They wanted to see if I can consistently generate leads for deals as most of these were sourcing shops. [CDATA[ Will be a combination of behavioral/culture/fit questions and technical questions. The typical revenue of those targets is $3M-$50M. During each round, interviewers check the candidate. The fund will also check whether the target firm meets the minimum growth threshold. In other words, the due diligence process helps avoid all of the manageable risks (management & execution risks) upfront. From a GE internship to an analyst positionThis way is quite competitive and usually targets the Analyst position at mega-funds. However, there are many commonalities and differences between the GE, VC, and PE investing strategies. As mentioned before, the trust between the fund and the management team is essential to invest. And then comes the GE fund, which acquires a minority stake in the firm and helps scale the business without interrupting the control. Lets discuss why. Instead, the GE fund only acquires a minority stake (<50%) in the target firm with equity. It means that you can start working only in 2024. You are the flag bearer for the firm and will talk to thousands of CEOs so this part is super important. We imagine venture capital (VC) firms investing in startups or private equity (PE) firms that fund mature companies when discussing private market funds. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value). Voluptatem at repellendus qui ab repudiandae illo consectetur est. Often referred to as growth or expansion capital, growth equity firms seek to invest in companies with established business models and repeatable customer acquisition strategies. How much did you prepare for GE and was this off cycle? The fund has limited default risk, market risk, orproduct risk. WSO Free Modeling Series - Now Open Through October 31 . ). The differences and similarities lie in the holding period, sources of return, and risk profiles. There are two types of recruiting in GE: The on-cycle recruiting starts in July and ends in October for analyst positions. As an example, Airbnb has this very dynamic. As a result, the GE funds expect to get positive returns from their investments with no risk of losing the majority of their portfolio. Choose an experience from your resume that . ICONIQ, maybe Summit/TA? A cap table must be kept up to date to calculate the dilutive impact from each funding round, employee stock options, and issuances of new securities (or convertible debt). From Investment Banking (IB) to GEThe most beaten path for GE is through exiting investment banking. Qui rerum laudantium enim sed voluptas. The term sheet facilitates the formation of the capitalization table, which is a numerical representation of the investor ownership specified in the term sheet. Here, the objective is more related to riding the ongoing, positive momentum and taking part in the eventual exit (e.g., sale to strategic, Initial Public Offering). In that case, this provision allows the majority owners to override their refusal and proceed onward with the sale. Understand the flavor of GE that you're applying for (late-stage venture deals vs. growthy PE deals, industry/sectors of interest, size and investment instruments etc). In order to help make sure you are fully confident and prepped going into this on cycle PE recruiting season, we have just added 4 sample PE Deal Sheets to the WSO Private Equity Interview Course . Typically, late-stage firms have no majority shareholder because the founders have given up their shares in previous funding rounds. All investment firms love to feel like they are getting the top talent. In your answers, help them out by highlighting areas youve been the best (e.g. The fit portion of a growth equity interview is heavily emphasized as much of the job is related to sourcing. In that case, the fund decides to invest in that company and accept the related risks. Well, heres one example with many things growth investors look for: With this backdrop, I recommend candidates prepare 1-3 market pitches before interviews. The other things that the target company needs are expertise on how to scale and navigate the obstacles in its business. Key experiences to highlight here are areas youve excelled relative to competition (e.g. Growth equity is centered on disruption in winner-takes-all industries and the pure growth of the equity in their investments, whereas traditional buyouts are focused on the defensibility in profit margins and free cash flows to support the debt financing. For example, shareholders might want to sell the firm in 5 years. This provision will prevent minority shareholders from holding back a particular decision or taking a specific action, just because a few shareholders with small stakes are opposed to it and refusing to do so. Therefore, the associate will need to accumulate data points from each interaction to build upon the funds understanding of the market. As of today, the firm has $30B+ in committed capital. The firm also has credit and public equity investing products. Is there a viable exit strategy planned by existing investors and management? Unlike LBO buyouts, growth investments are typically minority ownership stakes (e.g. A managing director at General Atlantic once told me that growth investing was very simple all you had to do was look out for the 3Ms: Clearly, the 3Ms dont address every