidiaries filed for bankruptcy in the past downturn.

This is not to say that real estate development is “bad” – it’s just that you shouldn’t jump into it expecting to make bank right away.

It’s great if you’re into the brick-and-mortars side of real estate, but if you’re not, think about the other options above.

There are also asset management firms and hedge funds that specialize in real estate securities, and even shops that invest in REITs – if you want to blend real estate and the public markets, both of these can be good options.

How to Break Into Commercial Real Estate

As with everything else in finance, at the entry-level you’re just a high-paid spreadsheet monkey who works on deals all day – whether that’s at the core funds or at private development companies.

A typical “path” for breaking in is to go to a target school and then get into real estate investment banking – that’s what many of the top people at the biggest real estate firms and REITs have done.

Mike Fascitelli, CEO of Vornado [VNO], is an example of a real estate big shot that followed this path. He went to Harvard for his MBA, started at McKinsey, and then went to Goldman as a real estate investment banker. After several years at Goldman, Steve Roth lured Fascitelli away from banking to work at VNO.

But you don’t have to follow that path to break in – and an MBA isn’t even a prerequisite.

The best example is Jonathan Gray, the co-head of Blackstone’s real estate group – Gray started at Blackstone with just an undergraduate degree from Wharton and worked his way up to become co-head of the entire real estate group by age 35. At age 37, he was busy pulling off the $36 billion Equity Office Properties acquisition, the biggest private equity buyout ever (at the time)!

Yes, Wharton is a target school and it also happens to be one of the top undergraduate schools for real estate – but more importantly, it has a great real estate alumni network.

Just like everything else in finance, leveraging your alumni network is essential to breaking in: I wouldn’t be surprised if Gray tapped his network to land his gig at Blackstone right out of school.

Other top undergraduate schools for real estate in the US include UC Berkeley, USC, and Wisconsin – these are well-known institutions, but they’re not the Ivy League and they’re not the ones that immediately come to mind when you think of a “target school.”

Real estate is very much a “who you know” business and having a well-connected alumni base is critical – if you’re at a school without much of a presence in real estate, your next best option is to get an MBA at a school with a strong real estate program.

If you’re already out of school and working, you could get involved in trade groups like ICSC, ULI, or YREP if there’s one in your area.

Whatever you decide to do, networking is even more important in real estate than in other industries so start pounding the pavement as soon as possible.

Got Real Estate Development?

While many top real estate jobs required work experience and/or more than an undergraduate degree, development is one area where undergrads from all different backgrounds can get in right out of school.

So if you’re in this boat and you’re interested in real estate, you’re better off using your career center and alumni network to break in and focusing on development rather than PE, REITs, or anything else.

Q: Do I need investment banking experience to break into development?

A: No, no, and no. In fact, you might have too much experience if you actually do real estate IB and want to break in afterward – an entry-level development role would be a step backward.

Development is significantly different from real estate IB or PE, and they shouldn’t even be in the same category.

Q: Wait, but what should I do with my life if I don’t do investment banking first?! Otherwise everything is meaningless!

A: Pick a major that lends itself to real estate development. Example majors: Real estate, civil engineering, architecture, or construction management.

Since development is much more bricks-and-mortar than other RE-associated industries, knowing these subjects is valuable for breaking in – and you’ll get the alumni network to help you land a development job.

If you don’t know what major and/or school is good for getting into RE development, just ask around and see what types of jobs most graduates get – if “real estate” is a common answer, you’ve found a good match.

Breaking Into REITs

Real Estate Investment Trusts (REITs) are investment vehicles that are exempt from corporate income taxes as long as certain criteria are met; the main one is that REITs must pay out 90% of their taxable income as dividends, which means they have little cash on hand and are constantly issuing debt and equity to fund their operations.

Historically, REITs were passive vehicles that focused on owning properties and escalating rents over time, but today they’re more dynamic, and many REITs buy, sell, develop, and manage properties and 3rd party joint ventures all the time.

A few of the larger REITs in different segments include the Simon Property Group [SPG] (shopping malls), Boston Properties [BXP] (offices), AvalonBay [AVB] (apartments), and Prologis [PLD] (industrial).

