3-03-2022 Newsletter: Why Buyside Is All About Growth Rates

PE vs. GE vc. VC vs. Crossover 

SO you know you want to pursue Buyside, you’re sick of just being a real estate broker, you want to buy the building and do some deep diligence.

You know you want to be at an institutional fund with a dedicated amount of cash looking to invest, specific sector focus, takes 3-5 yrs to deploy, takes 3-5 yrs to see those investments come to fruition, potential for you to make some real money through carried interest — but before we get to the specific firm — Which strategy would you want to pursue? What types of businesses do you find interesting?

• Private Equity (i.e. Apollo, Carlyle, Permira, TPG, KKR) 
  • invest in businesses that are <20% growers
    • ~3-5% growers is common in a behemoth industry, large LBO’s mainly so think majority stakes, heavy EBITDA to pay back the debt
  • you’re a hard-core modeler, you love living in excel
  • you’re ok with 20-25 more hours of work a week for an extra $100k/annum (don’t forget that this is taxed at 50%)
  • you like the idea of cost-cutting/thorough financial engineering
  • inorganic add-on growth thesis
  • anything you can to tweak revenue drivers
  • Ways to win deals: Bankers, name of the game is bidding up OR take-privates
  • if you have a thesis you’re pursuing, makes sense that your firm will pay more for that asset // sometimes banker relationships help here
• Growth Equity (Apax Digital, Bregal Sagemount, Summit Partners, General Atlantic) — most popular/easiest to break into since there are so many active firms here
  • companies — 20-80% growers, REVENUE solves all problems here
  • wood chips on the fire here aka business is doing well, why not put some extra capital into S&M to grow it out
  • you LOVE tech/thesis-driven projects, macro analysis, etc.
  • heavy organic growth YES, maybe some inorganic growth — can happen through add-ons/tuck-ins
  • either minority or majority stakes depending on your firm’s stance and what they’re trying to do
  • Ways to win deals: Relationships mainly but bankers will be used especially for the larger growth shops that do majority-stake buyouts, add-ons will be through word-of-mouth referrals/relationships with your current portco. mgmt. team
• Venture Capital (Accel, Battery Ventures, DFJ, Sequoia)
  • 80%+ growth rates
  • you’re in it for HIGH GROWTH tech, investing in rockets that either go up or blow up — more binary outcomes
  • minority stakes
  • you’re in it for macro analysis, betting on “world will look like this in the future…”
  • thing is you HAVE to go to a top shop here, not only are the best venture deals tough to get into but having a reputation carries the most weight here
  • Ways to win deals: Relationships with other investors, founder-network, OR you go early to YC, 500 Startups
  • VERY tough to break into career-wise
• Crossover Investing (Dragoneer, Coatue, Tiger)
  • blend between hedge fund and growth equity
  • generally minority stakes on the private side
  • VERY difficult to break into since naturally hedge funds just don’t hire often and are very SCRAPPY headcount wise
  • Ways to win deals: Relationships/Bankers/other investors
  • again, VERY FEW people make it here so angle IMO would be go growth and then crossover

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