3 hour case study wso

How to prepare for the case study in a private equity interview

If you're interviewing for a job in a private equity firm , then you will almost certainly come across a case study. Be warned: recruiters say this is the hardest part of the private equity interview process and how you handle it will decide whether you land the job.

“The case study is the most decisive part of the interview process because it’s the closest you get to doing the job," says Gail McManus of Private Equity Recruitment. It's purpose is to make you answer one question: 'Would you invest in this company?'

In most cases, you'll be given a 'Confidential Information Memorandum' (CIM) relating to a company the private equity fund could invest in. You'll be expected to a) value the company, and b) put together an investment proposal - or not. Often, you'll be allowed to take the CIM away to prepare your proposal at home.

“The case study is still the most decisive element of the recruitment process because it’s the closest you get to actually doing the job. Candidates can win or lose based on how they perform on case study. People who are OK in the interview can land the job by showing the quality of their thinking, ” says McManus. “You need to show that you can think, and think like an investor.”

"The end decision [on whether to invest] is not important," says one private equity professional who's been through the process. "The important thing is to show your thinking/logic behind answer."

Preparing for a PE case study has distinctive challenges for consultants and bankers. If you're a consultant, you need to, "make a big effort to mix your strategic toolkit with financial analysis. You need to prove that you can go from a strategic conclusion to a finance conclusion," says one PE professional. Make sure you're totally familiar with the way an LBO model works.

If you're a banker, you need to, "make a big effort to develop your strategic thinking," says the same PE associate. The fund you're interviewing with will want to see that you can think like an investor, not just a financier. "Reaching financial conclusions is not enough. You need to argue why certain industry is good, and why you have a competitive advantage or not. Things can look good on paper, but things can change from a day to another. As a PE investor, hence as a case solver, you need to highlight and discuss risks, and whether you are ready or not to underwrite them."

Kadeem Houson, partner at KEA consultants, which specialises in hiring junior to mid-level PE professionals, says: “If you’re a banker you’re expected to have great technical skills so you need to demonstrate you can think commercially about the numbers you plugged in. Conversely, a consultant who is good at blue sky thinking might be pressed more on their understanding of the model. Neither is better or worse – just be conscious of your blank spots.”

A good business versus a good investment

For McManus, one of the most important things to consider when looking at the case study is to understand the difference between a good business and a good investment. The difference between a good business and a good investment is the price. So you might have a great business but if you have to pay hugely for it it might not be a great business. Conversely you can have a so-so business but if you get it a good price it might make a great investment. “

McManus says as well as understanding the difference between a good business and a good investment, it’s important to focus on where the added value lies. This has become a critical element for private equity firms to consider as competition for assets has become even more fierce, given the amount of dry powder that funds now have at their disposal through a wide array of funds. “Because of the competition for transactions generally you have to overpay to win a deal. So in the case study it’s really important you think about where the value creation opportunity lies in this business and what the exit would be,” says McManus.

She advises candidates to be brave and state a specific price, provided you can demonstrate how you’ve arrived at your answer.

Another private equity professional says you shouldn't go out on a limb, though, and you should appear cautious: "Keep all assumptions conservative at all times so as not to raise difficult questions. Always highlight risks, downsides as well as upsides."

Research the fund – find the angle

One private equity professional says that understanding why an investment might suit a particular firm could prove to be a plus. Prior to the case study, check whether the fund favours a particular industry sector, so that when it comes to the case study, you can add that to the investment thesis. “This enables you to showcase you have read up on the firm’s strategy/unique characteristics Something that would make it more likely for the fund you’re interviewing with winning the deal in what’s a very competitive market, said the PE source, who said this knowledge made him stand out.

However, the primary purpose of the case study is to test the quality of your thinking - it is not to test you on your knowledge of the fund. “Knowing about the fund will tick an extra box, but the case study is about focusing on the three most critical things that will drive the investment decision,” says McManus.

You need to think through these questions and issues:

We spoke to another private equity professional who's helpfully prepared a checklist of points to think about when you're faced with the case study. "It's a cheat sheet for some of my friends," he says.

When you're faced with a case study, he says you need to think in terms of: the industry, the company, the revenues, the costs, the competition, growth prospects, due dliligence, and the transaction itself.

The questions from his checklist are below. There's some overlap, but they're about as thorough as you can get.

When you're considering the industry, you need to think about:

- What the company does. What are its key products and markets? What's the main source of demand for its products?

- What are the key drivers in that industry?

- Who are the market participants? How intense is the competition?

- Is the industry cyclical? Where are we in the cycle?

- Which outside factors might influence the industry (eg. government, climate, terrorism)?

When you're considering the company, you need to think about:

- Its position in the industry

- Its growth profile

- Its operational leverage (cost structure)

- Its margins (are they sustainable/improvable)?

- Its fixed costs from capex and R&D

- Its working capital requirements

- Its management

- The minimum amount of cash needed to run the business

When you're considering the revenues, you need to think about:

- What's driving them

- Where the growth is coming from

- How diverse the revenues are

- How stable the revenues are (are they cyclical?)

- How much of the revenues are coming from associates and joint ventures

- What's the working capital requirement? - How long before revenues are booked and received?

When you're considering the costs, you need to think about:

- The diversity of suppliers

- The operational gearing (What's the fixed cost vs. the variable cost?)

- The exposure to commodity prices

- The capex/R&D requirements

- The pension funding

- The labour force (is it unionized?)

- The ability of the company to pass on price increases to customers

- The selling, general and administrative expenses (SG&A). - Can they be reduced?

When you're considering the competition, you need to think about:

- Industry concentration

- Buyer power

- Supplier power

- Brand power

- Economies of scale/network economies/minimum efficient scale

- Substitutes

- Input access

When you're considering the growth prospects, you need to think about:

- Scalability

- Change of asset usage (Leasehold vs. freehold, could manufacturing take place in China?)

- Disposals

- How to achieve efficiencies

- Limitations of current management

When you're considering the due diligence, you need to think about:

- Change of control clauses

- Environmental and legal liabilities

- The power of pension schemes and unions

- The effectiveness of IT and operations systems

When you're considering the transaction, you need to think about:

- Your LBO model

- The basis for your valuation (have you used a Sum of The Parts (SOTP) valuation or another method - why?)

- The company's ability to raise debt

- The exit opportunities from the investment

- The synergies with other companies in the PE fund's portfolio

- The best timing for the transaction

BUT: keep things simple.

While this checklist is important as an input and a way to approach the task, w hen it comes to presenting the information, quality beats quantity. McManus says: “The main reason why people aren’t successful in case studies is that they say too much. What you’ve got to focus on is what’s critical, what makes a difference. It’s not about quantity, it’s about quality of thinking. If you do 30 strengths and weaknesses it might only be three that matter. It’s not the analysis that matters, but what’s important from that analysis. What’s critical to the investment thesis. Most firms tend to use the same case study so they can start to see what a good answer looks like.”

Houson agrees that picking out the most important elements in the case study are more important than spending too much time on an elaborate model. “You don’t necessarily need to demonstrate such technical prowess when it comes to building the model. But you need to be comfortable about being challenged around the business case. Frankly it’s better to go for a simple answer which sparks a really interesting conversation rather than something that is purely judged from a technical standpoint. The model is meant to inform the discussion, not be the discussion itself.”

Softer factors such as interpersonal skills are also important because if the case study is the closest thing you’ll get to doing the job, then it’s also a measure of how you might behave in a live situation. McManus says: “This is what it will be like having a conversation at 11am with your boss having been given the information memorandum the day before. Not only are the interviewers looking at how you approach the case study, but they’re also looking at whether they want to have this conversation with you every Tuesday morning at 11am.”

