A ROAD MAP TO PLANNING YOUR CAREER IN PRIVATE EQUITY

With summer fast approaching and spring largely in the rear-view mirror, I cannot help but be reminded of the annual hiring cycle for investment banks and private equity firms.  Summer internships are starting.  Newly minted college graduates and MBAs are a month or two from lining the bullpens of these financial firms.  Many investment banking analysts not even a full year into their two year analyst tour of duty have already interviewed and accepted positions to join the private equity associate ranks more than a year down the road.[1]  For most, not even fully figuring out their current job or even tasting their first Wall Street bonus yet, they have committed to their next job more than a year off into the future.  How do these young, largely inexperienced professionals make an informed decision about the right firm to join, one that is consistent with their interests, investment philosophies, and skill sets?

Over the last few months a number of students, MBAs-to-be, investment banking analysts, and junior private equity professionals have reached out asking for career advice or inquiring about open positions.  Here are a few things I shared with them:

1. The Job Search is a Sell-Side Process.  Running a successful job search is a lot like running a sell-side or capital raising process.  An organized, thoughtful, and competitive process is more likely to yield better results.  How in demand is the asset (i.e., you, the job seeker)?  Should you run a broad or targeted process—talk with lots of prospective buyers (employers) or just a select few?  Are you talking with the right set of buyers (employers)?  Are your marketing and offering documents polished and professional (instead of a CIM[2] it is your resume, deal sheet, and any work product examples)?  Do you have a cogent, compelling story to tell that resonates with buyers (employers)?

2. Know Your Why.  Your why is your personal motivation and reasons for pursuing the job in the first place.  Coming from someone whose misspent youth was running Excel spreadsheets and creating pitch-books in cube farms and bullpens, I can attest to the importance of the why.  An overly confidant MBA-to-be recently called me asking about private equity opportunities after graduation and seeking job advice.[3]  When asked his reason for wanting to pursue private equity, he responded, “Why did Willie Sutton rob banks?  Isn’t it obvious?  That’s where the money is.”  If that is the extent of your why, you are unlikely to last long in the field.  Many jobs in finance such as investment banking and private equity require long hours, especially among the junior ranks.  If you are doing it solely for the money, you will likely be miserable and miserable people generally do not excel at their jobs.  In case you have not noticed, these are competitive lines of work, and not excelling at your job means you do not get paid top dollar, assuming you get paid at all because you might not even make the cut, so it kind of defeats such a unidimensional why.  If that is the extent of your why, and even if you “make it” and are well compensated, congratulations, you are now a miserable person with money!

The stronger your why, the more likely you are to excel and find the right fit in terms of both the right line of work and the right firm.  If you do not get excited about talking about businesses, industries, and transactions, you are probably in the wrong place.

3. The Other Whys.  The other whys are closely related to your motivationalwhy but they help inform what firms you pursue and ensures you have a polished answer when you are out there talking to potential employers.  The other whys include: Why do you want to pursue private equity, or investment banking, or fill in the blank line of work?  Why do you want to work at this specific firm?  Why does this firm fit with your interests or personal investment philosophy?  Why does this geography appeal to you?  Why does this industry, size of businesses / transactions, stage of investment, etc. interest you?  Why don’t other industries, size of businesses, and stages of investment interest you or interest you less?

What is the cost of not knowing or thinking about the other whys?  The short answer is you pursue the wrong opportunities incompatible with what you want, or worse, you make a fool of yourself.  Case in point, one of my former colleagues works at a well-known middle market investment banking boutique that does primarily, almost exclusively sell-side M&A.  Anyone spending more than two and a half minutes on their web site, knows they donot have an equity capital markets desk and have never done and have no interest in doing any public offerings.  At an on-campus MBA recruiting event at a top Ivy League school (non-disclosed to protect the guilty and embarrassed), my former colleague was asked by a job-seeking student, “So, how many IPOs did you do last year?”  Not only know yourwhys, but know who you are speaking with to see if they align with what you are looking for.