Since REITs use so many different investment strategies, there are all sorts of different job opportunities there.

On the operations side are developers, property managers, and acquisition people that deal directly with properties.

On the capital markets side, you’ll find finance people that work on equity and debt deals to fund the REIT’s operations.

If you want to get into the operations side of a REIT, it’s similar to what you need to break into RE development: Get a real estate-related undergraduate degree and network with alumni.

But if you’re interested in capital markets, you need real estate investment banking experience – REITs are one of the main exit opportunities for RE bankers since you advise REITs all the time as a banker.

Bottom-line: if you’re more interested in finance, go the banking route and look for REIT exit opportunities; if you’re more interested in the bricks-and-sticks aspect of real estate, skip banking and go straight into development or acquisitions.

Compensation: What Compensation?

Unfortunately, there are few good data sources on real estate compensation – but pay tends to be commensurate with risk and expected returns, at least in buy-side roles.

The main exception is development – it’s the riskiest investment class and yet the pay is also the worst.

The real money in development accrues to those that put their money at risk in the developments.

To complete construction of a new property, the developer itself only puts down a very small portion of the total equity – maybe 5% or less.

Many times, the developer simply contributes their land basis as the only equity in the project and then uses debt and mezzanine financing to fund the entire construction cost.

Most of the returns will go to the 3rd party investors that come up with the rest of the funds – and to make things even worse, there’s no cash flow from properties that are under development until tenants move in and rental income starts flowing.

Even the fees the developers charge are not great compared to the overhead, so there isn’t much money left to pay salaries to employees.

So, do not get into development if money is your main goal – only do it if you’re interested in building and construction side of real estate.

You will not make it big until you have enough money to invest in development projects yourself.

For core funds and REITs, pay is consistent with base salaries for recent graduates elsewhere in finance – the main difference is that you won’t receive Wall Street-like bonuses in these jobs because the fees and returns are lower than in PE, for example.

On the private equity, hedge fund, and asset management side, compensation is similar to what you would earn at non-real estate funds. So real estate PE is similar to normal PE, real estate HFs are similar to normal HFs, and REIT-focused asset management is similar to normal asset management.

And on the investment banking side, you don’t see much of a difference at the junior levels between real estate banking and other groups.

Exit Opportunities

As with other buy-side jobs, the buy-side itself is the end-game. Once you get there, it’s just a matter of working your way up until you become the next Jonathan Gray.

Be careful of getting pigeonholed: If you get into real estate and don’t like it, move on as quickly as possible or it will become more and more difficult to find a non-real-estate job.

In addition to moving up the ladder, investing in real estate yourself is another possibility: A number of friends have amassed nice little portfolios of multi-family assets.

And unlike buying entire companies, the capital requirements for real estate are far lower and you don’t need to raise hundreds of millions of dollars just to buy a house.

Raising a small fund of your own is also possible, but just as with starting a hedge fund you need to raise some seed money to get started – you would go to friends and family first, show solid performance, and then approach a broader set of investors once you can point to results.

Whither Real Estate?

It’s a great field, but keep your expectations in check.

Until you have enough cash to fund massive real estate developments by yourself, you won’t see your name on any buildings.

And if you want to become as famous as a certain real estate developer – and maybe even become President of the United States as well – it might just be easier to get your own reality TV series instead.

Even More on Real Estate

If you want to learn more about the modeling and valuation side of real estate, check out the BIWS Real Estate & REIT Modeling course, which covers both individual properties and REITs via case studies of an apartment complex, an office development and sale, a hotel acquisition and renovation, and Avalon Bay, a leading apartment REIT.

There are also real estate private equity case studies based on stabilized multifamily, value-added office, and pre-sold condo development deals.

About the Author

Mike Moran, CFA is a Portfolio Manager at a long-only asset management firm. He started Life on the Buy Side to teach you what it’s like working in asset management, hedge funds, and more.

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by Brian DeChesare Comments (77)

Why You Can’t Break Into Private Equity as a Foreigner in China

China Private EquityDespite my repeated warnings that emerging markets don’t care about you – only people who know the language, have connections, and are qualified to work there – this question won’t go away:

“I really want to work in China! How can I break into finance there? I’ve studied Mandarin for 5 years and I can read faster than Chinese people now! Show me how to get into PE!”