The exercise usually takes around four hours if you include the modelling aspect, so there is time pressure. “Top tips are to practice how to think in a way that is simple, but fit for purpose. Think about how to work quickly. The ability to work under pressure is still important,” says Houson.

But some firms will allow you do complete the CIM over the weekend. In that case on one private equity professional says you should get someone who already works in PE to check it over for you. He also advises getting friends who've been through case study interviews before to put you through some mock questions on your presentation.

But McManus says this can lead to spending too much time and favours the shorter method. “It’s fairer and you can illustrate the quality of your thinking over a short space of time.”

The case study is conducted online, and because of Covid, so too are many of the follow-up discussions, so it’s worth thinking about how to present yourself on zoom or Teams. “Although a lot of these case studies over the last couple of years have been done remotely, in many ways that’s even more reason to try to bring out a bit of engagement and personality with the people you’re talking to."

“ There’s never a right or wrong answer. Rather it’s showing your thinking and they like to have that discussion with you. It’s the nearest you get to doing the job. And that cuts both ways – if you don’t like the case study, you won't like doing the job. “

Contact: [email protected] in the first instance. Whatsapp/Signal/Telegram also available (Telegram: @SarahButcher)

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4 hour PE Case Study/ prep

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Hi all, how do I best prepare for a 4 hour case study + 1 hour presentation? Assuming there is not time for a 3 hour model as slides have to be created as well. Which WSO prep pack models would that be? And how to prepare for the commercial part? Thank you

The WSO PE prep pack is great - used it when I did FT PE recruiting, and it helped me secure my gig at a $1.5B shop.

Would go through the modeling exercises, including building a basic LBO from scratch. If you can do that, then you should be ready for anything. In terms of slides, I would keep it very simple - overview page of the company, overview of investment themes, risks / mitigants, diligence focus areas and proposed methods and approach for getting comfortable with diligence focus areas and model output / return sensitivities.

So your suggestion would be to focus on building the model in 1-2 hours (basic LBO , without full BS) and use the rest of the time for the presentation?

Is overview page required? Overview of investment themes - what is that? "Proposed methods and apporach for getting comfortable with diligence focus areas" - what would you write here? WHat model output would you use; only the sensitivty tables?

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S T R E E T OF W A L L S

Lbo modeling test example.

When interviewing for a junior private equity position, a candidate must prepare for in-office modeling tests on potential private equity investment opportunities—especially LBO scenarios. In this module, we will walk through an example of an in-office LBO modeling test. In-office case studies and modeling tests can occur at various stages of an interview process, and additional interviews with other members of the private equity team could occur on the same day. Therefore, you should strive to be able to do these studies effectively and efficiently without draining yourself so much that you can’t quickly rebound and move on to the next interview. Make sure to take your time and build every formula correctly, since this process is not a race. There are many complex formulas in this test, so make sure you understand every calculation.

This type of LBO test will not be mastered in a day or even a week. You must therefore begin practicing this technique in advance of meeting with headhunters. Repeated practice, checking for errors and difficulties and learning how to correct them, all the while enhancing your understanding of how an LBO works, is the key to success.

Investment Scenario Overview

Given Information (Parameters and Assumptions)

Step 1: income statement projections, step 2: transaction summary, step 3: pro forma balance sheet.

Step 4: Full Income Statement Projections

Step 5: Balance Sheet Projections

Step 6: cash flow statement projections, step 7: depreciation schedule, step 8: debt schedule, step 9: returns calculations.

Below we provide the given information from a real-life LBO test that was given to a pre-MBA associate candidate at a large PE firm. We will use it as an example of how to build an LBO model from scratch during the interview. Remember that candidates will receive a laptop and a printout with key information regarding the transaction to complete this assignment.

ABC Company, Inc.

Scenario Overview and Revenue Assumptions:

ABC Company, Inc. is a developer of software applications for smartphone devices. The company sells two products for the various smartphones. The first is a software application called Cloud that tracks weather data. The second application, Time, acts as a calendar that keeps track of a user’s schedule. ABC Company prices Cloud at $16.00 and Time at $36.00 per software license. ABC Company sold 1.5 million copies of Cloud and 3 million copies of Time in 2010. That was the first year ABC Company generated any revenue.

Each software application requires the payment of a $5.00 renewal fee every year. ABC Company renews approximately 25% of the licenses it sold in the prior year; this renewal fee acts as a source of recurring revenue. To simplify, assume that renewals happen for only one additional year and that the recurring revenue stream is based on the prior year’s new licenses. Note that ABC Company does not incur any additional costs for renewals.

COGS assumptions (assume constant throughout the projection period):

Packaging costs = $1.50 per unit
Royalties to technology patent owners = $3.00 per unit
Marketing expense = $3.00 per unit
Fulfillment expense = $4.00 per unit
Fees to smartphone companies = 15% of sale price (does not include renewal fees)
ABC Company incurs a 15% bad debt allowance on total revenues (consider this as part of cost of sales, wherein ABC Company is unable to collect from customers’ credit card companies).

G&A and other assumptions (assume constant throughout the projection period):

Rent of development property and warehouse facilities = $350,000 annually
License fee to telecom internet providers = $1.5 million annually
Salaries and benefits = $1.75 million annually
Sales commissions = 5% of all sales including renewals
Offices and other administrative costs = $750,000 annually
CEO salary and bonus = $1.25 million annually + 3% of all sales including renewals
Federal tax rate = 35% and state tax rate = 5% on EBT

Starting Balance Sheet:

Investment Assumptions:

Due to the depressed macroeconomic and investing environment, the PE fund is able to acquire ABC Company for the inexpensive purchase price of 5.0x 2011 EBITDA (assuming a cash-free debt-free deal), which will be paid in cash. The transaction is expected to close at the end of 2011.

Senior Revolving Credit Facility: 3.0x (2.0x funded at close) 2011 EBITDA, LIBOR + 400bps, 2017 maturity, commitment fee of 0.50% for any available revolver capacity. RCF is available to help fund operating cash requirements of the business (only as needed).
Subordinated Debt: 1.5x 2011 EBITDA, 12% annual interest (8% cash, 4% PIK interest), 2017 maturity, $1 million required amortization per year. (Hint: add the PIK interest once you have a fully functioning model that balances.)
Assume that existing management expects to roll-over 50% of its pre-tax exit proceeds from the transaction. Existing management’s ownership pre-LBO is 10%.
Assume a minimum cash balance (Day 1 Cash) of $5 million (this needs to be funded by the financial sponsor as the transaction is a cash-free / debt-free deal).
Assume that all remaining funding comes from the financial sponsor.
Assume that all cash beyond the minimum cash balance of $5 million and the required amortization of each tranche is swept by creditors in order of priority (i.e. 100% cash flow sweep).
Assume that LIBOR for 2012 is 3.00% and is expected to increase by 25bps each year.
The M&A fee for the transaction is $1.5 million. Assume that the M&A fee cannot be expensed (amortized) by ABC and will be paid out of the sponsor equity contribution upon close.
In addition, there is a financing syndication fee of 1% on all debt instruments used. This fee will be amortized on a five-year, straight-line schedule.
Assume New Goodwill equals Purchase Equity Value less Book Value of Equity.
Assume Interest Income on average cash balances is 1%.

Hint: The first forecast year for the model will be 2012. However, you will need to build out the income statement for 2010 and 2011 to forecast the financial statements for years 2012 through 2016.

