Growth Equity: Private Equity and Venture Capital Hybrid?

Private Equity (PE) is one of the most prestigious jobs at Wall Street. Private Equity Associate and Analyst are the two most common entry points. Therefore, here we will deep dive into the job responsibility of those two positions, career path, salary and how to get into Private Equity via those two entry points. 

1. What is Growth Equity?

Definition: Growth Equity aims to invest in minority stakes of relatively mature companies which are looking for capitals for specific expansion plans, such as entering new markets, expanding, or restructuring operations. The portfolio companies are usually in the growth-stage but are not able to public nor raise debts.

 

2. Private Equity vs Growth Equity vs Venture Capital

2.1 Distinguishable features:

PEs, Growth Equity, and VCs are all investment types attracting Limited Partners (LPs), investors spending capitals into those firms, and then using raised capitals to implement business activities.

LPs often include two groups: institutional investors (pension funds, financial firms, insurance companies, university endowments, etc.), and high net-worth individuals

To put it simply, growth equity is often described as the intersection between private equity (PE) and venture capital (VC).

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Source of image: Veneno Capital

However, what are the essential differences among them? To identify which organization suits you the most, it is vital for financial junkies to know the following differences:

  Private Equity Growth Equity Venture Capital
Industry focus Invest in a diverse portfolio across industries Able to invest in a diverse portfolio across industries. However, Growth Equity current skew toward Technology and TMT (Telecom – Media – Technology) Focus on some certain industries, namely  information technology (mostly in the software sector), biotech, cleantech or fintech.
Source of investment Use both equity and debt to invest. (LBO – Leveraged Buyout). Use equity to invest. Use equity to invest
Holding period 2 – 5 years 3 – 7 years 5 – 10 years
Return expectations Expect that all of investments have positive returns Expect that all investments have positive returns If only 1 or 2 companies among VC’s portfolio can successfully go public or be acquired, VC can achieve its expected returns
Target Internal Rate of Return (IRR) 25 – 35% 30 – 40% 35 – 50%
Target Money-on-money multiple (MoM multiple) 2 – 5x 3 – 7x 5 – 10x
Due Diligence The most complex and expensive among PE, Growth Equity and VC due to involving multiple 3rd parties specialists, such as lawyers, management consultants or auditors As the fund mostly takes minority stakes, the complexity is not as much as the PE’s one Simple, even sometimes the investment is made just because the firm believes in the founders’ ideas.
Stage of investment Growing and Mature startups Growing and Mature startups Early-stage startups
EBITDA of investees EBITDA > 0 EBITDA may or may not be positive, depending on how much profit are reinvested in new customer acquisition EBITDA <=0
Control Extent PEs do control investing and gain controlling interest (the act of holding a majority of a company’s voting stock) in their portfolios Growth Equity can do both minor investing and control investing, depending on investing capital. VCs do minor investing, in which the firm owns a small percentage of stake and will not involve much in the decision making process. VCs’ main objective is to grow a startup. 
Portfolio Management Have operating partners to work directly with portfolio companies to improve operations, drive profitability and grow initiatives. Support portfolio companies on the specific expansion plan. Support to hire talents and build team.

2.2 Recruiting Process

Items Private Equity Growth Equity Venture Capital
Process & Timeline Highly-structured process and clear timeline Growth Equity division of Mega Funds and some big Equity Growth funds recruit during On-cycle. The rest joins Off-cycle recruitment Recruitment is a need-based process. Hence, there is no standard process and timeline

Compensation 

(salary, bonus and carry)

Higher than that of VC due to bigger fund sizes Similar to traditional PE funds. Lower than that of PE due to smaller fund size and the number of investments.
Preferred background Skew towards former Investment Bankers. Skew towards former Investment Bankers but there are chances for candidates with Consultant or Product Management background. Diverse background: Consultants, Entrepreneurs, etc, can get into VC if they have relevant experience, for example: knowledge about the industry the firm focuses on
Traits of a candidate High requirement of financial modeling and technical analysis. Financial modeling and technical knowledge is a must but not as heavy as traditional PE firms.

Startup lovers. 

Financial modeling is still a must but not as heavy as PE’s requirement. 