I’ve gotten tired of answering that one, so today you’ll hear from someone much better qualified to answer it than me: a reader who works in private equity in China.

He’ll tell you all about:

  • How to network your way into the industry and how it’s different from PE in the US/Europe.
  • Why foreigners are getting pushed out of the industry and why you’d have to be “crazy” to go work there these days.
  • What you should do instead if you want to do business in China.
  • How the pay and work culture differ from other parts of the world.

How It All Began

Q: Can you walk us through your background and how you broke into private equity in China?

A: Sure. I was a newly minted MBA, and back in 2005-2006, China’s PE market was much less developed.

I went to AVCJ’s annual conference in Hong Kong, networked like mad there, and got an internship helping a small fund with a capital raise. That fund later went on to become the #1 PE fund in China, and I rode their coattails to success.

I still believe that conference, among others, is the best way to break in but today it would be almost impossible to follow the same path if you’re a foreigner.

There are way too many local Chinese who work or study abroad and then return home, and too many bankers eager to move into PE.

And even though I’ve been here for years, even I have been getting pushed out of the industry – just like all other foreigners.

To be frank, I wish I had heeded the warnings of others and had spent the time breaking in to PE in the US/EU instead. Now, nearly six years later, I don’t think I’ve had the experience and training I would have had in the more developed markets.

So, if you’re a foreigner, be kind to yourself – don’t try to get into PE in China. If you absolutely must have your China experience, feel free to come over, but focus more on “bridging” roles, like investment banking, sales & trading, and so on.

PE is a local market, and in China, it is hyper-local. Five years of Mandarin won’t cut it; heck, near-native-fluent Chinese won’t cut it.

Even foreign-born Chinese, Taiwanese, Singaporeans, and people from Hong Kong have a tough time finding roles here because they’re also too foreign. You were either born and raised here, or you weren’t – and if you weren’t, you’ll always be an outsider no matter how much baijiu you can drink.

Now, if you are from mainland China, then there’s still a lot of opportunity.

I would recommend coming here in that case, because there’s more going on and if you can hack the local game you can get some great deal exposure and you might even make a fortune in the process.

Q: OK, let me stop you right there because I want to return to that topic of how you actually break in at the end.

So most foreigners would face a near-impossible battle to get in, but what is the private equity industry in China like?

What types of deals and companies do you focus on, and is it mostly local firms or international ones that make investments?

A: The industries themselves are diversified – you see manufacturing, state-owned-enterprise commercialization, consumer/retail, clean-tech, software and IT, energy, construction, infrastructure, healthcare and so on.

Many firms are still generalists with certain sectors of expertise / focus, but a few sector funds have sprung up as the market has matured – there are a few healthcare funds, a few clean-tech funds, a few technology funds, and a few consumer / retail funds.

Local funds and international funds are completely, 100% different animals.

The local funds staff huge teams – sometimes up to 100 investment professionals in a firm – and the pay therefore is lower, there’s often little formal training. You may struggle to get noticed and find a mentor, and it’s tough to navigate the political environment.

But the local firms do most of the deals, whereas international firms are having trouble closing anything.

Some of the regional funds (such as Barings, HSBCPE, Actis, etc.) are able to get some good deals done, but PE firms such as Carlyle, TPG, and so on, don’t see much action here.

In short:

  • Local PE Firm: More deal exposure, but no structured training, and lower compensation.
  • International PE Firm: Brand, better pay and training, but lower chance of closing deals – which will hurt your CV.

Friends here have been frustrated at both types of firms – those at local firms feel underpaid and under-appreciated, and those at international firms complain about never closing deals.

Q: Right, so you’re stuck between a rock and a hard place there.

What’s your average day like in terms of responsibilities and work? Is it mostly due diligence and modeling, or do you get more “random” tasks?

A: So far I’ve focused more on fundraising and investor relations than anything else. When I first joined this firm I started out as a deal guy, but once there were more skilled locals in the market, my role was shifted to fundraising.