Build an integrated three-statement LBO model including all necessary schedules (see below).
Build a Sources and Uses table.
Make adjustments to the closing balance sheet of ABC Company post-acquisition.
Build an annual operating forecast for ABC Company with the following scenarios (using 2010 as the first year for the revenue forecast; note that 2010 EBITDA should be approximately $25 million). Assume that in 2011 there is 5% growth in units sold (both Cloud and Time units).
Upside Case: 5% annual growth in units sold (both Cloud and Time units)
Conservative Case: 0% annual growth in units sold (both Cloud and Time units)
Downside Case: 5% annual decline in units sold (both Cloud and Time units)
Build a Working Capital schedule using Accounts Receivable Days, Accounts Payable Days, Inventory Days, and other assets and liabilities as a percentage of Revenue. Assume working capital metrics stay constant throughout the projection period and assume 365 days per year.
Build a Depreciation Schedule that assumes that existing PP&E depreciates by $1 million per year, and that new capital expenditures of $1.5 million per year depreciate on a five-year, straight-line basis.
Build a Debt schedule showing the capital structure described earlier. Use average balances for calculating Interest Expense (except for PIK interest—assume that PIK interest is calculated based on the beginning year Subordinated Debt balance and not the average over the year).
Create an Exit Returns schedule (including both cash-on-cash and IRR) showing the returns to the PE firm equity based on all possible year-end exit points from 2012 to 2016, with exit EBITDA multiples ranging from 4.0x to 7.0x.
Display the results of all of these calculations using the “Upside Case.”

Note that the above description incorporates all of the information, assumptions and assignments that were given in this LBO in-person test example.

As part of the first step, build out the core operating Income Statement line items for years 2010 through 2016.

Make a distinction between 2011 assumptions and 2012-2016 assumptions
Take the provided assumptions and make the revenue and cost build based upon them.

OFFSET is a simple Excel formula that is used commonly to interchange scenarios, especially if the model becomes very complex. It simply reads the value in a cell that is located an appropriate number of rows/columns away, based on the parameters given to the function. Thus, for example, =OFFSET(A1, 3, 1) will read the value in cell B4 (3 rows and 1 column after A1).

Next, build the costs related to Revenue based upon the information given in the case.

Then, build the G&A expenses from the given information.

Finally, build a simple summary schedule for the above projections.

As part of the second step, build out the transaction summary section which will consist of the Purchase Price Calculation, Sources and Uses, and the Goodwill calculation.

This model assumes a debt-free/cash-free balance sheet pre-transaction for simplification. Without debt or cash, the transaction value is simply equal to the offer price for the equity (before fees and minimum cash—discussed below).
The funding for this model is fairly simple: the funded credit facility is 2.0x 2011E EBITDA, the subordinated debt is 1.5x, and the remaining portion is the equity funding, which is a combination of management rollover equity and sponsor (PE firm) equity. (Note that the 5.0x 2011E EBITDA is the offer value for the equity before the M&A and financing fees and the minimum cash balance, not after. After fees/cash, it ends up being 5.25x.)
The management rollover is simply half of the management team’s proceeds from selling the company. Since management owned 10% of the company before the transaction, it constitutes 5% of the offer price for the original equity.
The sponsor equity is the “plug” in this calculation. In other words, it is the amount that is solved for once all other amounts are known (offer price + minimum cash + fees – debt instruments – management rollover equity).
The total equity (including management rollover) represents about 30-35% of the funding for the deal, which is about right for a typical LBO transaction.
Goodwill is simply the excess paid for the original equity (offer price – book value of equity).

As a next step, build out the Pro Forma Balance Sheet using the given 2011 balance sheet. To do this, you need to incorporate all the transaction and financing-related adjustments needed to produce the Pro Forma Balance Sheet. Each adjustment is discussed in detail below.

Since this is a cash-free and debt-free deal to start, there are no Pro Forma adjustments for the cancelling or refinancing of debt.
Cash increases by $5 million upon close because the sponsor is funding the minimum cash balance (minimum cash that is assumed to be needed to run the business).
The New Goodwill is simply the purchase value of the equity (not including fees) less the original book value of the equity.
The adjustment for Debt Financing Fees reflects the cost of issuing the new debt instruments to buy the company. This fee is considered an asset, and is capitalized and amortized over 5 years.
The Debt-related adjustments reflect the new debt instruments for the new capital structure.
The Equity adjustment reflects the fact that the original equity is effectively wiped out in the transaction—the “adjustment” amount shown here is simply the difference between the new equity value and the old one. The new equity value will equal the amount of the total equity funding for the transaction (sponsor plus management’s rollover) less the M&A fee, which is accounted for as an off balance-sheet cost.
VERY IMPORTANT: This stage of the LBO model development (once Pro Forma adjustments have been made to reflect the impact of the transaction on the balance sheet) is a very good time to check to make sure that everything in the model so far balances and reflects the given assumptions. This includes old and new assets equaling old and new liabilities plus equity; new sources of capital equaling the transaction value, which equals the offer price for the original equity (adjusting for cash, old debt and fees), etc.

Step 4: Full Income Statement

Next, build the full Income Statement projections all the way down to Net Income. Note that a few line items (especially Interest Expense!) will be calculated in later steps. Once the Cash Flow section and other schedules are built, link all the final line items to complete the integrated financials.

You can link the Revenue, COGS and SG&A calculations to the operating model (built in Step 1) to get to EBITDA.
D&A will be linked to the Depreciation Schedule that you will need to build (schedule of the Depreciation of the existing PP&E and new Capital Expenditures made over the projection period).
Interest Expense and Interest Income will be linked to the Debt Schedule that you will need to build. There will be a natural circular reference because of the cash flow sweep feature of the LBO model, combined with the fact that Interest Expense is dependent upon Cash balances. This is usually one of the last things you should build in an LBO model.
The amortization of Deferred Financing Fees is fairly straightforward: it uses a straight-line, 5 year amortization of the fees described in the case write-up and computed in Step 2.
The tax rates apply to EBT after all of these expenses have been subtracted out. They are given in the case write-up.

Next, forecast the Balance Sheet from 2011 to 2016. Note that we start with the 2011 Pro Forma Balance Sheet from Step 3 , not the original Balance Sheet.

Laying out the Balance Sheet is similar to laying out the Income Statement—you’ll have to set up the framework for some line items and leave the formulas blank at first, as they will be calculated in the other schedules you will create.
Cash remains at $5 million throughout the life of the model, as we’re assuming a 100% cash flow sweep and that the minimum cash balance is $5 million. (Cash would only start to increase if we project out long enough that all outstanding Debt is paid off.)
Accounts Receivable (AR): Calculate AR days (AR ÷ Total Revenue × 365) for 2011 and keep it constant throughout the projection period.
Inventory: Calculate Inventory days (Inventory ÷ COGS × 365) for 2011 and keep it constant throughout the projection period.
Other Current Assets: Keep this line item as a constant percentage of revenue throughout the projection period.
Accounts Payable (AP): Calculate AP days (AP ÷ COGS × 365) for 2011 and keep it constant throughout the projection period.
Other Current Liabilities: Keep this line item as a constant percentage of revenue throughout the projection period.
Total Deferred Financing Fees are computed based upon the Debt balances and percentage assumptions given in the model. Deferred financing fees are then amortized, straight-line, over 5 years.
The Credit Facility and Subordinated Debt line items will link to your Debt schedule. Their balances will decrease over time as a function of the cash available for Debt paydown (since the case write-up specifies a 100% cash sweep function).
Equity (specifically Retained Earnings) will increase each year by the same amount as Net Income, because there are no dividends being declared. If dividends were to be added into the model, you would calculate ending Retained Earnings as Beginning Retained Earnings + Net Income – Dividends Declared.
As discussed earlier, the balance sheet has the pleasing feature that if it balances, the model is probably operating correctly! Now is another good time to make sure everything balances before proceeding.

