Why is TMT (Tech, Media, Telecom) so Popular?
One of the most stressful decisions in your career is picking which industry vertical to dedicate to.
The industry you pick has huge ramifications for the exit opportunities you have, the companies you will invest in, and the growth trajectories of the businesses you work with. After the firm you choose, the industry quickly becomes one of the most important factors to think about.
By the time you reach the mid-level, you’ll generally be expected to have some industry expertise. It’s difficult to be a high-functioning VP at an investment bank if you’re still unsure how an industry fits together. On the buyside, it can be very unproductive if you don’t know specific and informed questions to ask the management team. After four or five years in your finance career, you’ll generally have to pick an industry to start specializing in.
You can theoretically remain industry agnostic or a “generalist” if you specialize in a product function (like M&A or capital markets), but even then, many product people start to develop familiarity with an industry.
Industry group divisions depend heavily by firm and by geography. Many firms will not have every industry group and satellite offices tend to only focus on a few industries. On the buyside, most firms only invest in a select number of industries. Even the largest mega funds typically don’t successfully play in every single industry type.
At an investment bank, the most common industry group categories are as follows:
Technology, Media, and Telecom
Consumer and Retail
Technology, Media, and Telecom
Over the past decade, TMT has produced some of the largest IPOs and M&A deals, including Alibaba ($21.8B), AT&T / Time Warner ($108B), and Verizon / Vodafone ($130B). Many of the world's largest companies operate in TMT, with groups like FAANG (Facebook, Amazon, Apple, Netflix, Google) becoming extremely popular indexes in public investing.
Let’s go over a couple of reasons why TMT tends to be so popular and try to validate whether these reasons are credible.
Exit Opportunities are More Plentiful
When you get down to it, most junior people still pick industry groups based on the presumed “exit opportunities”. I would say that most people entering investment banking don’t have enough conviction to pick an industry group out of genuine interest.
And when you think purely about exit opportunities, you can see that TMT has a natural evolution down several paths.
Want to do venture capital? The vast majority of VC bankers have either a technology (or healthcare) background. This is because venture capital firms invest in startups, which commonly are rooted in technology.
Want to do corporate development? Some of the largest corporate development teams are in technology because of the acquisitive nature of technology industries and the high valuations of the Big Tech companies (which can make acquisitions “cheaper”). Corporate development opportunities are also present in consumer, industrials, and healthcare, but software, Internet and semiconductors are notoriously acquisitive.
Want to maybe do startups or become a PM? The most logical path is still TMT, as it’s an easier sell to headhunters and interviewers when you at least have some exposure to those businesses.
Essentially, TMT leaves almost all your options open.
Private Equity Firms Love to Invest in Software
Speaking of exit opportunities, most large-cap private equity funds have started to invest in software. There are several prominent TMT-only funds like Silver Lake, Thoma Bravo, and Vista Equity, which have upended the entire software industry. In fact, Thoma Bravo is technically the fourth largest software company in the United States due to the number of companies it’s acquired.
Software is a business model that is a natural fit for private equity, as it has high operating leverage, sticky revenue, and long-term contracts. Private equity firms have understood this over the last decade and flocked toward software, which in turn has influenced their hiring. It feels like there are more TMT and software spots at private equity firms than there are top investment banking analysts in TMT.
Almost every large-cap private equity firm has had to learn the ropes of vertical software investing.
Technology Stocks Have Outpaced the Broader Industry
Similarly, technology stocks have been responsible for a great deal of the recent growth in public markets. Big Tech companies like Microsoft, Amazon, Meta, and Google have shaped much of the business landscape over the past decade and many hedge funds have earned their reputation betting on these companies.
The cumulative return of the tech-focused NASDAQ-100 is over double that of the S&P 500, which mirrors the broader stock market. Technology stocks have been the heavyweight champion of the past decade and have created the most lucrative industry to take part in. This influences where hedge funds recruit from and the talent pool they look at.
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Businesses Tend to Be More Consumer Facing and Accessible
Even when you don’t account for exit opportunities, technology and all of TMT has an advantage because it tends to be much more accessible to the average consumer. Consumer tech is such a pervasive industry that almost all millennials and Gen Z-s have at least some exposure to it. It’s much easier to understand an industry when you actually interact with the product, which is why Internet and consumer tech tend to be such popular industries.
It’s extremely easy to have an opinion about something so actively covered like Facebook or Google, while it’s much harder to have a natural opinion on more esoteric industries like natural resources or healthcare (I’m not even sure if I know more than five natural resource companies in the S&P).
This popularity tends to also apply to consumer retail groups, though consumer retail tends to be a less actionable and popular strategy amongst private equity firms.
Of course, popularity is a huge double-edged sword. If you want an easy path in recruiting, it can be helpful to specialize in a less sought-after industry. Popularity just tends to increase the top-of-funnel candidates that pursue an industry, which is why you get so many people clamoring to do TMT.
TMT’s popularity at the investment banking level almost directly mirrors the growth in the technology industry and the amount of investment going into technology businesses. Many of the top-earning private equity firms and hedge funds have won big by betting on growth valuations and technology companies.
I personally think that TMT is a safe bet if you’re unsure what you want to do, since it's the industry with the most career optionality given the number of jobs that interact with it. It does tend to be more competitive and filled with talented individuals, but that’s a symptom of being a very lucrative path.