About the author:
Marquis,the author of this blog,is a consultant at McKinsey,he also holds an MBA degree from Stanford University.
Sunday, December 02, 2007
Question about moving into Private Equity (what would I know about that, right?) :-)
The email below is from a consultant at a boutique management consulting firm in India who is interested in transitioning to Private Equity in the future. As I may have mentioned on here before, my knowledge on the PE industry is still building, but I've tried to give him a few tips on how to think about his issue. Hope he finds it helpful.
----------
RK wrote:
"Hi Marquis,
Thanks for running this wonderful blog.
I am from India and completed my electrical engineering degree in India (Top 10 school, non IIT) in 2005. I am 23 years old now.
During my engineering days, I was somehow clear that engineering is not what I wanted to do, especially coding and programming in front of a computer. I took up a job in a Manufacturing firm, coz I felt I would gain a lot more idea about Business in a Mfrg firm than in an IT firm.
I worked for 6 months in design and shifted to sales/business development and worked there for 16 months. I learnt a lot about how a product is manufactured and how projects are executed.
Then, 3-4 months back I quit and joined a Management consulting firm. This is a boutique MC started by ex-CEO of a large firm in India and targets niche segment of Small and Medium Enterprises. I cut my salary by 25% to join here since the guy was considered a stud and I would directly be reporting to him.
This is my story till now.
Where do I want to get into eventually?
Private equity (not a VC firm).
I have done a lot of homework about the industry in general and I know how difficult it is to break into it. I already am in a networking binge and am interacting with junior level people (associate level) in the PE/VC space in India.
I am pretty intelligent and am extremely self motivated. So, I don't believe that I cant do it. Hence I am working backward. If I want to get into PE, what moves must I make now.
The major problem right now is a lack of financial certification nor any financial modeling skills. I am trying to do some financial certifications (How would yoou rate CAIA? CFA is presently banned in India and am considering CAIA). An MBA is also on the cards. Will be apping for fall 2009.
My brain stops working if i think too much about this. Would be really helpful if you can give some tips/suggestions as to how I need to move from now. How can I utilize the time I have? How can I make myself attractive to my future employers.
Please post your reply in the blog too to benefit others.
Regards,
RK"
----------
My response:
RK,
Thanks for checking out my blog. As you know from reading it, I'm not an expert on the Private Equity industry, so the advice that I can provide is a bit of a guess. I have been thinking a bit about the industry and the work that they do for a little while now, so I might be able to help you think through it.
Let's start by thinking about what Private Equity firms do at a basic level. I realize that I might be making a HUGE oversimplification here, but, sometimes, it is helpful to think through potentially complicated topics in as basic a way as possible...in other words, let's think about the "Cliff's Notes"-eque manner. So, we could say that PE firms do three things very well:
1. Get wealthy parties to provide funding for the firm's use
2. Evaluate investment opportunities and invest in those offering the best chances for high positive returns
3. Work with management teams of the companies in their investment portfolio to improve/optimize business operations, address major issues affecting company performance, and take them to the next level
Again, I know that I'm leaving some things out here, but I was going for simple and you'd probably agree that I nailed that here :-) Taking this a step further, we need to think about what you can do to prepare yourself to excel in these areas. As a PE associate, I doubt you'd be doing much for #1 ( the partners at your PE firm would take care of that), so we'll ignore it and focus on #2 and #3.
OK, so assuming the PE firm has funds to invest, you'd have to help figure out whether given investment opportunities make sense to pursue. A big part of this determination comes down to weighing the financials of the deal, which includes the required investment and its impact on the firm's funding pool, the company's current and potential financial standings, and risk-adjusted financial return on investment. This is where you'll want to flex your analytical "muscles" to prove to the firms that you have the skills to handle this kind of work. It sounds like your mind is set on getting your excel modeling game tight, which is a great move in this respect. I don't know what kind of work you're doing for your consulting firm, but, if you can get yourself staffed on some stuff that will have you cranking on some models, you'll quickly develop your analytical skills.