I actually don’t mind that since I enjoy fundraising more than deals – analysis and due diligence can get repetitive, and you see companies at such a high-level that everything starts to look the same after awhile.

The good part about fundraising is that I get a lot more exposure to Limited Partners than if I were in the US or EU – there’s a lot of potential there for future networking since they all know who I am now.

Sometimes it does get repetitive telling the same story to potential investors, but that’s true of any sales job or even if you’re the CEO of a company.

Q: So they’re pretty much limiting the investment/deal work to locals?

A: Yes. Again, I would actively discourage foreigners from trying, unless you really have native-level Mandarin (beyond just “fluency”).

The nature of the job for locals or returnees, however, is compelling.

The deal professionals get to explore very interesting companies across a whole spectrum of industries, and the work includes due diligence and business analysis, which involves researching an industry by speaking with experts, interviewing the company’s management, and speaking with competitors.

You do some financial modeling, but it’s not really meaningful – at least not in the traditional sense.

Most businesses are growing so quickly that standard models are meaningless. With 50-100% revenue growth rates, analyses like the DCF break down and even valuation multiples don’t tell you much if the company is growing at that rate.

Private equity here is more like venture capital in developed countries.

Investors spend their time on industry and management team analysis, and most of their time is spent deciding which industry is best to invest in, whether the target company can become a market leader, and whether or not they can trust the management team.

Trust is still a major issue in China, and you can’t depend on legal documents to be truly binding – they are a framework, but interpretation and enforceability are questionable.

So half of your due diligence time might be spent understanding the psychology of the management team – particularly the founder. If you’re depending on your closing documents to protect you, then you’re already in trouble before the ink is dry.

Q: Interesting – and that foots with one of the previous interviews here from a reader who completed a PE internship in China.

What about the pay and work culture there? I’m assuming that pay is lower on an absolute basis, but higher relative to the cost of living?

A: Pay varies greatly between local and international firms. Foreign firms here pay about average global pay for PE – so between $150K and $250K USD all-in for associates.

Local PE firms pay less – maybe around $90K USD for new associates.

In 1990 or 2000 those figures might have been a ton of money in China, but over the past 10 years the cost of living here has skyrocketed and places like Beijing and Shanghai aren’t as cheap as they used to be.

They are still less expensive than New York, and so you won’t starve on $90k per year. But it just isn’t the bargain it used to be. The tax rate is also higher than in Hong Kong – up to 30-40% vs. about 15% in HK – so that also eats up a good chunk of your pay.

Bottom-line: you will make less in PE here compared to the US / Europe, and you’ll make significantly less working at a local firm. You have to decide if it’s worth it, and that trade-off makes little sense unless you’re truly committed to staying in this market for the long-term.

Q: What about carry? Since the market is less developed do they give that to associates or anyone less senior than MDs?

A: Carry is almost always restricted to the senior MDs here.

There is a very patriarchal/monarchical feeling at many of the firms – you’re either a rain-making MD who brings in deals, or you’re commoditized execution.

This may sound just like the US and EU, and to a certain extent it is – just a more extreme version of the usual investment banking hierarchy.

It’s not unheard of for just a few guys at the top to get all the carry and for everyone else to get nothing. That creates a situation where the guys at the top are making literally millions (or billions) and everyone else below them is making base pay, keeping their fingers crossed for bonuses, and hoping to climb up the pyramid for a shot at some equity… hopefully… someday… maybe.

That said, those who did manage to get a slice of the carry are probably looking at returns that could easily fund a comfortable retirement in just a few years’ time. Many of the funds have returned 3-5x, and have had IRRs of over 100%, so the carry really is making some people incredibly wealthy.

Again though, carry is not awarded to the non-MD investment professionals. Yes, it can be similarly lopsided in the US/Europe, but at least as you move up you’ll earn progressively closer to what MDs and Partners make, and eventually you will get carry even if you’re not the top person at the firm. In China, carry is just shared among a small number of hands.

Foreigners, Abandon All Hope?

Q: Let’s go back to why it’s so tough for foreigners in the China PE market. Do you have any foreign co-workers, or are they all locals from mainland China who worked or studied abroad and returned home?