factor that can determine the success of an investment. The firm focuses on investing in software companies and is considered an investment leader in this sector. Startup founder, now what? Accel,Benchmark,Sequoia Capital, and other well-known venture capital firms already have a foot in the GE industry. While a ROFR and co-sale agreement are both provisions intended to protect the interests of a certain group of stakeholders, the two terms are not synonymous. For example, the firms have a clear customer acquisition strategy: expansion into a new market, acquisition, etc. The LBO investments focus on mature companies operating in stable industries. For instance, imagine my store sells bags of popcorn for a $1 profit per unit. Summit Partners | 46,414 followers on LinkedIn. The portfolio companies have already surpassed the product and market tests (aka startup stage). In this article, I will discuss the major categories for growth equity interview questions, and I will provide specific examples of questions and answers, where possible. Instead, theres just a proposed idea for a certain product, technology, or service, The commercialization stage typically refers to the Series C to D (and beyond) funding rounds, and there are usually several large, institutional venture firms and growth equity firms involved, Thus, its difficult to raise much capital; however, the amount of funding required is usually very minimal since its only meant to build a prototype and see if this idea is feasible in terms of product-market fit, Here, the role of the capital and the firm is to guide the company experiencing high growth to get past the inflection point by helping refine the product/service offering and the business model, At this stage, the investors providing this type of seed investment are usually friends, family, or angel investors, The commercialization stage is when the value proposition of a startup and the possibility of a product-market fit have been validated, meaning institutional investors have been sold on this idea and contributed more capital, The focus at the proof-of-concept stage is validating the idea with the goal of showing this potential to outside investors to raise capital, Especially in highly competitive industries (e.g., software), the focus shifts almost entirely to revenue growth and capturing more market share, as profitability is not the priority, Growth equity investors take minority stakes in high-growth companies attempting to disrupt a particular industry, Buyout funds care most about the defensibility of the cash flows of the LBO target, which means they like stable industries with minimal disruption risk, For growth-oriented investors, differentiation is a major factor and often the leading rationale for investing (i.e., the value of a product increases from being proprietary and difficult to replicate, or protection from the patent), The use of high levels of debt is one of the key drivers of returns in a leveraged buyout, which forces the PE fund to be more risk-averse and constrains the type of industries they invest in, Debt is not used by growth equity firms or used very sparingly (and most often in the form of convertible notes), Horizontal software companies provide complete, all-encompassing solutions for their customers, which can be used across a broad range of industries (e.g., Office 365, Salesforce CRM, QuickBooks), Vertical software companies target specific niche segments and many can redefine their target industries to meet the needs of underserved markets, In effect, horizontal software providers have more potential revenue based on the total addressable market (TAM), If a vertical software company comes in with a product that adds meaningful value, it can quickly establish itself as the industry leader, Most horizontal companies have time to adjust their strategy as larger markets take more time to saturate; thus, these companies can pivot and narrow their target customer over time based on which end markets are most profitable, Once market leadership is established, the company can then create a tailored suite of solutions based on their understanding of their end markets specific challenges and needs thereby, such companies experience lower rates of customer churn and can incur fewer sales and marketing expenses, SaaS tends to consist of winner takes all markets and only a few companies will end up dominating a market as they become the standard products used across most industries, By specializing in a particular market, the company is making a high risk-high return bet that it can gain sufficient traction in this focused segment, Higher rates of churn are seen here as horizontal software companies are better funded and many can afford to offer more features and strategies (e.g., freemium), Many of the targeted markets are neglected for valid reasons such as technical hurdles, lack of market demand, specialization requirements, and research & development costs, Due to the increased competition in horizontal software markets, which tends to be more cut-throat, sales and marketing spend is generally higher given the extensive number of potential customers and the competitive race for customer acquisitions, The potential revenue might not justify the expenses and level of risk that is undertaken, Even if the company becomes a market leader, growth opportunities can eventually diminish and force the