In addition to the financials of the deal, you'd probably also spend time thinking about the viability of the company and whatever its offering/product/service might be. An MBA would be a great asset to you here, but I doubt that you necessarily NEED one in order to do this part of the job...I'd guess that the core skills needed here would be good business understanding/judgment, an ability to gauge the ability of people (i.e. leadership of the candidate companies), and "a feel for the deal". Depending on the nature of your consulting firm's work, you could pick up these skills on the job, but you might also need to do some research on the side to compile the skills you'd need in this area.
Once the PE firm has made the investment, it must go in and fix whatever is needed to push it toward maximum performance. This could involve diagnosing needs with the company's operations, marketing, supply chain, organization, or overall strategy. One can get experience in analyzing and addressing these business functions of a company by working at a consulting firm. Your current job could put you in a great position to pick up these skills, especially considering that your firm is focused on small and medium sized businesses. Remember my point about thinking about potentially complicated things in a simpler way? Well, looking at business problems at a small or medium company could provide valuable insights to deal with issues at a larger company with a seemingly more complicated context...at least, I believe that to be so. Business school would be a big help here to get the all-encompassing view of business, but it sounds like you already have that in mind.
For now, you're spot-on with your strategy of networking with associates at PE firms and I would suggest that you continue that as much as your time will allow. Be as targeted as possible in these interactions because these associates can provide invaluable insights on what you need to know to follow in their footsteps. Ask pointed questions about topics like how they got their 'in' with their PE firm, the nuts and bolts of what they do on a daily basis, and the skills that you would need to build to get your foot in the door. And, if possible, you might want to leverage these connections to get invitations to gatherings and other events where you can meet higher-level PE professionals, but don't be too pushy about this...if the opportunity arises, jump on it, but, if not, just chill out and let it ride.
Unfortunately, I am not the right person to ask about financial certifications because I don't know anything about how they're perceived in the market. I'd say that it never hurts to pursue any sort of credential that serves as evidence of your know-how on a certain topic. I'd highly recommend that you follow through with your plans to pursue an MBA in the near future though because it could be your fast-track into PE. Attending a top American or European B-school could expand your network enough to get an 'in' at firms both inside and outside of your home country.
Good luck with your move toward PE work. It seems like you're on the right track, so I hope you continue on this trajectory. Take care.
Marquis,the author of this blog,is a consultant at McKinsey,he also holds an MBA degree from Stanford University.
Sunday, December 02, 2007
Question about moving into Private Equity (what would I know about that, right?) :-)
The email below is from a consultant at a boutique management consulting firm in India who is interested in transitioning to Private Equity in the future. As I may have mentioned on here before, my knowledge on the PE industry is still building, but I've tried to give him a few tips on how to think about his issue. Hope he finds it helpful.
----------
RK wrote:
"Hi Marquis,
Thanks for running this wonderful blog.
I am from India and completed my electrical engineering degree in India (Top 10 school, non IIT) in 2005. I am 23 years old now.
During my engineering days, I was somehow clear that engineering is not what I wanted to do, especially coding and programming in front of a computer. I took up a job in a Manufacturing firm, coz I felt I would gain a lot more idea about Business in a Mfrg firm than in an IT firm.
I worked for 6 months in design and shifted to sales/business development and worked there for 16 months. I learnt a lot about how a product is manufactured and how projects are executed.
Then, 3-4 months back I quit and joined a Management consulting firm. This is a boutique MC started by ex-CEO of a large firm in India and targets niche segment of Small and Medium Enterprises. I cut my salary by 25% to join here since the guy was considered a stud and I would directly be reporting to him.
This is my story till now.
Where do I want to get into eventually?
Private equity (not a VC firm).
I have done a lot of homework about the industry in general and I know how difficult it is to break into it. I already am in a networking binge and am interacting with junior level people (associate level) in the PE/VC space in India.
I am pretty intelligent and am extremely self motivated. So, I don't believe that I cant do it. Hence I am working backward. If I want to get into PE, what moves must I make now.
The major problem right now is a lack of financial certification nor any financial modeling skills. I am trying to do some financial certifications (How would yoou rate CAIA? CFA is presently banned in India and am considering CAIA). An MBA is also on the cards. Will be apping for fall 2009.
My brain stops working if i think too much about this. Would be really helpful if you can give some tips/suggestions as to how I need to move from now. How can I utilize the time I have? How can I make myself attractive to my future employers.