A: There are fewer than 10-15 foreigners working full-time in the entire PE industry in China, and we all know each other.

Most of us have been pushed out from deal work and, like me, focus more on fundraising and investor relations.

Q: OK, but I’m sure there must be a few foreigners there in high-up positions? One of our other interviewees mentioned that the MD at her firm was foreign.

A: There are some exceptions. For example, a few foreigners got in 5-10 years ago as founding MDs of their firms, so they have unique positions.

But the rest of us – other investment professionals – have been mostly pushed out. There was one other guy who was relocated to Asia by a major international PE shop, but he was then axed to free up the position so that a local could be brought in instead. And he was a senior officer with 10 years+ of PE experience and fluent Mandarin.

Q: OK, point taken – but wouldn’t knowing the language give you a big advantage and let you compete more effectively with people from mainland China?

A: No.

Becoming 100% fluent in written and spoken Mandarin has about a 1% chance of helping you break into private equity here.

These “exceptions” I’ve referenced were already 100% fluent in the language and could read and write extremely well, and they were still pushed out.

Most of the foreigners here are now in fundraising roles, even if they worked at bulge bracket investment banks before and earned MBAs from top schools.

No one is interested in foreign professionals anymore, and it’s not even about the language – it’s that the work culture and deal environment here are so local.

It’s not like some countries (the US and UK) where anyone who can learn the language can advance to the top. They heavily favor locals and will tolerate foreigners, but will never fully accept them.

That’s why I’m making such a strong recommendation against coming here to work in PE – it’s just not realistic with the current state of the market.

You could spend years studying and learning the language, then more years struggling to break in, only to find yourself sidelined and underutilized because they don’t care how good you are or how much experience you have, only that you’re not a mainland Chinese who can bring in deals and charm the local entrepreneur.

Q: Not exactly the rosiest picture there…

Let’s say that someone is really interested in doing business in China – would you tell them to just give up altogether, or just to forget about PE?

A: If you’re from here originally, have family/connections, and want to go back home, China is great. There are opportunities in PE, banking, consulting, and entrepreneurship – you name it. The rapid growth engenders opportunity.

But if you’re a foreigner, and you absolutely, positively can’t get China out of your mind, then you can take your best shot.

However, if you want to make the leap I would steer clear of PE and focus on other areas like investment banking, investor relations, consulting, or being the CFO of a company.

In those areas, international experience/exposure is more valued and you don’t actually have to be Chinese to fulfill the role.

Oh, yes, and make sure you get to 100% fluency in Chinese – reading, writing, speaking, and listening; obviously reading and writing are the hardest parts and will consume 95% of your time.

Q: Out of curiosity, why do you think there is such a strong bias against foreigners in PE?

A: Similar to venture capital in the US, Europe, and other markets, private equity is a hyper-local business here. You need to be here on the ground communicating directly with management teams to have any chance of winning good deals.

They favor locals because they know that they have connections and are better able to reach local businesses; plus, they understand the culture implicitly and won’t get “rejected” by entrepreneurs nearly as much as foreigners.

Also, both the local and international firms must project an image of being local from a marketing standpoint – whether they are showing their local chops to entrepreneurs, the government, and especially their own LP investors.

Q: So we’ve established why you don’t want to work in PE as a foreigner in China.

But let’s say that someone reading this is from mainland China, has studied or worked abroad, and is returning home – how would he or she go about breaking into private equity?

A: It’s all about networking and conferences here. You need to go to the AVCJ conference in Hong Kong and the SuperReturn China conference, and then do a lot of networking with people you meet there. Bring 300 or so business cards, meet everyone, and try to set up side-line meetings in advance.

You should also connect with friends who work at the firm you’re interested in and who can help you get in touch with the senior staff (MDs or CEOs). Business school classmates and alumni can also help.

Some of the larger domestic firms have also been going to business schools lately to recruit there, so that’s another option as well.

If you’re returning home and want to be here long-term it’s still a great time to get into the industry, since you can join a fast-growing firm and rise to leadership. The competition is tough, but it’s possible to break in and advance, and the rewards are certainly there.