Networking/ Interpersonal Skill is preferred as there are more qualitative work in VCs

3. Growth Equity Career

Due to the pretty similar natures of work, an average day of a growth equity analyst or associate is not too much different from an average day of a private equity analyst or associate. 

The daily tasks include: 

  • Sourcing
  • Market research
  • Deal work
  • Portfolio company work
  • Financial Modelling

Yet, there are differences of tasks between the two types of investment funds:

  Private Equity Growth Equity
Sourcing Fewer cold calls and cold emails More cold calls and cold emails
Financial Modeling Leveraged buyout (LBO) models are very popular as funds use both equity and debts to acquire major stakes. Leveraged buyout (LBO) models are less common as funds use equity and do not prefer to use debts to acquire minority stakes.
Interaction with portfolio companies’ management team  Lots of interactions as PE often acquire major stakes and involves in managing and operating of their portfolio companies Almost no interactions as Growth Equity takes non-controlling stakes.
Due Diligence More time spent on it Less time spent on it
Bankers Interaction More interactions because PE can leverage IB’s network to look for the next investing candidate. Fewer interactions because growth equity candidates are not often under IB’s radar.

In short, an average working day at growth equity firms is similar to that at PEs, though entry-level staff at growth equity may spend more time on sourcing, researching, and doing portfolio company work.

4. How to Get into Growth Equity – Private Equity?

4.1 Typical roadmap in Growth Equity – Private Equity:

For an overview of chance to get into Private Equity across career path and background, please visit our Wall Street Career Planning tool. Getting into Growth Equity is similar to getting into Private Equity. You can follow the path below to learn about the recruiting process.

4.1.1 Investment Banking to Private Equity

This is the most common track to enter Private Equity. 

We will provide more insights about this path in section 3.2: Recruiting process. In brief, you can move from Investment Bank to Private Equity via PE on-cycle and off-cycle recruitment. 

 

On-cycle recruitment is organized by those Mega funds to target Bulge Brackets/Elite Boutique Banks Analysts. It often happens from August to October every year, within a few months of IB Analysts’ start date. However, each firm’s process, from submitting a resume to receiving offers, lasts only 1-1.5 months. 

Off-cycle recruitment is organized by Middle Market funds and will be kicked off after the on-cycle one. The off-cycle season often runs from December to February and each firm’s process is also longer than that of on-cycle recruitment. Private Equity firms can also recruit other vacancies during off-cycle and those are need-based positions. 

In big funds, there are Associates and Senior Associates levels. Both On-cycle and Off-cycle recruitment are only for Associate vacancies and there is a different timeline for Post-MBA Associate. Although it is possible for a 2-3 years experienced Associate to be promoted to Senior Associate, it is pretty challenging if you don’t have an MBA degree.

Similar to Analyst vs Associate, the difference between Associate and Senior Associate varies by firm size.

Position Private Equity Associate Private Equity Senior Associate
Responsibility Although Associates also deal with external parties, they focus more on deal sourcing, conducting due diligence, and running financial models. Associates can assist monitoring portfolio companies, fundraising and looking for exit options.

Senior Associates act more like the firm representatives in front of companies that look for investment. They also involve more in portfolio company’s operation.

Age 24 – 28 26 – 32
Education Pre-MBA Post – MBA
Working Hour 60 – 70 hours 60 – 70 hours
Salary & Bonus $150K – $300K $250K – $400K

4.1.2  Private Equity Internship to Analyst 

Recently, this track has become more popular with some Mega funds recruiting fresh graduates for Analyst positions. These tier 1 summer analyst internships at Mega-funds are limited and very competitive. Similar to Bulge Bracket internship application, you need to be a “superstar” with a stand-out resume (even target school might not make the cut here), relevant experience, ideally at boutique investment banks & small private equity funds , and super-smart networking to get into those limited internship interview slots. 

We put down the approximate timeline of all Summer Analyst programs, Full Time Analyst programs in the “Recruiting process” so that you can plan ahead your career. 

4.2 Recruiting process

There are 2 types of recruiting processes: The on-cycle process and Off-cycle process. We layout the timeline of those two processes below, from networking to on-boarding period, for your reference. 

Private Equity Recruitment timeline

  • HH = Headhunters

  • Upon completing the SA 2020 internship recruitment process, qualified interns will receive full-time offers starting working in summer 2022. 

