Private Equity (PE) is one of the most lucrative careers in finance. It involves using investor money from “Limited Partners” who are generally Monsieur Big-Pockets, to invest in big companies that are in need of capital. That is, they are either failing or hit with the flu. But with the potential to a recovery and an upswing, with the right help.
The big picture view is that PE firms raise capital to usually acquire a majority or complete stake of the company, focussing their business acumen to expand, grow, lower cost, and perhaps even sell the company to finally make profit. Their earnings come from a management fee plus the profits from their investments.
Venture Capital (VC) is similar in that they too use investor funds to provide capital to entrepreneurs venturing into their startups.
The difference is that the stakes they acquire are limited and though their compensations are driven through management fees and a percentage of the profit of the startup, they tend to have far less involvement in the control of the company than PE guys do.
Even the industries that are in the VC investment radar are usually tech, biotech, energy based firms as against the many industry types PEs are known to “rescue”.
Of course, this is just the abridged of the abridged version of what their job description entails. For a zoomed in understanding, read these articles.
In simple terms, these are the key differences between PE / VC and other finance jobs:
Being as lucrative and rewarding (with the ungodly hours) as PE is known to be, it is also one of the highly exclusive finance careers to get into. PE firms generally tend to hire experienced investment bankers, strategy consultants and MBA’s (mostly in USA) from elite business schools.
Occasionally, though, they have been known to meander into the pool of fresh graduates with finance training, accountants, and even highly qualified Science graduates with the potential or experience in financial modelling, and such. VCs can be more generous in their intake.
They do hire MBAs and even other graduates who have significant knowledge of the business process, how investment works, financing nitty-gritties, etc.
MBA being one of the routes to riches in the two career tracks, in VC and PE, a lot of students take to Finance as their specialization for further insights into the career (Read List of MBA specializations).
However, these jobs need a dash more than just finance know-how to make it through, as you will read below. Although, MBA is generally not considered a prerequisite to get into Private Equity, a large number of American PE firms like KKR, Blackstone, Candover, and more, have a significant proportion of MBA in their staff.
Given the high demand of these jobs, the right kind of training sure paves the way for an edge into a PE or VC career, after MBA. For that very reason, it is essential to research MBA programs, the business school, and other resources that are likely to play a role in shaping the value of the MBA graduate for entry into such firms.
In this article, we dive into some typical questions to ask before aspiring Private Equity Investors, and Venture Capitalists, decide on their business school and MBA program.
So, here they are for your benefit. Our very own look before you leap Q&A.
PE and VC teams tend to be very small compared to recruiters in other MBA-hiring industries. Around 60% employees of the top PE firms have MBA degrees. Apart from proven hard-skills in financial modelling and business evaluation, it’s also important to be perceived to be elite.
For that reason, along with prior experience in a bulge-bracket Investment Banking or top-tier consulting, it surely helps to have a strong business school brand as well. It signals to the PE/VC firms that the candidate has already gone through multiple levels of filtering.
Some excellent programs for VC/PE aspirants are Booth, CBS, HBS, INSEAD, Kellogg, LBS, Stanford, Tuck, and Wharton.
Contrary to the general perception among aspirants, PE/VC isn’t just about finance. It’s also about operations, marketing, technology, strategy.
The basic financial concepts and tools aren’t that difficult for a smart MBA student to pick up. The challenging part is the interplay between the various other disciplines.
We’ll break the desirable resources into two – courses and professors.
As far as courses are concerned, if a student has already got some finance experience prior to b-school (e.g. as a financial analyst in an investment bank), it is recommended that she seek out courses that build up on the weak areas (like negotiation skills, operations management, HRM).
This is particularly useful over time when the candidate’s responsibilities (in a PE/VC role) go beyond financial analysis and start overlapping with strategic decisions.
As for professors, while it’s great to learn from professors who are masters in their academic fields, it is certainly better to look for professors who regularly interact with the PE/VC world and have a network.
We have heard numerous stories about MBA students who’ve got a foothold in the industry because their professors helped them with warm introductions in the top tier firms that weren’t formally recruiting.
You should definitely look at the placement statistics to find out how many students from the previous class have managed to get into PE / VC, what were their pre-MBA backgrounds.
Take it one step further. Network with alumni and current students. Ask them their career change stories. What difficulties did they face? How did they overcome them?
However, don’t just rely solely on b-school resources to find out the regular PE and VC companies that come to recruit students. Also be proactive in learning about the focus areas of their target funds (some are sector agnostic, while others may have an industry focus), their recent deals, understanding how the investee companies have changed (or can change) after the investment.
Here’s why that last innocuous-looking point could become your trump card.
We hope that the future PE/VC in you is as ardent about researching your MBA options as you will be in this career, after.
Meanwhile, we will leave you with some more reading grub here.