It definitely gets more competitive each year, but since most PE firms are looking for people with very specific profiles you have a much better shot of getting into PE here than you would by competing with the broader market in the US or Europe.

Q: Are there any differences they should be aware of with recruiting, CVs/resumes, and interviews?

A: The main difference is that you don’t need investment banking experience to get into private equity here.

Technically this is not true in developed countries, either, but let’s be honest: the majority of people who break into PE have done banking or something similar like management consulting or Big 4 Transaction Advisory Services.

But in China, most PE professionals are not from an investment banking background, so they don’t expect you to have that experience either.

It’s really about networking, meeting the right people at conferences, following up with them and being persistent until they give you interviews.

CVs/resumes are not much different, and in interviews they’ll ask similar questions though there’s obviously less focus on modeling and deal experience; it’s more about “fit” and your general knowledge of how to analyze businesses.

Q: Great, thanks for your time. And I hope your situation improves and that you can find a better role in the future.

A: No problem – enjoyed sharing my story even if it sounded a bit pessimistic at times. And yes, I’m working on other roles right now….

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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by Brian DeChesare Comments (96)

How to Break Into Corporate Development and Make Bank Without Selling Your Soul

How to Break Into Corporate Development and Make Bank Without Selling Your Soul

While other exit opportunities get more attention – it is hard to pass up moving into PE or hedge funds and buying your own country, after all – corporate development presents many attractive benefits, such as having a life and building value for customers rather than destroying the world.

Today we’re going to speak with a reader who works in corporate development at a pre-IPO tech startup (yes, you would know the name) on the West Coast of the US.

Inside, you’ll learn:

  • What the recruiting process is like for corporate/business development and related fields.
  • What types of people go to work at normal companies, and how to move in from banking/consulting.
  • How recruiting might differ at larger companies and non-tech companies.
  • How to ask your MD to hook you up with a job without getting fired.

Walk Me Through Your Resume

Q: Can you tell us about your background and how you got into corporate development?

A: Sure. I was from a non-target university and worked at a middle-market investment bank after graduation, focusing on Internet companies there.

I was promoted to stay on for a 3rd year, but around that time I was also getting interested in moving on – I stuck around mostly because the economy was in a nosedive and we were just entering a recession at the time.

A few months after that, a company we had worked with before came to my MD and said they were looking for a corporate development Associate, so the MD referred me, I went through the recruiting process there, and had an offer a few weeks later.

I didn’t want to follow the typical PE or HF path, and at this startup I would have a chance to work directly with the CEO and other senior executives and get a much better work-life balance, so I decided to take the offer.

Q: Right, sounds like a good move – you were actually employed throughout an entire recession, which didn’t happen to too many other bankers.

You mentioned “corporate development” just now – terms like “business development,” “corporate strategy,” “corporate development,” and “corporate finance” are lumped in the same category, but how are they different? What do you focus on?

A: It depends on the company, but here’s how I think about the differences:

  • Corporate Development: You focus on M&A and acquiring other companies as well as setting up joint venture deals.
  • Business Development: It’s less about M&A and acquiring companies / stakes of companies and more about setting up partnerships.
  • Corporate Strategy: This is like management consulting, only internal to the company. You focus on planning their big-picture strategy, solving specific operational problems, and competitive analysis.
  • Corporate Finance: This is more like FP&A (Financial Planning & Analysis) – you maintain the company’s finances, plan their budget, and make sure all the right controls are in place.

Of those, corporate development is most similar to banking/PE, and corporate strategy is most similar to consulting; corporate finance is closer to accounting or auditing work and you don’t need to understand deals to do it.

My job is a combination of corporate development, business development, and corporate strategy – since it’s a startup you have to do a bit of everything.

Q: Sounds like a good deal, you get to acquire companies and advise the CEO while avoiding all that boring internal budget stuff. Why did you want to do corporate development rather than PE or HF?

A: A couple reasons:

  1. I wanted to go to a top business school one day and I could set myself apart by doing something other than the typical “track.”
  2. Since I was from a non-target school and didn’t work at a bulge bracket bank, I had almost no chance of getting into the top private equity firms and hedge funds.
  3. Corporate development offered a better lifestyle and more responsibility than what you’d get at a typical PE firm or hedge fund – at a lot of those places you’re still an Excel jockey pulling all-nighters.