Next, forecast the Cash Flow Statement as requested in the Exercises section.

Start with Net Income and add back non-cash expenses from the Income Statement, such as D&A, Non-Cash Interest (PIK), and Deferred Financing Fees.
Next, subtract uses of Cash that are not reflected in the Income Statement. These include the increase in Operating Working Capital (which you calculated using your balance sheet) and Capital Expenditures (which is calculated here or, alternatively, could be calculated in the Depreciation Schedule to be built shortly).
Next, calculate the change in cash, which will be interconnected with the Debt schedule. In this case, the model is assuming a 100% cash flow sweep (after mandatory debt amortization payments), so cash should not change after the 2011PF Balance Sheet amount of $5 million.
Even though the amount is not changing, the Cash line item should link back to the Balance Sheet. This is because the model could later be used to relax the assumption that 100% of excess cash is swept to pay down Debt. If it’s less than 100%, Cash would accumulate, and that would need to tie in to the other financial statements.

Next, forecast the Depreciation schedule as requested in the Exercises section.

The original PP&E is depreciated $1 million annually, as stated in the assumptions.
New Depreciation is calculated based on the annual investment in Capital Expenditures over the projection period. This new Depreciation is created using a waterfall (see above): each year new Capital Expenditures occur and need to be depreciated; each year, Capital Expenditures from previous projection years in the model may have to be partially depreciated in that year. The sum of all of the component Depreciation line items (one row for each year, plus the Depreciation on the original PP&E) gives the total Depreciation Expense for the year.

Note that this model is less complex than it could be. Given that Capital Expenditures do not change each year, and that each new Capital Expenditure is depreciated according to the same simple schedule, the numbers and calculations are fairly straightforward. Here, we’re simply assuming that new Capital Expenditures are expensed evenly over a 5 year period (using straight-line depreciation), as specified in the case write-up.

Next, forecast the Debt Paydown and Interest Expenses for each year via the Debt Schedule, as requested in the Exercises section.

WARNING: Be very careful about changing formulas once you have built the iterative calculation. If you do so and introduce an error, it could bust your entire model if you’re not careful. This is because the error will travel all the way through the iterative calculations and end up everywhere! If you run into this problem, break the circular reference entirely (by deleting it), reconstruct the calculations for the first forecast year (2012), and then copy and paste them across the columns, one year at a time (2013, then 2014, etc.). Many PE professionals have spent late nights in the office trying to recover from an accidental error introduced into a circular LBO model formula!
The non-discretionary portion is the required amortization payments made on debt (in this case, there is only required pay-down for subordinated debt).
The discretionary portion is the sweep portion of the remaining LFCF less required amortization. Since we’re assuming a 100% cash flow sweep, all of the LFCF is used to pay down debt—first the Senior Credit Facility, then the Subordinated Debt. The cash flow sweep and required payments will help you calculate the beginning and ending balances of both of the debt tranches.
Also note that we need to include a fee for the availability of the unused portion of the RCF, even if the business never uses it—this is a typical, annual commitment fee arrangement for revolving credit facilities.
The interest rate on the debt is a floating rate (this means an interest rate that is dependent on LIBOR, according to the assumptions provided). We need to calculate interest based on this rate times the average S/RCF balance over the year.
The 8% cash interest is calculated based upon the average of the debt balance, just like with the S/RCF.
However, the 4% PIK (non-cash) interest will accrue based upon the beginning debt balance, not the average.
Because of this difference (and the fact that one source of interest uses cash and the other does not), we need to make sure we’re using separate line items for the two types of Interest Expense.
We also need to be aware of the mandatory amortization payment of $1 million per year, provided in the assumptions. This amount will get paid down out of LFCF no matter what.
Interest Income on Cash is fairly easy to calculate—it is the Cash interest rate (1%) times the average balance throughout the year. This amount will increase Cash.
Total Interest needs to be linked to the Income Statement.
Non-Cash Interest needs to be added back to Net Income in the Statement of Cash Flows to assist in deriving LFCF (it’s a non-cash expense).
Any LFCF that is not used to pay down Debt needs to link to the Cash line item of the Balance Sheet. (In this model none will, but you should include this measure in case the model is later used to either relax the 100% cash sweep assumption, or to project financials beyond the point at which all debt has been paid off).
All Debt balances paid down by LFCF need to link to the Debt line items on the Balance Sheet.

In the final step of the LBO test, build out the Returns calculation required in the Exercises section.

For each year, we simply take EBITDA multiplied by a range of purchase multiples to get to a total Exit Value for the company (Transaction Enterprise Value, or TEV).
Next, we subtract out Net Debt (which is dependent on the 3-statement model you just created) to get to Equity Value.
Next, we calculate the portion of the Equity Value that belongs to the management and the sponsor by using the initial equity breakdown for each party.

LBO Case Study: Conclusion and Final Comments

We hope that this case study provides some insight into all of the considerations that need to be made in building a realistic LBO model based on a case study in a Private Equity interview, and that the 9-step breakdown helps you simplify the task into easy-to-replicate and easy-to-execute steps.

No one becomes an expert LBO modeler overnight, so the key to doing well in this portion of the process is practice, practice, and more practice. With enough sample LBO cases, you should be able to master the steps needed to confidently build a fully functioning, professional LBO model on interview day.

Good luck with the modeling case and with the interviews!

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Private Credit Recruiting (What to Expect and How to Prep)

If you're interested in breaking into finance, check out our Private Equity Course and Investment Banking Course , which help thousands of candidates land top jobs every year.

The financial crisis of 2007 - 2008 permanently changed how the leveraged finance arms of investment banks operate. Regulatory guidelines enacted in response to the financial crisis and decisively limited the banks’ ability to lend to companies in risky sectors or finance risky leveraged buyouts to support their private equity clients.

As banks became more selective about the transactions they supported, Private Credit (i.e. Private Debt or Direct Lending) emerged to fill the significant lending gap that the investment banks left behind. Private Credit has grown to become one of the most important segments of the entire debt financing universe.

Despite the surge of popularity in private credit among young professionals, there are very few resources explaining how those interested in a career for private credit can navigate its mystifying recruiting process.

In this post, we will provide an overview of how recruiting for private credit works, discuss the similarities and intricacies compared to private equity recruiting, and provide a guide on how professionals from different career backgrounds can navigate the process.

Overview of Private Credit

Similar to private equity, recruiting for private credit is composed of 4 to 5 rounds of interviews, which include a round dedicated to a case study and/or model test. Interviews consist of technical, behavioral and fit questions, with technical questions being geared towards debt- or credit-related topics.

The recruiting season typically begins one year later than private equity, starting in late Fall of an analyst’s 2nd year, although many funds, especially smaller ones, will just recruit on a need basis. As such, we would estimate that Private Credit has more off-cycle recruiting opportunities than Private Equity.

Paths to Private Credit

The most common path to getting an interview at a private credit fund is through headhunters who usually reach out directly to analysts through your professional email.