  • Private Equity firms Analysts are recruited from 2 sources: (1) current interns who performed well in their summer internships and (2) fresh graduates who apply via Full-time Analyst program.

  • About the Summer Internship program for MBA students, this is the timeline for the 15-month or 18 month MBA program. For 1-year MBA programs, either the timeline is the same or recruitment happens in Jan-Feb and the internship starts in Jun – Jul same year.

We understand that the table contains a lot of information, which can be too overwhelming for any newcomers. Hence, here is an example of the Associate On-cycle recruitment from this timeline:

Headhunters start approaching IB Analysts around July – August 2020, then the whole interview process will run from August to October 2020 across firms. Successful candidates will receive the offer. However, those candidates only start their jobs around August – September 2022. This process will be replicated every year, meaning that if you got a PE Associate offer in 2021, you will start your job in 2023.

4.2.1 On-cycle recruitment process:

  • Target:

The on-cycle process mostly targets Analysts at Bulge Bracket and Elite Boutique Banks for Associate positions at Mega-funds and Upper Middle Market funds. However, as the industry keeps growing, PE firms now also organize on cycle recruitment for Summer Analyst Program (i.e: internship) and Full-time Analyst Program. 

  • Process: 

For Associate positions, the process can start as early as July to October, only a couple of months after Analysts at Bulge Bracket or Elite Boutique Banks start their jobs.  If you finish the process and you get the job offer, you can only start in the next 1.5 – 2 years. For example, if you get the offer in 2021, you will only start your PE career in 2023.

The headhunters have more power on the Associate On-cycle recruitment process compared to Off-cycle. After getting your CVs, the headhunters will contact you and set up a telephone interview. Some common questions in this interview could be: “Walk me through your resume?”, “Why Private Equity?”, “Why this firm?”, etc. If you can impress the headhunter, they will pass your CV to the firms. Hence, headhunters decide whether you can go to the next round. You would better show up well prepared and win them in the telephone interview. 

The PE firm will invite you to “a weekend event”, in which the most nightmare part of On-cycle recruitment happens. You will have four to five 30-minute interview sessions with people across levels in that firm. If you can pass, the firms will call you for an LBO model test. Finally, you will have the result on Monday.  

We also list down common asked questions in a PE interview in section 5: Prepare for the interview. You can visit there to prepare yourself ahead.   

For Interns and Analysts position: you can find the timeline in the “PE timeline table” above. However, always double check with your target firms because Interns and Analysts are not PE firms’ recruiting priority and the process can vary year by year. 

Interview process is not as exhausting as that of Associate and interview questions skew towards fit questions more than deal experience and case studies. 

4.2.2 Off-cycle recruitment process:

  • Target

The Off-cycle process is applied for below situations:

  1. Middle Market funds recruiting Associate positions, 
  2. Positions in non-US markets,
  3. Positions for non-experience in Investment Banks 

Among those 3, Middle market firm recruitment is the most common case. Therefore, we will focus on the process of (1). The requirement, timeline and process of (2) and (3) will depend on which exact position the firm is recruiting

  • Process: 

The process of recruiting will start after the On-cycle process, from December to February. Successful candidates in this track will start 1.5 – 2 years later, the same timeline as On-cycle successful candidates. 

However, if you apply for any vacancy that firms need immediately, you can start instantly. Those recruitment timelines are more random throughout the year. 

The off-cycle recruiting process usually lasts longer, in which recruiters want to assess your “fit” and critical thinking abilities on deeper levels and they also require more thought and preparation of a real investment thesis. 

Headhunters have little power here but you can still try to reach out to them and check if there is any vacancy.