Even though it’s a startup, the company itself is very well-known and so I also received the benefit of branding by working there.

The downside is that you don’t get paid as well and bonuses are much lower, so if you’re 100% focused on making as much money as possible, you’re better off following the traditional path.

Recruiting

Q: What’s the recruiting process like for corporate development?

A: As I mentioned, my MD recommended me to the VP of Corporate Development at my company and so I got interviews right away without having to go through a resume screen.

Here’s what I went through:

  1. After my MD recommended me, the VP of Corporate Development called me to chat and find out more about my background.
  2. I did 3 phone interviews before I flew in to meet with the company.
  3. On the interview day itself, I met with 10 people across all divisions at the company, from managers and VPs all the way up to the CEO himself.
  4. Right after meeting in-person, I heard back fairly quickly and accepted the offer.

They focused on my deal experience in interviews but did not go into extremely technical questions as you would get in some IB/PE interviews – they cared more about what the rationale behind each deal was, how I contributed, and the main issues we confronted.

They also asked more general questions such as what companies I admire, what I like about them, and what I thought about the strategies different companies were using.

There were a lot of questions on why corporate development over the typical PE/HF choices, so you need to have a good answer there (hint: don’t say “lifestyle,” say that you want to build value over the long-term and spend your time contributing to a single company’s growth).

They tried to gauge my maturity and see how well I could think independently, because the perception is that banking analysts follow the herd and do what they’re told – which is a big problem at a startup, or any normal company for that matter.

Q: I guess that’s not too difficult if you follow the news and have your own investment / strategy ideas, though.

Are they mostly looking for former bankers and consultants, or can undergraduates and people from different industries break in as well?

A: It’s very rare for undergraduates or people in other industries to get into corporate development, unless they’re already working in a similar role at a similar company.

When the VP of Corporate Development here began searching for someone to fill this position, he was only interested in investment bankers and management consultants.

I guess theoretically an undergraduate might be able to break in if he had previous internships in the field, but if they weren’t even open to it at a startup I doubt it would be easier at Fortune 500 companies.

Q: What about if you start out at the post-MBA level in banking or consulting? Can you still move into corporate development?

A: Honestly I am not 100% certain since our hiring process is more random than what you see at big companies.

But I have seen post-MBA bankers and consultants move in – it’s certainly more possible than getting into PE or HF, since they’re looking for younger candidates.

It’s still more difficult if you already have an MBA and you’re moving into corporate development because you’ll have higher salary expectations, but it is possible – you just have to be more discreet because you don’t exactly want to go around telling senior bankers that you’re leaving.

Q: Right, that makes sense and confirms some of the other stories from readers who completed MBAs.

Are there any differences in resumes compared to banking/PE, and do you need to talk about your deal experience differently?

A: Not really, just use the investment banker applying to buy-side resume template on this site and that works equally well for corporate development jobs.

Talking about deal experience is the same – focus on how you saved money, earned money, or improved a process – and follow everything in the PE interview guide here.

Making the Ask

Q: Most people would be afraid to approach their MD and ask for a recommendation – how did you do it and how much pull did he have?

A: A lot of it depends on your bank and the group you’re in. At most bulge bracket and middle-market banks, they are used to analysts moving on after 2 or 3 years so it’s not awkward at all to bring up the topic.

I would just shoot a quick email to your MD or whichever senior banker knows, likes, and trusts you the most and ask for 5 minutes to chat about the next steps in your career.

When you work with headhunters, specificity helps and they will be able to help you much more effectively if you can say exactly what you’re looking for (e.g. “$500MM – $1B PE funds that invest in Asian real estate assets”). But with MDs and other senior bankers, you shouldn’t be quite as specific – just say generally what you’re looking for (“corporate development”) and see if he knows of anything.

Headhunters have hundreds of opportunities coming in all the time, whereas bankers hear about far fewer job openings – if you’re too specific they might not be able to help you at all.