The largest credit funds such as Carlyle, KKR (both Henkel), Oaktree (Amity) and GSO (SG Partners) rely on the headhunters they use for private equity recruiting. Many private equity mega funds have large credit arms. Regional or smaller funds (<$5B AUM) often post directly to job sites or use lesser known recruiters. When speaking with headhunters, make sure to have your story nailed down as to why you are pursuing private credit over private equity.

Opportunities are available to anyone working in investment banking, but the most common paths to Private Credit are candidates from:

Leveraged Finance or “LevFin” (origination, underwriting, execution)

Capital markets

Corporate / commercial banking

For those not currently in any of these fields, it is highly recommended that you lateral to one first in order to get related work experience and better access to recruiting pipelines.

For commercial and corporate banking analysts finding it difficult to get interviews, a common path is to transition into a LevFin group (whether internally or lateral) before recruiting.

Contrary to private equity, it is not uncommon to see analysts that were promoted to associates in investment banking also move to private credit.

Typical Credit Interview Questions

When preparing for Private Credit interviews, you should take special attention to understand your deals very well. You should be able to:

Explain in 30 seconds what the company does and how their business model makes money.

Know key stats of the transaction (size and interest rate on each debt tranche, leverage metrics) and business (EBITDA, cash flow/margin profile, etc.).

Discuss the investment highlights (what makes this company a good business to invest in?) and risk and mitigating factors (what risks could impact the business’ performance and how is an investor and the company’s cash flows protected?).

If it was a LevFin deal, know details of the syndication process and what investors were concerned with (if possible, check if the credit fund potentially looked at any of the deals you worked on).

If you have directly related experience, you will likely be asked about credit-related technicals, such as:

How do you calculate financial covenants (e.g. Fixed Charge Coverage Ratio)

How do you calculate all-in yield for term loan or bond?

Walk me from EBITDA to levered free cash flow

Walk me through a credit agreement

What is your view on the leveraged loan market?

If you have a corporate or commercial banking background, expect to be grilled more on technicals and what exactly your responsibilities were on deals. Some interviewers assume corporate bankers just manage client relationships and do not handle technical analysis like LevFin juniors, so the technical standard is often higher.

The Case Study / Model Test

The majority of Private Credit groups will administer a case study as the next portion of the interview process.

The case study will either be a take-home assignment or an in-person test. Take-home assignments are much more common during the off-cycle, while in-person tends to be more common during on-cycle due to the time constraints.

1. Take-Home

You will be given a CIM or presentation on a company and supplemental information including an industry report or excel files with large data sets that you will need to comb through.

You will have 2-3 days to prepare a presentation either in Word or PowerPoint format. It should outline the transaction situation, company and its business model, investment merits, key risks and mitigating factors, historical financial analysis, a projection model with multiple cases and most importantly, your recommendation on if you would do the deal or not (Hint: It’s okay to recommend not doing the deal as long as you can defend why).

You will present your memo in front of a group of people who work at the fund. Expect to be grilled on your thesis (Hint: even if it’s a stellar deal, people in the room will try to scrutinize your analysis to see how you handle pressure). You should also be prepared to talk through a downside case .

The idea is to simulate a real investment committee where decision-makers will ask very tough questions to make sure your thesis is air-tight before they approve your deal.

2. In-Person

This will be similar in structure, except that you will only have 3-4 hours to prepare and present your presentation at the fund’s office. Your write-up will be a slimmed-down summary of the take-home version, so 2-4 pages of analysis plus a short form cash flow projection model (i.e. no full balance sheet).

A case study is similar to the work you do during a credit underwriting process (i.e. putting together an 80-page memo and presenting it to the bank’s risk committee).

Every bank runs its credit processes differently, so if your group is not involved with credit underwriting, we suggest taking a CIM from a deal you’ve worked on and preparing your own investment memo.

Example of a Summary Cash Flow Model Output

Some funds may administer a separate model test depending on their investing mandate. Some firms only invest in first-lien term loans, while others invest all throughout the capital structure. Capital structure-focused funds often have higher technical standards and may have a more complex model assignment.

This involves building a full three-statement model from scratch within 2-3 hours using provided financial and capital structure assumptions. Expect to calculate credit ratios and run an IRR analysis if the fund invests in mezzanine or equity co-investments.

While the talent pool for Private Credit and Private Equity recruiting may be similar, the technical standards needed for Private Credit tend to be different. Not only do you have to build three-statement cash flow models, but you also need to be able to compute credit financial ratios, understand debt documents, and analyze individual tranches of debt. The interview fundamentals may be the same, but you may need to spend more time understanding the technical nuances.

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You can read endlessly about “financial modeling” online, but most people fail to explain how and why it is useful.

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The Core Financial Modeling Course offers all of that and more.

It’s organized around the key topics of interview prep and internship/job prep , and you get plenty in each category:

1 Prepare for interviews with practice exercises and case studies.

The course features 10+ different case studies and modeling tests, ranging from 30-minute exercises up to 2- and 3-hour versions of models.

There are examples that start with blank Excel sheets, ones that start with pre-filled templates, and ones that start with data but no real template.

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“Putting in the reps” makes you faster and more efficient, but it’s also the best way to learn the concepts at a deep level so you can ace your interviews without “memorizing” anything.

Oh, and if you’re pressed for time, you’ll also get a “Quick Start” guide with options for 10-hour , 20-hour , and 30-hour plans to learn the most important concepts.

The bottom line is that you can get something out of this course if you have anywhere from a weekend to a full month to work on it.

2 Hit the ground running on Day 1 of your internship or full-time job.

Winning an investment banking internship or full-time job is insanely competitive, so there’s nothing worse than showing up on Day 1 and realizing you have no idea how to build a certain model your VP just asked for.

As an intern, it’s practically like wearing a big red “Don’t give me a return offer!” sign.

That’s why this course goes beyond simple interview prep and offers more complex versions of models that you might use on the job – to value companies, analyze M&A deals and leveraged buyouts, and make debt vs. equity recommendations to clients.

Many of these also come with investment banking-style presentations and pitch books laying out the conclusions – so you always have templates and references.

Learn them well enough, and some of the full-time staff might ask you where you got your latest Excel and PowerPoint files.

The Core Financial Modeling Course is designed around these two critical topics.

Yes, it has a ton of other material, including written guides, notes for all the lessons, quiz questions, and an end-of-course certification quiz…

…but if you ace your interviews and immediately impress on Day 1 of the job, what else do you need?

What You Get – And What the BIWS Core Financial Modeling Course Will Do for You…

When you’re interviewing for internships and full-time positions at investment banks, you’ll always get a few questions over and over…

How much do you know about accounting?
Can you walk me through a valuation?
What happens in a merger model or LBO model when you adjust the assumptions…
How would you describe your financial modeling skills?

When you master real-world techniques and case studies, you have a significantly better chance of landing prime jobs and internships with the top investment banks, private equity firms, and hedge funds.

The Core Financial Modeling course helps you gain all that real-world knowledge via video-based training created by investment bankers.

You’ll get a total of 158 videos – everything you need to beat the competition in interviews and get a head start before you start working. You’ll also get detailed written guides and transcripts to make it easier to scan and review the topics (and each video comes with full captions/subtitles).

MUCH MORE THAN THEORY

We base everything in the Core Financial Modeling course on what investment bankers and other finance professionals actually do in real life:

To gain the proper background, you’ll start by learning key accounting and finance concepts with examples based on real companies, such as Target and Best Buy; you’ll learn how the financial statements link together and how you can analyze them with key metrics and ratios.
Then, you’ll move into the “global case studies,” which include companies such as Monster Beverage (U.S.), Stadler Rail (Switzerland), Coles (Australia), Vivendi (France), Steel Dynamics (U.S.), Builders FirstSource / BMC Stock Holdings (U.S.), NichiiGakkan (Japan), Great Canadian Gaming Corporation (Canada), and Netflix (U.S.).
In each case study, you’ll analyze a company or deal, build a model, and then make an investment recommendation or recommend the proper price and deal structure. This is the type of work you do all day in investment banking, private equity, and hedge funds.

