Over 30 years, the firm has done 170 investments, 110 exits, and 19 IPOs. Generally, growth rounds occur after early stage venture investments, but before IPO. The only possible risks are execution risk and management risk. They involve no or low debt amounts. The typical examples of expertise are the following: Capital structure optimization (debt financing, restructuring). They should also have a positive resolution (e.g. Usually, growth equity firms seek to invest when the unit economics of the company have been "de-risked," and the company is looking to raise money in order to expand to new products, services, or geographies. 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. Which factors make the business model and customer acquisition strategy more repeatable to facilitate increased scalability and becoming profitable someday? However, the management team might not always address the requirements. However, the wages are generally considered lower than in private equity. Deals are simpler than PE deals; thus, finding a great company first is a winning strategy. Finally, no matter what approach you take with this question, Id recommend a short caveat for your interviewer along the lines of One of the reasons Im excited about this role is to develop and refine my growth investing approach, but my current framework is A little humility, especially in an interviewer, can go a long way. Fit/Background:Walk me through your resume. In that case, the fund decides to invest in that company and accept the related risks. Sometimes preferred stock can be convertible into common equity, creating additional dilution. Money is just one type of resource that the portfolio company needs. The interview process has multiple rounds. A growth equity (GE) firm doesn't have a majority stake in the portfolio companies. What Do I Look For During Interviews? 1. Also,family offices,mutual funds(such asFidelity), andhedge fundsare entering this field. Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling. Many tech startups raise growth rounds and make the strategic decision to not be profitable, so they can spend money on growth and expansion. Researched and authored by Almat Orakbay | LinkedIn, Reviewed and Edited by Aditya Salunke I LinkedIn. The following section discusses how GE works, strategies, target company profile, risk characteristics, and return profile. Luckily, Ive done a deep dive on the topic of sourcing and mock cold calls; check it out. Often, the liquidation preference is expressed as a multiple of the initial investment (e.g., 1.0x, 1.5x). building, equipment). Lets discuss why. As an example, Airbnb has this very dynamic. The typical holding period of VC investments is 5-10 years, the IRR is 35-50%, and the exit multiple is 5-10X. Since there are an infinite number of behavioral questions one could be asked, to prepare I generally recommend candidates brainstorm 4-5 compelling stories they can use to draw from during behavioral questions. How to break into Growth Equity out of undergrad? Typically, the investment involves primary proceeds for the company to use to expand to new products, services, or geographies. Est repudiandae est inventore est placeat aperiam occaecati. The main difference is that most GE firms recruit off-cycle. ICONIQ, maybe Summit/TA? Nulla nemo molestias perferendis a. Dolores velit beatae dolorem culpa vel doloremque et excepturi. Recruitment advice. Here are the average numbers in North America (as of 2019). In recent years, growth equity has become one of the fastest-growing segments within the private equity industry, as reflected by the amount of fundraising activity and dry powder (i.e. This is especially important for non-vanilla funds / strategies (growth equity, distressed investing, specific industry focus, etc. Growth Equity Interviews | Wall Street Oasis Skip to main content Recently Active Top Discussions Best Content WSO Media BY INDUSTRY Investment Banking Private Equity Venture Capital Hedge Funds Real Estate Consulting Trading Asset Management Wealth Management Equity Research Investing, Markets Forum RELATED Get a Job Crypto Business School As venture capital legend Marc Andreessen once said, the #1 company-killer is lack of market. He has also said, When a great team meets a lousy market, market wins. For this question, you might acknowledge that you know you wont win every deal, but your job will be to put the firms best foot forward with every entrepreneur. -Paper LBO, Quick IRR, Accretion / Dilution? Be able to tell a compelling story about why you think growth is more exciting/interesting to you vs. traditional PE or VC. Nevertheless, the founders of those businesses want to retain their voting power and share of ownership while scaling their businesses. There don't seem to be that many useful resources out there online. 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. If you want more practice questions or more in-depth discussion, check out my comprehensive growth equity interview prep course to go even deeper. In most cases, there might even be no controlling shareholders. That means that if the business faces challenges in the future (as most do, at some point) this can have an outsized negative effect on the valuation today. Other funds recruit off-cycle. Qui rerum laudantium enim sed voluptas. In addition, those divisions provide targeted strategic consulting, assistance structuring, and financing transactions. Nevertheless, the risk of failure is much lower in GE. Its not uncommon for growth equity deals to be highly competitive with many bidders. before its business model weakness impacts performance. Unlike common equity, the preferred stock class does not come with voting rights despite holding seniority. Theres lots of different ways you can go with this response, but one approach to consider is my favorite growth equity framework of all time: the 3Ms. Usually, the investments do not involve any debt or leverage, and they are not change-of-control transactions. Interviews were very heavy behavioral. Growth investors attempt to generate returns primarily from growth. The holding period for GE investments is 3-7 years, the IRR is 30-40%, and the exit multiple is 3-7x. Relationship management with institutional investors, bankers, lenders, etc. Both types of funds use only equity to fund their investments. There's some overlap, but they're about as thorough as you can get. Industries with higher levels of LBO activity normally exhibit single-digit industry growth rates and are thus mature industries. 