A lot of analysts are scared to ask senior bankers for buy-side referrals, but it’s silly because senior bankers benefit by helping out their analysts – if they help the analyst get a job at a normal company or PE/HF, their chances of getting business from that firm are higher in the future.

You could even ask MDs if their friends at other firms know of anything – if they like you, they will help you out.

Q: OK, but let’s say you have an MD who’s more like Patrick Bateman. He doesn’t like you, everyone in your group sucks, and it’s an awful work environment. What do you do then? Go to headhunters?

A: No. Unlike private equity and hedge funds, headhunters are extremely rare in corporate development.

I actually talked to some headhunters when I was getting ready to recruit, and no one had any opportunities in corporate development.

At normal companies, recruiting happens via connections, networking, and even via job board postings.

There are far fewer corporate development jobs than PE/HF jobs – to even have a corporate development division, a company has to be fairly large. You don’t see 10-person small businesses recruiting for corporate development roles.

Whereas an analyst or associate would be critical even at a 5-person startup hedge fund, he would be completely useless at a 5-person Internet startup until the company got big enough to make acquisitions.

If your group is not helpful and there’s an awkward culture there, network yourself and contact alumni, friends at other banks and firms, and even former clients to see what’s out there.

If you don’t know anyone, you can go to LinkedIn, Doostang, and other job boards online and apply there – that’s less effective and you shouldn’t spend all day doing it, but sometimes it does work.

Q: What about the timing for all of this? If you start out as an investment banking analyst or associate, when should you start recruiting for corporate development roles?

A: Unlike private equity and hedge fund recruiting, which follows a specific schedule and can finish more than a year in advance of when you start, corporate development recruiting is much more random.

If you’re set on moving on after your 2nd year, you don’t necessarily need to start 18 months in advance as you would for PE – you can wait until you get your first year bonus and then start recruiting in the fall. You definitely want to start 6 months or so in advance at the minimum, but normal companies hire year-round and job openings don’t follow a set schedule.

So I don’t think there’s an “ideal time” to recruit – just make sure you get your bonus before bouncing, and that you start looking well in-advance of when you’ll be leaving.

The Road Not Taken

Q: We’ve been discussing the recruiting process at a pre-IPO tech startup – how do you think it would be different at a much larger company, or a non-tech company?

A: I have a friend who just started in corporate development at a Fortune 500 company – his team there is more like 7-10 people rather than the 2-person team we have here, and he interviewed with everyone on the team but did not speak with executives in other divisions.

They still ask the same types of questions, but interviews may be more technical and formal and your job description would be narrower – at a company with tens of thousands of employees, they don’t need you to do corporate strategy and business development and corporate development.

So your role would be more focused on one area such as just M&A deals, and you wouldn’t be interviewing with the CEO and all the senior executives as I did.

Q: That CEO interview must have been tough – what did he ask you about?

A: It was actually one of my easier interviews, because it was very high-level – similar to interviewing with Managing Directors in banking.

He spent a lot of time asking about my career vision, why I was interested in corporate development rather than investment banking, and what ties I had to the local area.

They wanted people with connections to the city I’m in, because they want you to commit to living here for an extended period – it’s not like being sent overseas with the expectation of returning home after a few months to a year.

He also asked about the main challenges of corporate development compared to investment banking, because they wanted to assess if I understood how growing a company is different from working with clients, finishing, and moving onto new clients.

Q: On that note, let’s say that you have a change of heart and want to go back to making bank or trying to buy bottles with Starwood points. Can you move back into banking or consulting FROM corporate development?

A: I don’t know anyone who has done that – just like moving from PE into banking, it’s rare because the perception is that the exit opportunity is always “better” than where you started, so you need a good story to justify your move.

If you wanted to do that, you might be able to pull it off if you have lengthier experience in banking, went to corporate development for only a year or two, and are OK moving back into IB but receiving a “demotion” for the time you spent away.

Business school may be a better idea if you want to move back into finance or consulting.

Q: That’s your secret plan, right? What are your next steps after this?

A: Wait, don’t we cover that in part 2 of this interview?

Q: Right, I forgot. Need to give everyone reading something to look forward to.

A: Agreed.

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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