4. The Interview is a Two-Way Street.  If you go on a date and only one person is participating in the getting to know you discussion, the likelihood of a lasting relationship or even a second date for that matter is probably slim.  Treat a job interview the same way.  Interview the firm as much as they interview you—maybe more.  To work (or work well) it needs to be a two way street.

At Private Equity Primer, we coach business owners on something we call reverse diligence.  Take a page from that playbook and perform reverse diligence on the firm you are interviewing with, especially once you have an offer in hand.  Ask them tough questions.  Perform reference calls by talking to past employees.  Talk with as many people at the firm to get a sense of culture.  If your Spidey sensetells you something is not right or you feel like it is a firm with a high ass hole factor[4], listen and run in the other direction.  Remember, this is the honeymoon phase, you have not accepted the job yet, so if you do not like how you are being treated, I can assuredly tell you is it not going to improve.

There are lots of caricature-sized personalities and egos in the world of finance.  Do they pass the flight to China test?  Could you see yourself grabbing a beer with these people?  It will happen whether you want to or not, likely after some canceled or delayed flight back from a management visit that did not go well.  You are going to spend the majority of your waking hours at this place with these people.  As author and motivational speaker Jim Rohn said, “You are the average of the five people you spend the most time with.”—It has an impact on you and your happiness whether you realize it or not.  Bottom line, make sure the juice is worth the squeeze.

If it is a private equity firm, ask to speak with current and former portfolio company executives.  Ask about the bad investments as well as the good ones; character is revealed in stressful situations, not when an investment returns 5x your money.  Ask to read recent investor letters and the latest fundraising document.  Talk with investment bankers you may know who have worked with or for the firm; get a sense for their reputation in the market.  In discussions, listen to as much what is not said as much is said.

5. Be Real.  Let your personality shine.[5]  If they do not like it (the real you); the place is probably the wrong fit for you anyway.  Do not over represent what you know or your skill set.  Don’t bull shit a bull shitter.  Lots of these jobs require their practitioners to perform diligence, which means the good ones are deft at reading people and discerning truths from less than truths.

I used to work with a guy who would frequently quote one of his business school professors, “If you can’t hide it, highlight it.”  Head that advice.  If you have a weakness or have not had a particular experience, then confidently say so and reinforce that you are a quick study or are taking measure to address the deficiency.

Pursuing a career in private equity or investment banking can be highly rewarding if it is right for you and consistent with your goals.  Figure out if it is right for you, map out a process, and diligence the right opportunities for yourself before jumping into a situation.  Just go into it with realistic expectations.  In an article authored by a partner at a middle market private equity group, a generally unspoken honest appraisal was shared: “…private equity executives are notoriously bad at managing people in their own business.  So the chances you land at a firm with a thoughtful approach to human resources are pretty low.”  However, the same private equity professional added, “…it’s a great job if you want to learn about business, quickly see the impact of your decisions and meet all kinds of entrepreneurs along the way.”

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Footnotes:

[1] For more on this wacky industry hiring phenomenon only explained by game theory, you can read more here:http://dealbook.nytimes.com/2015/02/10/private-equity-firms-in-a-frenzied-race-to-hire-young-investment-bankers/?_r=0,http://www.nytimes.com/2014/07/06/business/wall-street-banks-and-private-equity-firms-compete-for-young-talent.html?ref=dealbook.  Other occupations and industries have suffered from a similar competitive hiring phenomenon that leads to sub-optimal matches.  For that academic economist buried deep inside your psyche (you know like to geek on some economic game theory from time to time), the National Resident Matching Program for medical students / would-be doctors provides an interesting case study (you can read more here:http://en.wikipedia.org/wiki/National_Resident_Matching_Program).

[2] CIM stands for Confidential Information Memorandum, or a document created by investment bankers about a business shared with prospective investors to market the business to them.

[3] As Robert Buzzell said “The mark of a true MBA is that he is often wrong but seldom in doubt.”

[4] Yes, this has actually been studied by academics.

[5] Obviously your actions still need to be appropriate to the situation and setting.  Hey, some people need to be warned that coffee is hot and wearing a batman cape does not mean you can fly.