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). The goal of the initial sourcing calls with prospective portfolio companies is to introduce the fund and assess the current financing situation of the company. 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. Private Equity Industry & Interview Guide How to Land Your Dream Job Daniel Sheyne Page 1 2014. new marketing spend), the new bookings will actually contribute to cash flow rather than impair it. The candidate pool coming from non-finance roles in growth equity are fewer than VC but still more than in private equity. Both GE and VC investments focus on the companies operating in innovative industries (technology). The investment provides funds so the company can find product-market fit and a sustainable business model. In the capital structure, preferred stock sits right above common equity, but has lower priority than all types of debt. And then comes the GE fund, which acquires a minority stake in the firm and helps scale the business without interrupting the control. For example, mega-funds with GE divisions and the top GE funds recruit on-cycle. Apr. WSO depends on everyone being able to pitch in when they know something. Those two risk-mitigating factors help diversify the portfolio concentration risk while reducing the risk of credit default by avoiding the use of financial leverage. The fit questions Id spend most of your time on are as follows: Related to fit, firms seek to get to know candidates on a deeper level by asking about their resume and past experiences. Rem porro eos sunt debitis facilis at. Even if a company could grow quickly, if they require lots of funding to fuel each new leg of growth, you will want to be cautious as an investor since the company may require more new capital to scale, which will decrease your return by dilution. Ideally, youve picked companies operating in great markets for your stock pitches and sourcing exercise. Study Resources. Once you have your anecdotes be sure to practice telling them in a compelling way. The division consists of over 100 operators and works with portfolio companies in product & tech, sales & marketing, strategy, talent, and business development areas. Suppose the target company addresses all of the above criteria. Tell me about the best and worst companies and what would you do differently. They have already achieved positive revenue, and they are on the way to profitability. Compared to early-stage companies, the investment risk is lower in growth capital investing. Maiores alias qui mollitia culpa reprehenderit sit. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value) or Unlock with your social account. 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. GrowthCap's Top 25 Growth Equity Firms 1 INSTITUTIONAL VENTURE PARTNERS Average Net IRR: 25% - 30%* Institutional Venture Partners (IVP) is a US-based private equity investment firm focusing on later-stage venture capital and growth equity investments. However, VC funds invest in early-stage companies to conduct market research and develop the product. That is crucial for traditional PE funds. Recusandae magni tenetur id quis sed sint. If those businesses don't accept external investments, they might stunt their growth potential. Get instant access to video lessons taught by experienced investment bankers. This button displays the currently selected search type. All these help are designed to make custom solutions for portfolio companies in the software industry. 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. 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). Tenetur sunt dolorem dolorem veritatis commodi sunt est. The liquidation preference of an investment represents the amount the owner must be paid at exit (after secured debt, trade creditors, and other company obligations). 1. proven business model with demonstrated product-market fit 2. organic revenue growth, solid unit economics with great scalability 3. strong management team 4. competitive advantage and ability to address threats 5. viability of growth plan and future opportunities Top SaaS questions 1. 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. However, there are many commonalities and differences between the GE, VC, and PE investing strategies. While modeling and learning about the KPIs to track by industry can be learned, interest cannot be taught. Unlike VC firms, the growth equity firm has less execution risk, which is unavoidable for all companies. In this case, the target company might fail to follow its expansion plan. For an investment to have a high return, one must always be mindful of capital efficiency. WSO Free Modeling Series - Now Open Through, +Bonus: Get 27 financial modeling templates in swipe file, Growth Equity Interviews - what to expect. Usually, it includes variable costs (e.g. Typically, a substantial portion of a growth equity interview is discussion-based and consists of questions related to ones interest in a particular industry. If you don't receive the email, be sure to check your spam folder before requesting the files again. The candidates have average proficiency in financial modeling and technical. This question is starting to test the degree to which you think like an investor and have an awareness of what factors are important for growth investors to consider. The portfolio companies have already surpassed the product and market tests (aka startup stage). In addition, the strategic Resources Group and Capital Markets Group divisions of the firm support companies with organic and acquisitive growth guidelines. I recommend this structure: To that end, whats one framework to know if a market is attractive? 2. Growth equity associates are junior members of the investment deal team who take lead on performing diligence and execution tasks for so-called "active" deals. They wanted to see if I can consistently generate leads for deals as most of these were sourcing shops. Can one lateral from mid-size VC to "large" VC? //