Private equity is a career path that presents opportunities to make enormous amounts of money, but it is also not a cake walk. The journey to becoming a PE professional often has twists and turns, and can be challenging along the way. Here are some tips for managing and starting your career path in PE.
1. Understand What You’re Getting Into
Before you can start on the private equity career path, you should know the landscape:
- What expectations are for private equity experience
- The most important skills in private equity
- Private equity firm hierarchy
- What firms are looking for in new hires
When you get started in PE, it’s likely you’ll begin as an analyst. Private equity firms usually hire analysts from one of four places:
- Investment banks
- Middle-market and boutique banks
- Other firms
- Well-networked colleges and universities
It’s especially difficult to break into PE if you’re a recent graduate, due to the highly networked and competitive state of the field. Many firms will also hire from recruiters or management consultancies and finance-focused business schools, like Harvard, Stanford, and Wharton. If you have an MBA, all the better.
It’s important to note as well that an MBA is not a free pass for success. Because private equity is such a highly specialized field, the qualifications are similarly specialized. If you’re on another career path, you might need to rethink your trajectory. It can take five years to break into a private equity career unless you’ve been specifically on the track to do so. Often, the path goes like this:
- Graduate with an MBA or finance degree
- Work at an entry level position within a financial institution
- Find an internship within PE
- Qualify and apply for a PE job
For even more specificity, candidates for a job are expected to have a bachelor's degree in finance, accounting, statistics, mathematics, or economics, and two to three years of experience as an analyst in banking. Networking with headhunters is one of the best ways to find a job after that point. Education, skills, and experience are all important to demonstrate during the job search, but it also helps to know which areas to focus on the most during the search based on the specific position within the firm.
Analyst vs. Associate
The analyst is the entry level position within a firm. This means that you’ll have a lot in common with other entry level jobs in other industries, i.e., you’re at the bottom of the pecking order.
Don’t let the entry-level nature of the job fool you, usually the best students from the best colleges are often shortlisted for this role, and it does carry a significant amount of responsibility. Analyst responsibilities usually revolve around tasks like:
- Data entry
- Pitch presentation
- Preliminary analyses of companies and sectors
- Meeting management and arrangement
Associates, on the other hand, usually are the next step up from analyst. Most banks prefer in-house promotion, so if you get on track and meet your benchmarks, you can work your way up. Analysts are often supporting all three verticals of a bank: Mergers & Acquisitions, Equity Capital, and Debt Capital. However, when promoted to Associate level, people at this position are expected to specialize. If you were to look at a private equity Associate resume, the tasks are similar to what an analyst does, but often Associates supervise analysts, and perform more complex tasks as well.
Associates can often find themselves doing these tasks:
- Modeling: Associates are responsible for building the analytical models that principals and partners use to make decisions about a deal. Due diligence and growth forecasts are common.
- Portfolio company monitoring: Associates are often asked to monitor and provide up to date financials of portfolio companies.
- CIM Management: Confidential information memorandums are documents that provide banks with data about investment opportunities. Usually, associates or analysts receive these and process them for opportunities that fit within the firm’s framework.
- Fundraising: New fund formation requires a lot of funding, and associates often work with senior executives to assist in this process.
Most Important Skills in Private Equity
Your degree is basically the foot in the door, and beyond that, it’s a piece of paper. It shows that you have the basic qualifications to do the job you’re being hired for. Many recruiters are looking for more: they want experience and expertise in a number of areas, which can be hard to show when you’re first starting out. When you’re thinking about skill development, here are some key areas to focus on:
- Industry specific knowledge
- Experience with PE operations
- Spreadsheet expertise
- Market knowledge
- Management intervention knowledge
One of the most important skills in private equity is people skills: communication, persuasion, networking, and building mutually beneficial relationships, Being fluent in as many languages as possible is extremely beneficial, especially German, French, and Spanish. Where skills fail, charisma picks up the slack, so work on making yourself as personable as possible. PE is a people-focused industry, and there’s no way around that.
2. Stay Hungry for Opportunities
In 2021 and beyond, you can’t be picky. Now, that doesn’t mean that you should take ANY job to get private equity experience. However, searching for a career in private equity when you’re just starting out might seem like having to climb a wall without any handholds. But, remembering that while you might be extremely intelligent and qualified, nobody knows (or cares) who you are yet within the private equity space.