Through these case studies, you’ll:

Build 3-statement projection models and learn how to answer accounting questions in interviews.
Understand Equity Value and Enterprise Value at a deep level – way beyond whatever the paid monkey army on Investopedia or ChatGPT can regurgitate!
Value a company – from finding public comps and precedent transaction to building a DCF model to using the valuation output in a stock pitch, pitch book, and equity research report.
Create merger models – from combining and adjusting the financial statements to evaluating accretion/dilution and other metrics to using the model to advise clients on their best options.
Build LBO models , from the transaction assumptions to the debt schedules, financial projections, cash flows, and calculations of the IRR and money-on-money multiples – and the investment recommendation at the end.

The information you’ll find is so detailed and so thorough that our customers regularly come from top-ranked universities, investment banks, and business schools.

Once you’ve completed the training, here’s what you’ll be able to write on your resume or CV:

Curriculum Vitae

Experience:.

Core Financial Modeling (BIWS)

Completed 30+ hours of modeling tutorials based on case studies of companies and deals in North America, Europe, Asia, and Australia
Created 3-statement projections to analyze potential minority-stake investment in Coles (Australia); concluded that 15%+ IRR was plausible due to company’s improving Return on Capital and 4-5% Dividend Yield
Built DCF analysis for Steel Dynamics starting from blank sheet in Excel; concluded that company was overvalued by 5-15%
Completed case study based on Apollo’s $2.1 billion USD leveraged buyout of the Great Canadian Gaming Corporation; projected revenue, expenses, and cash flow, set up LBO model, and made positive investment recommendation based on likelihood of achieving 20% IRR
Awarded Financial Modeling Certification by passing evaluation quiz with score above 90%

Gain Official Recognition of Your Training With BIWS Certifications

After completing the course materials, you’ll be eligible to take our challenging Certification Quiz. Once you earn a score of at least 90%, you’ll receive a personalized Certificate of Achievement with your name, the course name, and the date you passed the quiz:

You can add your certificate to your resume/CV or use it in interviews to set yourself apart from other candidates.

We also make sure employers know how challenging the certification process is: Your certificate will contain a link where prospective employers can review our exams and the questions required to pass.

Unlike other training companies that “issue certifications,” our process is completely transparent: you can point to the exact questions you had to answer to pass the quiz and become certified.

Take A Look at What You’ll Get Immediately After Signing Up…

The case studies in the Core Financial Modeling course give you a truly global perspective that even many experienced investment bankers lack.

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At last count, over 56,763+ students, entry-level professionals and career changers have used Breaking Into Wall Street to master financial modeling, win interviews, and break into high-paying jobs in investment banking, private equity, hedge funds, equity research, and more.

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Our Interactive Learning Portal Is Your Roadmap to Fast Understanding and Quick Answers from Our Expert Support Team

Here's a sample video from the Core Financial Modeling course so you can see for yourself exactly what you'll get:

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If there’s anything at all you don’t understand, just go to the “Question/Comment” area below each and every lesson, and ask your question there.

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NOTE: There are some limitations to these support services. For example, we cannot complete models, case studies, or homework assignments for you.

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S&P Global Market Intelligence Delivers WSO SaaS Platform Using Amazon AppStream 2.0

S&P Global Market Intelligence delivers unrivalled insights and leading data and technology solutions. Its suite of WSO Software and WSO Services supports investment firms, banks, and other financial institutions. Wanting to improve its service, S&P Global Market Intelligence used Amazon AppStream 2.0 to launch a software-as-a-service (SaaS) version of its WSO suite globally to customers through a web browser without an application rewrite.

Amazon AppStream 2.0 is a fully managed application and desktop streaming service that helps customers securely provision user access to applications and resources they need, anywhere, anytime, and from any supported device. By migrating WSO to Amazon AppStream 2.0, S&P Global Market Intelligence reduced its time to market and gained the ability to scale quickly without procuring or managing application streaming infrastructure.

Using Amazon AppStream 2.0, we can now perform upgrades in near real time during business hours with zero downtime.”

Michael Bland Head of Cloud Engineering for WSO, S&P Global Market Intelligence

Driving SaaS Transformation Using Amazon AppStream 2.0

S&P Global Market Intelligence's WSO suite provides tools that help investment managers in the credit markets perform key functions such as compliance monitoring, reporting, and trade settlement. WSO Software includes customer positions, trades, and portfolios and provides multi asset-class credit portfolio administration solutions for investment managers. Customers can install WSO Software locally or outsource the deployment to S&P Global Market Intelligence. “We previously used terminal server farms for our outsourced model,” says Thomas Burgess, head of cloud solutions for WSO. “Multiple users were logged on to a single server, which caused performance issues when we were operating at peak volume.” This approach also made it difficult for S&P Global Market Intelligence to deploy consistent updates and for customers to take advantage of new WSO features.

S&P Global Market Intelligence realized that using a SaaS approach would help alleviate this complexity and streamline the update deployment process. Having used AWS services since 2015, the company engaged the AWS team and evaluated how Amazon AppStream 2.0 could help S&P Global Market Intelligence launch a SaaS model of its WSO software. S&P Global Market Intelligence was attracted to the evergreen model and self-managed scaling of Amazon AppStream 2.0. In 2017, it began to explore the solution using a proof of concept. “We wanted to see whether a streaming application like Amazon AppStream 2.0 would work well to serve content to our users,” says Burgess. “We found that this server model was both cost effective and scalable for the business.” Once S&P Global Market Intelligence proved that it would be able to run WSO on Amazon AppStream 2.0, it began migrating from terminal server farms to a managed service model on AWS.

Streamlining Deployment Using Amazon AppStream 2.0

Using Amazon AppStream 2.0, S&P Global Market Intelligence scaled WSO’s infrastructure without procuring or managing hardware, unlocking key benefits for its customers and business alike. By using Amazon AppStream 2.0, S&P Global Market Intelligence has reduced the time it takes to onboard customers to WSO from months to just hours. Because the company no longer needs to procure hardware to support onboarding, it also reduced operating costs.

The WSO team can deploy a high volume of new application releases within a short period using Amazon AppStream 2.0, decreasing time per release from 40 hours to just 3 hours. This solution has also improved WSO’s upgrade process. “Using Amazon AppStream 2.0, we can now perform upgrades in near real time during business hours with zero downtime,” says Michael Bland, head of cloud engineering for WSO. “When customers are ready to use our new features, they simply log out of WSO, log back in, and receive updates. This solution hugely improves our release process and helps us perform upgrades with no interruptions to our business or our customers.” By implementing Amazon AppStream 2.0, the WSO team has reduced its upgrade cycle from 18 months to 3 months, accelerating its speed to market. By November 2021, it had completed 600 releases during that year alone.

S&P Global Market Intelligence's WSO is able to scale applications and desktops quickly using Amazon AppStream 2.0 to support any number of users around the globe. As a result, the company can facilitate customers’ access to critical applications from any location, including remote areas. “Having the ability to remotely access WSO through a streaming browser has been very powerful for our customers,” says Burgess. “And due to our ability to release code, patches, and new applications quickly, all our customers can access the latest functionality and regulatory updates.”