Please post your reply in the blog too to benefit others.
Regards,
RK"
----------
My response:
RK,
Thanks for checking out my blog. As you know from reading it, I'm not an expert on the Private Equity industry, so the advice that I can provide is a bit of a guess. I have been thinking a bit about the industry and the work that they do for a little while now, so I might be able to help you think through it.
Let's start by thinking about what Private Equity firms do at a basic level. I realize that I might be making a HUGE oversimplification here, but, sometimes, it is helpful to think through potentially complicated topics in as basic a way as possible...in other words, let's think about the "Cliff's Notes"-eque manner. So, we could say that PE firms do three things very well:
1. Get wealthy parties to provide funding for the firm's use
2. Evaluate investment opportunities and invest in those offering the best chances for high positive returns
3. Work with management teams of the companies in their investment portfolio to improve/optimize business operations, address major issues affecting company performance, and take them to the next level
Again, I know that I'm leaving some things out here, but I was going for simple and you'd probably agree that I nailed that here :-) Taking this a step further, we need to think about what you can do to prepare yourself to excel in these areas. As a PE associate, I doubt you'd be doing much for #1 ( the partners at your PE firm would take care of that), so we'll ignore it and focus on #2 and #3.
OK, so assuming the PE firm has funds to invest, you'd have to help figure out whether given investment opportunities make sense to pursue. A big part of this determination comes down to weighing the financials of the deal, which includes the required investment and its impact on the firm's funding pool, the company's current and potential financial standings, and risk-adjusted financial return on investment. This is where you'll want to flex your analytical "muscles" to prove to the firms that you have the skills to handle this kind of work. It sounds like your mind is set on getting your excel modeling game tight, which is a great move in this respect. I don't know what kind of work you're doing for your consulting firm, but, if you can get yourself staffed on some stuff that will have you cranking on some models, you'll quickly develop your analytical skills.
In addition to the financials of the deal, you'd probably also spend time thinking about the viability of the company and whatever its offering/product/service might be. An MBA would be a great asset to you here, but I doubt that you necessarily NEED one in order to do this part of the job...I'd guess that the core skills needed here would be good business understanding/judgment, an ability to gauge the ability of people (i.e. leadership of the candidate companies), and "a feel for the deal". Depending on the nature of your consulting firm's work, you could pick up these skills on the job, but you might also need to do some research on the side to compile the skills you'd need in this area.
Once the PE firm has made the investment, it must go in and fix whatever is needed to push it toward maximum performance. This could involve diagnosing needs with the company's operations, marketing, supply chain, organization, or overall strategy. One can get experience in analyzing and addressing these business functions of a company by working at a consulting firm. Your current job could put you in a great position to pick up these skills, especially considering that your firm is focused on small and medium sized businesses. Remember my point about thinking about potentially complicated things in a simpler way? Well, looking at business problems at a small or medium company could provide valuable insights to deal with issues at a larger company with a seemingly more complicated context...at least, I believe that to be so. Business school would be a big help here to get the all-encompassing view of business, but it sounds like you already have that in mind.
For now, you're spot-on with your strategy of networking with associates at PE firms and I would suggest that you continue that as much as your time will allow. Be as targeted as possible in these interactions because these associates can provide invaluable insights on what you need to know to follow in their footsteps. Ask pointed questions about topics like how they got their 'in' with their PE firm, the nuts and bolts of what they do on a daily basis, and the skills that you would need to build to get your foot in the door. And, if possible, you might want to leverage these connections to get invitations to gatherings and other events where you can meet higher-level PE professionals, but don't be too pushy about this...if the opportunity arises, jump on it, but, if not, just chill out and let it ride.
Unfortunately, I am not the right person to ask about financial certifications because I don't know anything about how they're perceived in the market. I'd say that it never hurts to pursue any sort of credential that serves as evidence of your know-how on a certain topic. I'd highly recommend that you follow through with your plans to pursue an MBA in the near future though because it could be your fast-track into PE. Attending a top American or European B-school could expand your network enough to get an 'in' at firms both inside and outside of your home country.
Good luck with your move toward PE work. It seems like you're on the right track, so I hope you continue on this trajectory. Take care.