While I’m at business school, I want to take full advantage of having a large network around to help everyone considering a jump to the civilian world understands the variety of career options that are out there. I asked two of my classmates who worked in Private Equity prior to coming to Darden for their MBA about what that experience was like. They kindly agreed to share.
Estimated reading time: 10 minutes
First of all, what the hell is private equity?
Ok, when you go onto your brokerage account and buy a stock, you are buying a public-traded company. Public companies are usually (but not always) the big name brand companies you know. Coca-Cola, Wal-Mart, and Ford are all publicly-traded companies. Being a public company subjects that company to more rules and regulations and demands greater transparency from them. The idea is to protect the average investor who can just go and buy a stock.
But there are also lots of private companies that are not on the publicly-traded markets. Deloitte ( a large consulting firm), the grocery store chain Publix, and SC Johnson (makers of a lot of common household products) are all examples of large companies that remain privately-held.
Instead of making investments in public companies, private equity (PE) firms make investments in private companies (or they might seek to buy a public company and take it public). It’s really that simple.
PE firms work almost exclusively with high-net-worth individuals and institutional investors, such as pensions funds. They pool the money together of these investors to make investments in private companies on their behalf. You usually need at least a few hundred thousand $$ as a minimum investment with these firms, if not more. The PE firm then makes money on the management fees of that money and will also take a percentage of any sales of their companies.
So part of PE work is finding deals to invest in, and part of it is running the companies in the PE firm’s portfolio to provide nice returns for their investors.
What’s the difference between private equity and venture capital?
Great question.
To get to the basics:
PE invests in mature companies. They’ve likely been operating for years and are already (usually) doing well. This usually means one of their investments is worth tens of millions of dollars.
Venture capital (VC) invests in start-ups. Often these companies are not yet profitable, but the potential growth is what attracts VC firms. Because there is more risk, the investments tend to be much smaller.
On to the interviews
To protect their identities, our two gracious volunteers will be labeled #1 and #2.
What did you do prior to starting your MBA?
#1: Prior to Darden, I was an analyst at a private equity firm in Arizona that specializes in air transportation and related industries with portfolio companies around the world.
Mark’s note: The role of analyst is the typical post-undergrad role for someone starting off in the financial services industry. If you have an MBA, you will enter at the Associate role. Find out about veteran-specific banking internships here.
#2: I spent 2 years as an investment banking analyst and then 4 years in a private equity / private debt investing role with a middle-market generalist fund in NYC
What was your role at your PE firm?
#1: As one of nine people on the investment team, I worked directly with my firm’s senior management and portfolio company C-suites. I built financial models, developed market analyses and prepared investment committee materials for potential investments as well as provided recommendations for portfolio companies’ strategic decisions. I also traveled internationally to conduct due diligence, attend board meetings and participate in other senior-level discussions.
#2: My time was split almost evenly between (1) evaluating new potential investments, (2) new deal execution and (3) portfolio company monitoring. Responsibilities largely overlapped with those described by #1.
How did you land your role in private equity?
#1: I had a very non-traditional path to PE. The Managing Partner of my firm was the namesake of my undergrad business school, and he hired one or two people per year who knew they wanted to either pursue their MBA or go to law school afterwards in order to provide work experience that would allow them to get into top schools after completing the program.
Mark’s note: Finding a path like this is never really easy. But know there is always a backdoor to get into wherever you want to go.
#2: I found my role in PE through the traditional banking pipeline. Spent a lot of time working with different headhunters to interview at a number of firms before finally landing a role
What types of deals were you involved in?
#1: During my time at the firm, I worked on more than 50 deals, the vast majority of which were commercial airlines. These deals included start-ups, LBOs (leveraged buyout….using debt to fund the acquisition) and restructuring opportunities. I was involved with the acquisition of an airline in Canada and a pre-operations airline in Argentina, which was followed by a bolt-on acquisition, that served as a way for our Chilean airline to expand in South America. The vast majority of the deals I worked on didn’t result in investments, but I analyzed investment opportunities in just about every continent.
#2: We were making investments in middle market companies across a variety of industries. We had a pretty low hit rate, often evaluating > 400 deals in a year only to close between 2 and 4 investments. However, I was also generally busy on portfolio company work, whether that involved M&A or refinancings.
What was the culture like?