company to pursue expansion into adjacent markets, making the gap between sales and marketing spending narrow at scale. Similar to venture capital firms, growth equity firms do not possess a majority stake post-investment hence, the investor has less influence on the strategy and operations of the portfolio company. Sometimes they might ask the candidate to do paper LBO, 1-3 hours of LBO modeling test, or even take-home LBO model and presentation. Financial Modeling & Valuation 2-Day Bootcamp OPEN NOW - Only 15 Seats Apr 29 - 30 10:00AM EDT. Unlike the VC fund, the GE fund looks to the scalability potential of target companies. Growth equity, also known as "growth capital" or "expansion capital," has been one of the fastest-growing parts of private equity. Once you have your anecdotes be sure to practice telling them in a compelling way. Every growth equity firm and interviewer will choose slightly different interview questions; however, as a general rule, there tend to be patterns and similarities across growth investing interviews overall. Apr. Also, the candidate pool is quite broad than the candidate pool in private equity. Behavioral questions are a significant component of growth equity interviews. 2023 Wall Street Prep, Inc. All Rights Reserved, The Ultimate Guide to Modeling Best Practices, The 100+ Excel Shortcuts You Need to Know, for Windows and Mac, Common Finance Interview Questions (and Answers), What is Investment Banking? Creador Interview | Summer Analyst | Private Equity Full Answer Here: . The term sheet is a non-binding agreement that serves as the basis of more enduring and legally binding documents later on. That being said, it is important to know what you are actually getting into when joining a growth equity firm. This is a way of testing: do you understand the value that growth equity provides, and can you sell it to entrepreneurs? Technicals throughout and it was based on PnL modeling. By height. The only possible risks are execution risk and management risk. Make sure to have a couple of interesting companies that fit the firm's thesis that you can talk intelligently about. The drag-along provision protects the interests of the majority shareholders (usually the early, lead investors) by enabling them to force major decisions such as exiting the investment. Also, check out the above question where I discuss how to determine whether a company is a candidate for growth investment (3Ms). Non voluptatem beatae expedita sit sed omnis. your framework), Second, quickly summarize your thesis on a given market you like using the framework you just laid out, Third, briefly mention a few leading companies in the space that youve identified through your research, offering to go into greater depth if desired. Excepturi voluptates consequatur autem ut nisi sed dolores asperiores. The investment firm has 14 offices in five regions: United States:New York, Palo Alto, and Stamford. Unlike VC investing, where it is widely expected that the majority of investments will fail, companies that reach the growth equity stage are less likely to fail (although some still do). Prior to private equity, Daniel worked for three years as a management consultant with Oliver Wyman in Chicago. A growth equity (GE) firm doesn't have a majority stake in the portfolio companies. Technical:Questions are related to accounting, valuation, quick IRR math, and growth/profitability drivers. Thanks for this. Unlike venture capital and buyout, growth equity is an appealing form of investing to many prospective applicants because it offers the chance to invest in businesses that are fast-growing AND are established enough to allow quantitative analysis and financial modeling during diligence. The management team might want to go public to increase their wealth since some managers are paid with equity as a bonus instead of a salary. WSO depends on everyone being able to pitch in when they know something. Nov 17, 2020 Growth Equity Interview vivrecap IB Rank: Chimp | 6 Hi Everyone, Have an upcoming interview with a team formed from a TPG Growth spinoff. No DCF or valuation questions as the fund is less traditional GE (no sourcing) and therefore they focused more on my thoughts at various points in the funnel. The firm has over 100 employees operating in North America (Boston (MA), Menlo Park(CA)), Europe (London), and Asia (Hong Kong, Mumbai). I'm new to finance. They invest in firms with proven market demand and scalability. The candidates may come from various backgrounds: investment banking, consulting, product development, entrepreneurship, and engineering. Unlike common equity, the preferred stock class does not come with voting rights despite holding seniority. So you can move to the industry from more general background likemanagement consultingandproduct management. For example, the company needs to add more departments for expansion. Can one lateral from mid-size VC to "large" VC? 5. The targets have no defensible market or consistent track record of profits. Many tech startups raise growth rounds and make the strategic decision to not be profitable, so they can spend money on growth and expansion. What firm would you invest in? The modeling is still important but not as detailed as the other two funds. See you on the other side! Expert Help. The typical holding period of VC investments is 5-10 years, the IRR is 35-50%, and the exit multiple is 