The WSO team has used Amazon AppStream 2.0 to federate end user access using single sign-on to provide applications access to its WSO users. The company gave customers Active Directory credentials that it managed on their behalf, separate from their corporate directories. It then used native functionality on Amazon AppStream 2.0 to facilitate secure communications between the system and the customer’s Active Directory identity provider. “We built a pipeline that passes federated Security Assertion Markup Language 2.0 messages to the customer’s identity provider,” says Burgess. “We consume those messages for user authentication. This process removes the burden of us managing Active Directory users and helps our customers self-manage any onboarding processes they may have within their organizations.”

Planning the Way Forward on AWS

Using Amazon AppStream 2.0, S&P Global Market Intelligence has modernized its WSO suite using a SaaS framework, unlocking benefits for scalability, performance, and time to market.

About S&P Global Market Intelligence

S&P Global Market Intelligence delivers unrivalled insights and leading data and technology solutions.

Benefits of AWS

Reduced time to deploy new applications from 40 hours to 3 hours
Reduced onboarding times from months to hours
Facilitates secure single sign-on access
Provides access to critical applications from any location
Reduced complexity for clients during remote working conditions
Reduced upgrade cycles from 18 months to 3 months
Migrated without outages affecting clients
Upgraded to AppStream 2.0 without interruption to users

AWS Services Used

Amazon appstream 2.0.

Amazon AppStream 2.0 is a fully managed non-persistent desktop and application service for remotely accessing your work. Deliver Software as a Service (SaaS) versions of applications without rewrites, special hardware, or device installs; ideal for training, trials and software demonstrations.

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Growth Equity: The Child Prodigy of Private Equity and Venture Capital, or an Artifact of Easy Money?

If you're new here, please click here to get my FREE 57-page investment banking recruiting guide - plus, get weekly updates so that you can break into investment banking . Thanks for visiting!

Over the past few decades, growth equity (GE) has gone from an afterthought to a major asset class for huge investment firms.

Some argue that GE offers the best of both worlds: the opportunity to fund innovation and growth – as in venture capital – plus the ability to limit downside risk and invest in proven companies – as in private equity .

Others would counter that growth equity’s rapid ascent was mostly due to the easy money that persisted between 2008 and 2021.

With interest rates at ~0%, funds inevitably flowed into anything with “growth” in the name – regardless of its real growth potential:

Why Did Growth Equity Get So Popular?

Growth equity vs. venture capital vs. private equity, on the job: growth equity careers.

Growth Equity Recruiting

Growth Equity Interviews and Case Studies

Compensation and exits.

Pros and Cons and Final Thoughts

Growth Equity Definition: In traditional growth equity, firms invest minority stakes in companies with proven business models that need the capital to expand; some firms also use “growth buyout” strategies, which are like traditional leveraged buyouts but with higher growth potential.

Most of the confusion around “growth equity” comes from the fact that it includes two different strategies, and many top firms use both.

Here are the main differences:

Strategy #1: “Late-Stage Venture Capital” – This is what most people think of as “growth equity.” This style is about purchasing minority stakes in cash-flow-negative-but-high-growth companies that want to scale and eventually go public or sell (think: Uber or Airbnb before their IPOs). Valuations are high, the returns depend on future growth, and deals are for primary capital , i.e., new cash the business needs. There’s usually a long list of previous VC investors as well.
Strategy #2: “Growth Buyouts” – This strategy is more like traditional leveraged buyouts because the PE firm acquires a much higher percentage of the company (or even majority control). Most companies are already profitable, the potential returns are lower, and there’s usually a large secondary component (i.e., the Founders sell some shares to take money off the table, but “the company” doesn’t get any of that cash). Debt financing is much more common, and the GE firm is often the first institutional investor.

Over time, many traditional growth equity firms have shifted to the “growth buyout” category as their assets under management have grown.

Most of this guide deals with the “late-stage VC” strategy, as dozens of other articles cover private equity strategies such as leveraged buyouts and traditional private equity .

The Top Growth Equity Firms in Each Category

If you asked the average person to name the “top” growth equity firms, you’d probably get a list like the following:

1) Primarily Late-Stage VC Deals – Examples include a16z Growth, Battery, Bessemer, Sequoia Growth, and Technology Crossover Ventures (TCV).

Most of these firms started out doing early-stage VC deals and still invest across all company stages.

2) Primarily Growth Buyout Deals – Firms like Accel-KKR, Great Hill, Mainsail, PSG, Spectrum, and TA Associates go here.

Many of these firms use debt to fund deals, and they complete bolt-on acquisitions for portfolio companies.

3) Mix of Late-Stage VC and Growth Buyout Deals – General Atlantic, Insight, JMI, Stripes, and Summit are good examples.

4) Private Equity Mega-Funds with Growth Teams – TPG Growth is the most famous example, but you could also add the growth teams at Advent, Bain, Blackstone, Permira, Providence, and Warburg Pincus (note that these are not all “ mega-funds ” according to our definitions).

You could keep going and add plenty of names.

For example, Susquehanna Growth Equity is another great firm, but it doesn’t use the traditional LP/GP structure, so I’m not sure where it fits in.

Similarly, SoftBank has played a big role in growth equity (for better or worse…) but it’s the investing arm of a corporation, not a standalone PE/VC firm.

Many other well-known VCs have also raised growth equity funds, including Benchmark, Kleiner Perkins (KPCB), and NEA.

The main factors were:

The Rise of Tech and Software – Since so many growth equity deals involve technology, the sector’s rise over the past 10 – 20 years also drove a lot of growth equity investing.
Companies Began Staying Private for Longer – A long time ago, startups went public within a few years of raising VC funds (see Google , Cisco, etc.). In the 2010s, startups began to postpone their IPOs, but they still needed funding.
Tech Industry Maturation – As the technology industry matured, companies generated more predictable cash flow, but they still needed capital to scale.
Loose Monetary and Fiscal Policy – The quantitative easing (QE) and zero-interest-rate policies (ZIRP) that existed in most countries between 2008 and 2021 spurred a lot of “growth investing,” as established/sleepy firms like Fidelity suddenly became interested in riskier investments. Many hedge funds also joined the party.

From a career perspective , growth equity appealed to many bankers and consultants who didn’t want to be “pigeonholed” in venture capital (limited exit opportunities) or suffer through “banking hours” once again in private equity.

Growth equity offered a compromise: Modeling and deal work, networking, and shorter hours than most PE roles.

This section will focus on Strategy #1 (Late-Stage VC Investing) because Strategy #2 is nearly the same as what most middle-market private equity firms do, but with higher-growth companies.

Official descriptions usually cite the following points to explain how growth equity firms differ from VC and PE firms:

They acquire minority stakes in companies (like VC and unlike PE).
They invest in revenue-generating companies with proven business models (like PE and unlike early-stage VC).
They aim for cash-on-cash multiples between 3x and 5x rather than the 5x, 10x, or 100x that VCs target and the 2x – 3x that many PE firms target. The targeted IRR might be in the 30 – 40% range.
They earn returns primarily from growth via acquisitions and organic sources.
They do not use debt since they only make minority-stake investments. However, they often invest using preferred stock with liquidation preferences attached to limit their downside risk (similar to VCs).
The average deal size is bigger than early-stage VC but smaller than many PE deals; the $25 – $500 million range might be the norm for U.S.-based firms.
The main risk factor in deals is executing the growth plan, not default risk due to debt (PE) or product/market risk (VC).