The best way to get a career in the industry is to gain experience and demonstrate to a potential employer that you have the skills to make them money. That means taking opportunities when they arise. Even if you find yourself interviewing or applying for a less prestigious firm, that work will give you the skills and knowledge necessary to be successful later on. Take opportunities when they arise!
3. Set & Stay Focused on Your Goals
What’s your goal? Where do you want to be in five years? You might not know what the entire PE space looks like, but now is a good time to start practicing the self-interview. Not only does this help with goal setting, it helps prepare you for potential questions you might hear in an interview.
Goals that are actionable and leave room for growth are the best way to go. Here’s the four to focus on.
Like every job, there is a certain level of technical knowledge in the respective field required to get the job. Some sample questions you might come across in an interview include:
- What do you believe are the most important factors in an M&A model?
- How do you tell if a deal is accretive or dilutive?
- How do you decide which companies to invest in?
Do you have answers to these questions? Answering these questions requires an understanding of private equity operations, as well as being able to collect and analyze data. You’re likely to get put to the test in an interview, especially as an analyst. Knowing how to respond and have the necessary knowledge and research backing up different approaches will go a long way towards differentiating you from other applicants.
In addition, you should also be familiar with the tools and technology used to perform the job, such as PM tools, data aggregation, and tracking and analytics, like SourceScrub’s deal origination, portfolio management , CRM enrichment, and data sets that allow firms to take a structured, differentiated approach to their deal making.
Project Management Tools
PM tools are exactly what they sound like— tools designed to assist individuals or teams to effectively organize and manage projects and tasks. Examples of features that many project management platforms have include:
- Collaboration - These tools help assign and complete tasks, add comments, and organize dashboards for easy proofing and approvals.
- Documentation - Organize files for editing, versioning, and storing.
- Evaluation - Track and assess productivity and growth with resource management and reporting
- Planning/scheduling - Plan and delegate work all in one place with tasks, subtasks, folders, templates, workflows, and calendars.
Project management applications include: Trello, Asana, Proofhub, Kanban Tool, Kissflow Project, and Airtable.
CRMs, Analytics, & Tracking
Tracking and analytics is the process of gathering, analyzing, and applying data, information, and reports related to the content prospects interact with online. Examples of analytics and tracking platforms are Google, SugarCrm, and Salesforce.
Analytics like SourceScrub’s TAM and deal origination use a best-in-class search and filtering functionality that means prospecting the field has never been easier. Our platform targets data so you can proactively track and target opportunities.
Social analytics specifically focuses on the data obtained from content shared on social profiles and the social profiles themselves. Examples of social analytics are Hubspot and Mailchimp. Businesses use social analytics for a number of reasons:
- Understand the metrics that matter most, such as engagement, reposts, shares, clicks, impressions, and sessions
- Identify effective ways to increase brand awareness and reach, and resonate with your audience
- Increase traffic to your other content and website and increase conversions
Many businesses already use CRMs for sales, marketing, and management, which can easily be used to track and analyze data to help you create models. Typical features offered by a CRM platform include:
- Lead management: Automatically or manually enter new leads into the CRM and track and analyze data about them.
- Marketing automation: CRMs can automatically send marketing emails or publish social media posts according to a schedule.
- Sales automation: CRMs track customer interactions and automate selected business functions of the sales cycle that are necessary to follow leads.
- Workflow automation: CRMs optimize processes by streamlining workloads to free up employees for more complicated tasks.
- Analytics: CRM solutions can offer built-in analytics tools for insights to analyze attributes in the data and target leads.
- Artificial intelligence: CRM solutions can offer AI capabilities built into their systems to help automatically recognize patterns leading to successful sales, which can help you build more accurate strategies for future deal sourcing efforts.
- Individualized experiences: CRM can be used to create personalized and consistent experiences across various marketing channels to help increase conversions and brand awareness.
Examples of CRMs are SalesForce, DealCloud’s DataCortex, Pipeliner, and SugarCrm.
Data Aggregation Tools
Data aggregation tools are used to combine and organize data from multiple sources into one place, to derive new insights, without losing track of the data source. SourceScrub’s data enrichment tools do this to enhance workflow, using AI-augmented, human-audited company data. You can siphon data from the companies that matter by filtering search results to quickly identify top opportunities. Integrations functionalities include SalesForce, DealCloud’s DataCortex, and SugarCrm.
Lead scoring is the process of assigning value to each lead generated for businesses, usually based on a numerical point system for ranking to determine sales-readiness. Traditional lead scoring adds and subtracts value based on how certain properties of a lead meet criteria.