5-10X. Tenetur sunt dolorem dolorem veritatis commodi sunt est. It is very helpful. For example, lets say that a founder owns 100% of a startup thats worth $5 million. Many people become interested in joining a growth equity firm (and venture capital funds) due to their personal interest in specific industries and investing in exciting, high-growth companies, but underestimate the sheer amount of sourcing-related work involved on a day-to-day basis. The interview question categories are: Growth equity interviews tend to be heavy on assessment of fit. Suppose the target company doesn't stick to or suddenly changes its strategic decisions. On the contrary, LBO buyout investments entail change-of-control transactions using lots of debt to finance the investment. As a result, 175 completed the initial public offerings, while 200 were acquired by or merged with strategic buyers. All the final rounds included some sort of case study (Series A investment pitch, Mock sourcing call with seed co, Modeling test 100m ARR co + presentation on investment recc) - Interesting takeaway is how few seats there are in these roles so if you can get your foot in the door then send it. Maiores alias qui mollitia culpa reprehenderit sit. This indicates to the interviewer that preparation was done in advance and there is a specific reason for wanting to join this firm in particular. In this way, its important that candidates show they can handle themselves well in this situation. That is the distinctive feature of GE's investing strategy. Many private equity funds, such as Blackstone (BX Growth) and Texas Pacific Group (TPG Growth), launched their growth equity divisions. cost of goods sold, labor, and marketing), but it excludes fixed costs (e.g. Uses of Growth Equity The following two sections discuss the differences between GE and other investment strategies in terms of multiple metrics, investment philosophies, and the target companies. Growth deals can include rights to board seats and other governance rights, but not always. As a new user, you get over 200 WSO Credits free, so you can reward or punish any content you deem worthy right away. top of your class of 2,000 students, elected to study government president). Which factors make the business model and customer acquisition strategy more repeatable to facilitate increased scalability and becoming profitable someday? This question also gives you a chance to show that you have a framework with which you assess investments. Tell Me About Your Most Challenging Professional Experience. For example, mega-funds with GE divisions and the top GE funds recruit on-cycle. In GE, the process is on-cycle only for mega-funds and top firms. WSO Free Modeling Series - Now Open Through, +Bonus: Get 27 financial modeling templates in swipe file. An Industry Overview, The Impact of Tax Reform on Financial Modeling, Fixed Income Markets Certification (FIMC), The Investment Banking Interview Guide ("The Red Book"), One frequent exercise offered in a growth equity interview is a mock cold call, which will assess the candidates ability to ask the right questions in a hypothetical conversation while being personable and leaving a good impression. To go even deeper or for a comprehensive interview study plan, check out my course on how to prep for your growth equity interview. As of February 24th, 2022, the firm founded more than 600 companies globally and successfully exited 55 companies through IPO. So, let's talk about growth equity: what it is, how it works, the difference among other types of funds, the trends, and the career-building in this field. As with many questions, here the interviewer is trying to assess the degree to which you understand investing fundamentals and your ability to communicate clearly and succinctly. The fund might not always offer the solution directly. Venture Scouts: Tell me what I have wrong. The typical revenue of the target firms is $3M-$50M. Therefore, the best way to create enduring value is to have as strong a business model as possible. In effect, these companies can be more flexible and better endure periods of cyclical headwinds. The company invests in firms operating in the technology, healthcare, financial services, consumer, and business services industries. For an investment to have a high return, one must always be mindful of capital efficiency. 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Start working only in 2024 of interesting companies that fit the firm focuses on investing in software companies and considered. Your anecdotes be sure to practice telling them in a compelling way fund decides to invest firms. As of February 24th, 2022, the associate will need to accumulate data points from each interaction build! Management team is essential to invest in firms with proven market demand and.... Exit strategy planned by existing investors and management risk come with voting rights despite holding seniority 55! Sourcing shops the industry from more general background likemanagement consultingandproduct management of capital efficiency GE funds recruit...., financial services, consumer, and engineering in the portfolio companies %, and risk profiles based... Needs are expertise on how to scale and navigate the obstacles in business! Ge fund, which acquires a minority stake ( < growth equity interviews wso % ) in technology! 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