Growth equity firms could invest in any industry but tend to be skewed toward technology and TMT , with some exposure to consumer/retail , healthcare , and financial services .

The specific growth strategies used by portfolio companies could include almost anything, but a few common ones are:

Paying for employees, buildings, and equipment to enter new geographies or markets.
Developing new products or services.
Scaling a company’s sales & marketing by hiring more sales reps.
Completing bolt-on acquisitions that will boost the company’s revenue and cash flow.

Unsurprisingly, growth equity careers are a mix of private equity careers and venture capital careers .

Let’s run down the average tasks an Analyst or Associate completes each day at a “Late-Stage VC” firm to demonstrate this:

Sourcing: As in VC careers, there’s a lot of emphasis on “sourcing” or finding new companies to invest in (read: cold calling and emailing). Deals and business strategies are less complicated than in PE, so finding great companies is a competitive advantage.
Financial Modeling: Like private equity, 3-statement models are common, as are valuations and DCF models , but LBO models are less common since not all deals use debt. Like venture capital, cap tables , liquidation preferences, and primary vs. secondary purchases come up frequently (plus, SaaS metrics , SaaS accounting , and so on).
Portfolio Companies: You probably won’t interact with management teams quite as much because your firm won’t own controlling stakes in all its portfolio companies. You may still help with operational issues, but it’s harder to “force” companies to change in a specific way.
Due Diligence: For similar reasons – minority stakes rather than control deals – you won’t devote quite as much time and effort to due diligence in deals.

If you do the math, you’ll see that something doesn’t add up because the modeling, deals, and due diligence are less intense than in PE, but you also work longer hours than in VC (50 – 60 hours per week up to 70 – 80 when a deal is closing).

What accounts for the difference?

At some firms, the answer is “a lot more sourcing.”

But at other firms, you might spend more time on market/industry research or get more involved with portfolio companies.

The overall career path, tiles, and promotion times are like the private equity career path , but compensation is usually lower (see below).

Growth Equity Recruiting: Who Gets In, and How Do They Do It?

The recruiting differences vs. other fields of finance are as follows:

1) Candidate Pool: Growth equity is open to a wider pool of candidates than PE roles, but not as many as VC roles. Many people still get in from investment banking and management consulting , but some also get in from VC and finance-related jobs at startups. Also, you can get in more easily from a middle-market or boutique bank .

That said, you are still highly unlikely to win growth equity offers from something like engineering at a tech company or brand advertising.

Even product management is questionable – it can work for VC roles, but probably not for GE since you need more technical skills.

Finally, you can get into GE directly out of undergrad, but it’s less common than in IB/PE, and it’s not necessarily recommended because many of these roles are “sourcing heavy.”

2) Process: At most firms, the process is closer to off-cycle private equity recruiting , where you must proactively network to find roles. The biggest GE firms and the PE mega-funds still use on-cycle recruiting, but

3) Technical Skills: People often claim that growth equity interviews are “less technical,” but this is not universally true. You could easily get asked to complete an LBO modeling test, a 3-statement model, or a DCF, and standard IB interview questions and VC interview questions could come up.

Obviously, you’ll need these technical skills if you join a team that does “growth buyout” deals.

But even if you apply to a late-stage VC team, they might still give you a modeling test to weed out candidates .

The main question categories in interviews are:

Fit/Background – Expect to walk through your resume , explain “why growth equity,” why this firm, your strengths and weaknesses , and so on.
Technical Questions – Everything is fair game (see above).
Deal/Client Experience – You should review your 2-3 best deals and say whether you would have done each one, with “growth” as the key criterion.
Firm/Portfolio Knowledge – You need to know the firm’s investment thesis, strategies/verticals, and have a rough idea of its portfolio companies. To save time, focus on 1-2 specific companies and do enough research to discuss them in-depth.
Industry/Market Discussions – Rather than trying to “learn” the entire SaaS, AI, or hardware market, focus on one specific vertical (e.g., the top 2-3 companies, your #1 investment pick, the growth drivers, the risk factors, and the overall outlook).
Mock “Sourcing” Calls – The firm could also ask you to role-play a call with a prospective portfolio company by introducing yourself, asking key questions, and requesting a follow-up conversation.
Case Studies – Most GE case studies are either 3-statement modeling variants or open-ended market-research case studies, but anything is fair game ( paper LBO models , simplified or full LBO models, etc.).

An open-ended case study might give you a few pages of information on a company and ask you to draft an investment recommendation.

To do this, you will have to research the company’s market size, competitors, growth strategies, and strengths/weaknesses.

We don’t have a direct example here, but the VC case study on PitchBookGPT gives you a flavor of what to expect in a qualitative case.

For a modeling example, see our growth equity case study based on Procyon SA .

These two points depend on whether you worked on growth buyouts or late-stage VC investments .

In growth buyout teams/firms, compensation at larger firms is generally a 15 – 20% discount to private equity compensation.

So, if an “average” PE Associate earns $300K – $350K in total compensation, the average range might be closer to $250K – $300K at a growth buyout firm.

However, note that the mega-funds might still pay about the same because they may align compensation across groups.

If you work for a smaller, late-stage VC fund, expect compensation closer to normal VC levels (maybe the $200K – $250K range, though it’s hard to find specific data here).

Fund sizes are smaller, portfolio company exits takes more time, and performance is less predictable, all of which account for the lower pay.

On the other hand, some firms pay “sourcing bonuses” if you contact enough companies, and they may offer co-investments in certain details, so there are ways to increase your pay as well.

As far as exit opportunities , you could move into standard private equity if you worked on growth buyouts, but this is much more challenging coming from a late-stage VC role.

Other opportunities include other GE firms, VC roles, startups/portfolio companies, or an MBA.

You wouldn’t be the best candidate for most hedge fund roles (traditional PE is better), but corporate development might be possible, especially if you had IB experience before entering growth equity.

Pros and Cons of Growth Equity and Final Thoughts

Summing up everything above, here’s how you can think about growth equity:

It’s more accessible than traditional private equity roles.
You potentially make a high impact from day one since much of the job involves finding new companies to invest in.
You work with more “exciting” companies since your goal is to find and accelerate growth.
Compensation is solid , especially in growth buyout teams, though it is usually a discount to traditional PE (albeit with better hours).
There’s a good mix of exit opportunities spanning VC, PE, and operational roles.
Some firms require extensive sourcing , including pressure to meet specific call targets, which many people do not like.
You have limited control over portfolio companies due to the minority stakes, which means you can’t necessarily “change” specific things.
It doesn’t necessarily offer a net advantage over joining a traditional VC or PE firm because each benefit has a drawback (e.g., shorter hours but lower compensation).
Growth equity is highly cyclical – more so than early-stage VC or traditional PE – since late-stage funding tends to dry up quickly in down markets.

The last two points here are the most serious ones.

Even in a terrible market, plenty of early-stage VC deals still happen because people are always starting companies.

And while PE firms are less active in poor markets, they can still work on their portfolio companies, make add-on acquisitions, and pursue asset sales or divestitures.

By contrast, many growth equity firms get stuck in “no man’s land” because they write large checks but may not have majority control to implement big changes.

Growth buyout teams get around this issue if they do > 50% deals, but in many cases, you’d be better off going to a traditional PE firm first to gain a broader skill set.

If you like it, you can always shift to GE or VC afterward, as it’s much easier than the reverse move.

That said, growth equity can still be great for the right person – if you understand that combining two industries means you get the best and the worst of each one.

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street . In his spare time, he enjoys lifting weights, running, traveling, obsessively watching TV shows, and defeating Sauron.

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