Predictive lead scoring models, like those from SourceScrub, use an algorithm to determine if leads in a database are qualified or not qualified based on a number of criteria. Lead scoring models leverage key firmographic data points that meet an ideal investment thesis and apply them as filters against an extensive dataset of companies and sources. Data can include:
- Information that leads have disclosed
- Behavioral data about leads and their activities
- Social information about leads that can give insight into support networks and pools of capital
- Demographics of the lead in question
- Media coverage or reports about the company
The goal of lead scoring is to uncover potential sell-side and buy-side opportunities, and maximize deal origination efforts by enabling data teams with the ability to better landscape the prospective playing field and quickly identify the right investment opportunities.
Transaction Experience & Knowledge
This one can be hard to come by, but being able to point to knowledge and experience that you have managing and judging transactions will be critical towards your own success within the industry, so make sure to take time daily to buff up your expertise.
Know the Players
In an interview, you’ll likely be asked to talk about what you know about the firm that you’re interviewing with, as well as the portfolio companies that this firm manages. The broader your knowledge is about the field of PE beyond your technical skills, the better. If you walk into an interview ready to talk about real estate investment, and the firm primarily does tech, you’re in trouble. Do your research.
Fit & Personality
Again, charisma rears its head. One of the main factors that you will be asked about are questions that deal with organizational fit. Interviewers will be assessing how well you fit in culturally with the firm you’re interviewing at. This is linked to the “knowing the players” advice above, but an interview or networking event is often an opportunity to demonstrate that you are a good fit for the organization you’re interviewing with.
But knowing the right people gets harder as the career landscape grows and becomes more competitive, which has prompted the rise of data driven culture and deal sourcing.
4. Capitalize on Feedback
Odds are, you’re not going to get an interview on your first dozen applications, and after that, you’re not likely to get a job after your first interview.
This is not to be cynical or pessimistic, but this is very commonly the case. When you’re looking for a career in private equity, never burn a bridge. If you don’t get hired by someone, asking for feedback is a perfectly reasonable thing to do, and can often lead to a job later. When you demonstrate interest and energy to growth, that is attractive to employers.
Plus, asking for and implementing feedback gives you the ability to understand your skill deficits and build on them.
5. Push the Firm Forward
Wherever you may find yourself in a PE career, you should always be focused on advancing the interests of your current employer. There are a number of ways you can modernize deal flow strategies, but one of the most effective ways is by aligning your professional philosophy with data driven culture.
Companies are increasingly adopting data driven culture to transform human resources, sales and marketing, business development, operations, and other areas across a wide spectrum of industries. The data-driven approach holds the promise of more objective, consistent, and reliable decision-making, as well as a stronger bottom line.
To become a data-driven firm, the entire organization needs to be aligned in that direction. Firms are focusing on recruiting and honing new specialized talent that can synergize with other teams and departments. To embrace data-driven culture, firms are focusing on the following when recruiting new talent:
- Establish a dedicated data-management function to formalize data’s role in the organization.
- Source and nurture raw talent by building the bottom of the pyramid with recent grads from local universities; groom them over time through an apprenticeship model and continuous external training.
- Insist that employees are code-literate and conceptually fluent in quantitative topics
The New School method of deal origination stands out from the old school method by using a data-driven, strategic, and differentiated approach to making more deals and adding more value to a portfolio. Data driven deal flow, like SourceScrub’s New School Deal Flow, leverages technologies and data sets that allow firms to take a structured, differentiated approach to their deal making.
- It’s data and analytics driven that relies solely on the understanding and use of historical reporting data, used in combination with predictive analytics.
- It uses a full set of core capabilities—such as data sourcing, standardized analytical tools, analytical models, like those offered by SourceScrub, to effectively monitor and provide financial recommendations.
- It requires an understanding and formation of data standards. Data is a strategic asset across all financial organizations, with formal procedures and accountability to maintain accuracy and timeliness.
- There are benchmarking metrics - The impact on business as a result of data and analytics is continually measured through a set of KPIs.
The familiar strategy of what can be thought of as “Old School” private equity is based on networking, relationships, and relying on your charisma to build mutually-beneficial relationships, but as competition grows, people skills are no longer enough to achieve success.
Aligning with data driven culture, and knowing the tools and resources, like our New School Deal Making, can be a great way to distinguish yourself as a potential candidate. Overall, finding your way in the world of PE can be a challenge, but the rewards are immense. Don’t give up, work hard, and know your business. You will make it.