#1: It was a smaller firm, so everybody knew each other well and was on a first-name basis. As with most, if not all, finance jobs, it was hierarchical, and my superiors wouldn’t shy away from letting us know if we weren’t performing well. No matter how junior, you were expected to have a point of view and be able to communicate it and defend it when challenged. Everybody was willing to help each other out and superiors went out of their way to ensure juniors were getting opportunities to develop. There weren’t organized social events or happy hours, but we would grab dinner and drinks together when traveling.
#2: Completely echo the thoughts above with the exception of the social event point. My firm made a pretty conscious effort toward building camaraderie outside the office and would often schedule lunches / happy hours / other events to attempt to do so
What was the work schedule like?
#1: At a minimum, I was in the office from 7:30am-5:30pm every day. But with deal-based work, hours depend on your projects, and we were always expected to get our work done, but I’d say it wasn’t as intense as investment banking hours or what you may find at the larger PE firms.
#2: People would generally arrive around 9am or so and the senior people would tend to leave around 6 or 7, at which point the junior folks would leave if they didn’t have any work left. However, it would not be unusual to be there until 9 or 10, especially if you are getting close to closing a deal. The occasional really late night (~2am) or weekend work was not out of the question, but was pretty rare. The hours I had in my investing job were significantly better than my role in investment banking, but could still be pretty tough at times
How did the person two levels above you get to their role?
#1: My Managing Director had experience at a hedge fund and with consulting and valuations, and he was hired into a junior role after completing his MBA at Stanford GSB. He worked his way up the firm over the past ten years.
#2: Most folks I worked with had junior roles at investment firms before getting their MBAs and going back into investing
How did you like working in private equity?
#1: I really enjoyed working there. I learned way more than I could have imagined and liked the work. I was working directly with senior leadership across the world on meaningful projects in various business functions.
#2: I enjoyed my prior role as well. Great training and opportunity to have a lot of responsibility and influence early in your career. Unfortunately not all investments are homeruns and consequently can be very stressful, but those are great learning opportunities (especially at the junior level).
Do you want to go back to private equity after getting your MBA? Why?
#1: The plan immediately after getting my MBA is to transition into consulting, but I am still open to getting back into PE after a couple of years. I really enjoyed PE as it provided incredible learning opportunities and interesting work, but I am going into consulting to learn and gain experience across industries and business functions to see if there is anything else I’d rather do than PE or consulting. I also think I’ll enjoy the work and it doesn’t hurt to add consulting to the resume.
Learn about going from the military to consulting at an MBB firm here.
#2: Yes, hoping to get back into PE following graduation, specifically with an operationally-oriented firm. I think private equity is a really interesting career path since it represents an opportunity to take a long-term perspective on an investment thesis and to try to actively create lasting value with your companies. Personally, I also find the middle-market to be a really exciting place to invest since it’s pretty entrepreneurial as well.
Interested in learning more about getting an MBA? Start on the Military to MBA series here.
What would you tell someone interested in pursuing a career in PE?
#1: Private equity is an incredible opportunity to gain deal experience as well as experience in just about every aspect of business. It also tends to pay well, and largely for those reasons, it is highly sought after and difficult to get into. While there are people who have different stories (me for example), there are two common tracks to get into PE. One is to work in investment banking and then make the transition, and the other is to gain industry experience and then get hired by a private equity firm that specializes in that industry (our firm hired somebody who worked at an airline). I have no data to support this, but I would say the investment banking route is more common and also doesn’t take as long to make the switch. By no means am I an expert, but coming out of the military, I think your best bet would be to work in investment banking for a couple of years and look to make the switch to PE.
#2: I think PE can be a great career path that is very challenging but can also be very rewarding. I echo the previous sentiments regarding the funnel from banking to PE giving you the best shot. That said, it can still be a difficult transition to navigate (I interviewed at > 25 firms before landing a job, but maybe that says more about my interviewing skills than it does the career path). I will say that I have noticed more firms that are also interested in candidates transitioning from consulting to bring their operational experience. Similarly, no data to back up this claim but anecdotally have noticed the trend. Another thing I would add is that PE is not as traditional of a path following b-school as consulting or banking, in that there are not many firms that have structured internship programs year-in and year-out knowing that they will hire X number of MBAs each year. Rather, hiring decisions at the mid-level are often determined by either (a) someone currently in the role leaving or (b) raising a new fund that is larger and therefore requires a bigger team to invest.
P.S. Are you thinking of buying a business? I recommend taking a look at Acquira and its accelerator as a way to get started. They place you in a cohort with other business buyers, help you vet deals, and then help you put together the financing to close on a business. Take a look HERE and use the link to get 10% off.
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