4.2.3 Summary of the key difference

  On-cycle

Off-cycle

Recruiters

Mega Funds and Upper Middle Market Funds

Mostly Lower Middle Market funds. Mega Funds and Upper Middle Market funds still can recruit if there are available slots

Target Candidates 

Analysts in Bulge Bracket and Elite Boutique Banks

Analysts at smaller firms/banks

People who do not work in banks 

Roles not in the NYC

When? The process will start in August or September The process will start around December or January
Timespan

Days to weeks 

Starts and ends very quickly

Usually months
Interview A paper LBO or a two-three hour LBO is more common in On-cycle recruitment. Focuses on the in-depth thought process; therefore, taking-home LBO model and presentation is often applied

4.3 Resume

Before writing your resume, think carefully about what will make your resume deal-oriented – in the below table, we score all the relevant experiences so that you can have a direction for your resume

Score Relevant work experience – For pre-MBA Associate
5 An analyst at Bulge Brackets or Elite Boutique Banks
4

An analyst at Middle-Market & Boutique Banks

An analyst at a Middle-Market Private Equity firm

3 An experienced candidate at Big4, Valuation firms, and Risk Management
2 An internship at Wealth Management or Boutique Financial service firms
1 Relevant finance experience including: student-run funds, finance and business clubs

 

Score Relevant work experience – For Analyst
5

An internship at PE. 

An IBD internship at Bulge Brackets/Elite Boutique Banks

4

An internship at Hedge funds

An internship at Sales & Trading, Equity Research in Investment Banks

3 An internship at Big4, Valuation firms, and Risk Management
2 An internship at Wealth Management or Boutique Financial service firms
1 Relevant finance experience including: student-run funds, finance and business clubs

If you can score 4 or 5, it means that you have a preferred experience for Private Equity. But what if you only get 1-3? Definitely, there will be more work to do with your resume but we will share how to twist that. 

  • Step 1: Take a look at the current job description of Analyst/Associate/Senior Associate and pick the keyword when your target firm describes that position. 

Example 1: 

Both job description and actual work of PE’s Analyst and pre-MBA Associate are related to Investment Deal. Therefore, the key theme of the resume should be your Achievements/Involvement in Deal transactions, emphasizing on Due diligence, Financial Modeling or Market Valuation. 

Example 2: 

If you apply for Senior Associate positions, Deal experience is important but experience in managing companies, restructuring organizations, etc should be highlighted also because Senior Associates probably involve more in portfolio companies’ operation and management. 

  • Step 2: Select your achievements/involvements that you can read 

There are some ground rules that you should follow here

  1. You should choose 2-4 achievements under each position. Do not put only 1 achievement as it will raise the concern that you did not achieve much. There is one exception here: IB Analysts who have just started their jobs in the last 2-3 months.
  2. Change any relevant word into “deal”, if possible. People who scored 1-3 in the table above often slip this rule but this principal can help them have a more PE-driven resume.  
  3. In each achievement, remember to put the size of that deal, type of that deal, and your action/involvement.
  4. The order of deal size, deal type and your involvement should be consistent across bullet points. We often recommend this order [Your action/responsibility][Deal size][Dealtype]. Consistency will help the hiring team catch up all the information quickly. 
  5. Start your point with an action verb to get the attention and clearly express what you did 

Those rules will be beneficial also for anyone who owns a strongly related experience to private equity. 

4.4 Prepare for the interview

The interview process will include multiple rounds. Normally, Analysts and Associates will have 2-3 interview rounds; some firms even organize 4-5 interview rounds. Internship recruitment can be less heavy: only 1-2 interview rounds. 

First interview round is to screen the candidate profile by asking some fit/behavioural questions, such as Why PE? Why this firm? etc. For Associate recruitment, it will be conducted by headhunters via phone. For Analyst and Intern, it will be conducted by the PE’s hiring team. 

Other interview rounds will be conducted in-person and will skew towards technical questions, case study, deal experience, etc

4.4.1 What do recruiters evaluate?

Private Equity firms will evaluate your skills, your technical knowledge, and why you are interested in PE and investment deals. Many questions are designed to test these competences. Simply put, interview questions will be belong to 6 main categories:

Fit/Background

(1) Why private equity associates? 

(2) Why the firm? 

(3) Are you comfortable with financial modeling?

(4) Are you a good team worker? 

Technical Questions

Accounting (1)

Valuation (2)

Growth/profitability driver models (3)

Quick IRR math questions (4)

 

Deal/Client Experience

(1) Evaluate the growth of a deal 

(2) Tell me about one of deal experience

Firm Knowledge

What is the firm’s current portfolio? (1)

Tell me about the firm’s previous strategies and exits (2)

What do you know about the firm’s investment thesis? (3)

Which companies do you think are the best and the worst (4) in the portfolio? 

If you had been able to do something different, what (5) would have you done?

