Making the Leap: Do You Have What It Takes for Private Equity?

by , Nov 18, 2010

Guest Post by Way Lum from ZoomInterviews. Learn more about ZoomInterviews by clicking here.

Of the U.S. News top 10 ranked full-time MBA programs for 2010, an estimated 6% of first year students did a PE internship and 4% went into private equity (PE) full-time post-MBA. By the numbers you can quickly see that even at elite business schools, private equity remains one of the most coveted of MBA jobs. Yet despite the high barrier to entry into the industry, private equity continues to be a very popular career choice for incoming MBA students.

What is the allure of private equity that has eager b-school students pursuing this industry in droves? The attractiveness of the PE industry has much to do with the type of work PE professionals do identifying investments, typically solid companies that are underperforming or are undervalued relative to their revenue potential, adding value to those investments through financing and operational strategies to grow the company, and then exiting (selling) the company for a very healthy profit.

The job is rigorous, which can involve both financial and quantitative work, as well as providing advisory to portfolio companies to optimize business operations. Every year a fresh crop of incoming MBA students set their sites on breaking (or re-entering) into private equity. Of course, the question is can they make the leap?

Take Stock of Your Pre-MBA Work Experience

As many PE-focused MBAs know, the prototypical track from undergrad into the industry is 2-2-2 Two years as an analyst at a top investment bank (or less commonly, at a marquee consulting firm), two years at a private equity firm and two years of business school. Investment banking analysts get equipped early on with the financial modeling skills that are heavily used as a PE analyst. Consultants also receive strong training in the form of problem-solving frameworks and exposure to operational challenges at client companies. Both routes help develop the polish and maturity required for private equity.

Now, if you dont have this prototypical experience, all is not lost. You will have a lot of work to do to get yourself competitive to land a PE internship, but it is possible. Focus on strengths that you do bring, whether that be specific sector knowledge, deal experience, or personal characteristics such as an entrepreneurial mindset, passion for investing or excellent business acumen.

Fully Leverage Your B-School Experience

While MBA students who are career advancers within PE (i.e. they had prior PE experience) may have advantages over their career-switching classmates, having come from PE is no guarantee that youll be successful going back into the industry. The type of PE firms youre focusing on (e.g. buy-out funds, growth equity, mezzanine), the size of the fund ($millions to $billions), the investment focus and geography, are all variables in your PE job search equation.

Regardless of the reputation and size of your program, successfully landing a job in private equity will be very challenging. There are many ways you can leverage your experience at business school to move yourself into position to be more competitive. Expect that even if you do these things that the search will be arduous and take your full commitment, starting from the first day of b-school.

The Sharpening Process

What allows MBA students to make dramatic career switches is what we term The Sharpening Process, that occurs during both the first and second year of a full-time program. Through carefully chosen academic work, experiential opportunities and a steady acquisition of industry knowledge you can hone your candidacy for a PE job throughout the first year of school. Those first-year students who are able to methodically go through this sharpening process while starting to cultivate their ever-growing network of PE professionals will greatly increase their chances of finding themselves in PE for the summer. Some key elements of this sharpening process are below:

• Classes In addition to the requisite finance and accounting classes you will take, additional coursework will help augment your applied knowledge and skills for private equity. Below is a sampling of relevant courses you could find at top-tier MBA programs, such as Wharton, Chicago Booth, Stanford and HBS: Corporate Valuation, The Finance of Buyouts & Acquisitions, M&A Accounting, Competitive Strategy, and Venture Capital and Private Equity. In addition, look for opportunities to shore up your modeling skills through training for company valuation and LBO modeling provided by companies such as Training the Street.

• Student Groups Plan on joining your schools Private Equity / Venture Capital student group, which will play an important role in getting you connected with the PE community within the school and educational events that will help you learn more about the industry. The PE student group gives you a chance to network with classmates that may have come from PE, allowing you to build friendships and help each other with leads in your respective job searches (assuming this collegiality is the norm among students).

• Experiential Learning (in-school) Certain b-schools will offer case competitions that you can participate in with classmates which simulate working on deal teams. Participating in events such as M&A challenges and LBO case competitions will give you the opportunity to hone your financial and deal-making skills, as well as provide you with a great talking point on your resume. Your active involvement also signals commitment to and interest in the PE industry.

• Networking Networking is the single most important activity that you need to be engaged in to secure an internship and, afterwards, a full-time position in PE. The private equity industry is a tightly knit community of professionals. PE firms can vary in size from 5-person teams to mega-funds employing hundreds of investment professionals. Regardless of the size of the firm, making connections within the industry is based on building relationships and ones own reputation over time. This is a process that cant be rushed or forced, and will require reaching out to PE professionals in your b-school and undergrad networks, as well as those outside your warm contacts for informational interviews. You can also meet these individuals at PE conferences, both those that are held by business schools and professional private equity associations. The bottom line is you must effectively network in order to be successful in your PE job search.

• The Internship Large, well-established private equity firms may or may not take interns, depending on the firm. If they do hire, they will do so earliest in the internship recruiting cycle, perhaps as early as the fall or winter of the first year. However, most PE firms will not actively seek interns, and if they do, will hire just-in-time. This means mentally preparing to continue your search into the spring and perhaps even the first few weeks of summer well past when on-campus recruiting for most schools has wrapped up. While a PE internship is difficult to land, the irony is that the longer you hold out in your search the more likely you are to actually land an internship. The reasons for this are several fold: (1) Candidates (i.e. other MBA students) will drop-off from the PE search as the year goes on because the level of difficulty, (2) going through the Sharpening Process mentioned above should make you a more attractive candidate as time goes on, and (3) the number of PE firms in the US (assuming a US-based search) is approximately 1,824 and the number of PE firms worldwide is 2,560 (Pitchbook.com); plenty of targets to choose from.

Other Ways to Make the Leap Additional strategies you can use to secure your private equity internship include the following:

• Experiential Labs Apply for any opportunities that will give you exposure to private equity. For example, at Chicago Booth the Private Equity & Venture Capital Lab gives students firsthand experience in the private equity industry through an intensive internship at a PE firm.
• In-school internships If you find firms within the city where your school is based, consider doing an internship during the school year when firms could use an analyst to do due diligence work for deals the firm is currently working on.

While a PE internship is highly recommended even for those with prior PE experience, it is a MUST for career switchers who expect to have any chance of going into the industry immediately post-MBA. Those with prior PE experience can also look to get operational experience or consider hedge funds. What is most important is to identify gaps in your experience and seek to round out your skill set as a PE investor.

Best of luck in making the leap!

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