Industry Discussion

(1) What are the major companies in this industry? 

(2) Which top company will you invest in? 

(3) What are the company’s growth drivers and risk factors? 

(4) What is that company’s outlook in five/ten years

Case study

Solve cases involved in 3-statement models with a focus (1) on the revenue and expense drivers 

A take-home LBO model and presentation (2)

A three-hour LBO modeling test (3)

A simple paper LBO (4)

4.4.2 How to prepare and ace an interview

#1. For fit/behavior questions, this is the part where you tell your stories with interviewers. Thanks to these questions, recruiters will learn how your previous academic and work experience fits into the private equity and also strategies of the firm you apply for.  

The questions in the first place always surround:

  • Introduce a little bit about yourself  / Walk me through your resume
  • Some of your strengths, weaknesses
  • Your achievements and failures
  • Future plan and why Private Equity?

What you should prepare here are crafting your own stories (reflecting your achievements, past experience, transferable skills and leaderships), and backing up small personal stories to answer questions related to strengths and weaknesses. 

If you have some disadvantages in your profile such as low GPA, non-target background, fewer outstanding accomplishments, fewer finance internships, and etc., you have to prepare stronger responses to make up for these “real weaknesses”. 

#2. For technical questions, what you will be interviewed always sticks with accounting, finance, valuations, and practical deals. 

  • Accounting: Financial statements (types of financial statements, links between different types of financial statements), revenues, operating costs, EBITDA, debt & equity, etc.
  • Finance: Equity Investments (stocks), Fixed Income Investments (government bonds, corporate bonds, commodities, currencies) , Derivative Investments (options, futures, forwards, swap), etc.
  • Valuation: Valuation metrics and multiples,  (Discounted Cash Flow, LBO modelling, etc.), knowledge about mergers and acquisitions, etc.

#3. Other non- technical questions: Beyond technical comprehension, private equity firms also want to test your knowledge about the market, practical deals and companies. Your work is to keep abreast of news about markets, imminent IPO, bond issuances, and mergers & acquisitions on a daily basis. They can also ask your opinion about the firm’s portfolio and what you will do accordingly. The questions largely depend on your experience on your profile. That means if you present your active involvement in transactions/deals, you might get many questions about it. Discussing the deals is considered the most challenging part in an interview. 

5. Top Growth Equity Firms: What Are They?

5.1 TA Associates

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Founded in 1968 in Boston by Peter Brooke, TA Associates is one of the oldest growth equity firms in the US. TA Associates has invested across a range of industries, including healthcare, technology, consumer products, financial services, and business services. The company has raised $32.5 billion of capital since inception and has partnered with the management of more than 525 companies globally.

Here are some impressive stats of TA Associates:

Source: TA Associates

5.2 Summit Partners

GE2

Summit Partners is a Boston-based growth equity firm that invests in a broad range of companies headquarters in North America and Europe. Founded in 1984 by ex-TA Associates employees Stephen Woodsum and E. Stamps, the firm has grown to a team of more than 100 investment professionals, led by 27 Managing Directors whose tenures average 14 years with Summit.

Source: Summit Partners

5.3 General Atlantic

GE4

With 40 years of active service since its establishment in 1980, General Atlantic is a growth equity firm focusing on capital and strategic support for growth of companies. Founded by the billionaire Charles Feeney, the co-founder of Duty Free Shoppers Ltd, the firm has 14 offices located five regions globally and partners with leading entrepreneurs and companies across four sectors: Technology, Consumer, Financial Services, and Healthcare. 

General Atlantic at a glance:

Source: General Atlantic

Names of other great growth equity firms are on this list!

6. Is Growth Equity A Good Fit For You?

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✔️You SHOULD go for growth equity if you are:

  • Competitive and willing to work long hours;
  • Attentive to detail;
  • Keen on working with deals instead of investing in public companies or following the markets;
  • Interested in investing and operations and using critical thinking skills to boost  company growth;
  • Persistent to work in long-term projects such as building a portfolio company over years and are also open to non-deal work, such as company operating and underwriting. 

You SHOULD NOT work for growth equity if you: 

  • Prioritize work-life balance;;
  • Do not perform well under huge pressure; 
  • Do not have an interest in investing.
 

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