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If you're interested in breaking into finance, check out our Private Equity Course and Investment Banking Course, which help thousands of candidates land top jobs every year. Overview The typical investment banking analyst career is two years. At the majority of North American investment banks, analysts are traditionally hired with the intention of employing them for two years. High-quality junior talent in finance is in high demand, as many of these analysts will be poached for private equity or hedge fund recruiting within a year of them graduating from school. Ideally, investment banks would love to retain their analysts for as long as possible and groom them within the firm, but it’s often not possible as the top analysts flee generally as soon as they can. When I graduated from university in the mid 2010s, my perception was that the 2/2/2 (2 years of IB, 2 of PE, then 2 of business school) was the only solid path. However, I encountered many successful 3rd-year investment banking analysts who took that additional year to better focus themselves, build their network, prep for recruiting, or take their GMAT. For many people, being patient and taking the time to accrue more experience is the right decision. Given how accelerated recruiting is (in the past, it has kicked off within 3-6 months of graduation), many people now opt to do an additional year in banking. Check out our Private Equity Recruiting Course if you're interested in learning more about the recruiting process and what you need to know to prepare. Let’s go over the mechanics as well as the pros and cons of this decision. Why does the 3rd Year Analyst Position Exist? Investment banks want to keep their analysts, but associates often cost 1.5 to 2x as much as analysts. So, many firms require their analysts to do a third year before a potential promotion to the associate level. Some firms like Goldman Sachs and Morgan Stanley will do accelerated promotions directly after 2 years in order to compete with buyside offers, but most other firms will make you do a 3rd year if you want to go directly from Analyst to Associate. On the other hand, firms like Centerview require a 3rd year and will get testy if you try to leave before your 3rd year. This is part of the deal when you sign with Centerview. The 3rd-year analyst position partially exists because the ramp up for an analyst is honestly pretty time consuming. Most new grads don’t know anything about modeling and it takes them 6 months to a year to not be a net negative to the team. However, analysts often try to check out as fast as possible in their second year. This generally means that most analysts are only very productive for a year or so. Investment banks in turn are generally happy to keep analysts around for another year, as they’ve already invested lots of time into them. I think a lot of 3rd-year analysts also end up being laterals from other groups or firms. Many people will start in “less good” groups and then lateral into a “good” group or firm in their 2nd or 3rd year. I think this is the most common reason why a high-quality analyst will still be around in their 3rd year. You have a lot of non-targets or people who were late to the finance game who need a few years to get caught up to speed. Benefits of Doing a 3rd Year Recruiting for the buyside before you’re ready can be a disaster If you didn’t go to an investment banking factory like Penn, NYU or… Brigham Young, then you might not have had great exposure to buyside recruiting until you hit the desk. You might not even have known about the private equity recruiting process until you started talking to other full-time analysts. For these people, a third year can be an extremely wise choice. Talking to headhunters expecting to get genuinely helpful advice can be extremely dangerous. Interviewing with firms before you’ve done ample technical preparation will lead to disaster. In my experience, firms are not very forgiving to people who already interviewed with them before. There is enough talent where many firms won’t be incentivized to give you another chance. Therefore, it’s often better to not talk to headhunters or firms at all in your first year if you’re not ready. The advantage of waiting another year to recruit can be immense. You’ll get more deals. You’ll likely get better deals too because you’ll have the trust of your team. You’ll have more impassioned and honest recommendations. You’ll feel more comfortable in the interview room and in your environment. Waiting an additional year can give you a clearer picture of what to recruit for Many people waltz into recruiting heavily pressured by their peers. Lots of people default to doing private equity because it’s the fashionable thing to do and it seems like everyone else wants to do it. I am a victim of this kind of thinking and I do think it is a very safe option. But private equity is certainly not for everyone and it’s nearly impossible for someone with only 3-6 months of work experience to know whether private equity is right or not for them. Doing another year can give you more experience and networking opportunities to actually meaningfully meet with firms. You’ll get a slightly better picture of what the different firms are like. You’ll probably know more people at each of the firms as well. Your 3rd year is going to be slightly more chill This isn’t true at every firm, but 3rd year analysts are often viewed as “Managing Analysts”. You get paired a lot with 1st years and you’ll be competent enough to handle a lot of the work more efficiently. You’ll know which teams to work efficiently and which VPs to avoid. You should have enough clout that you only have to work on relatively important deals. Your salary is slightly higher This is a modest benefit, but your salary will increase a bit more from your 2nd to 3rd year. I would estimate it to increase maybe $10-$15k from the 2nd year position. Cons of Doing a 3rd Year You have to do another year of investment banking Being an investment banking analyst is not easy. It might seem like an OK proposition when you’re a 2nd year, but doing an additional year can be a pretty unpleasant position to be in. Most of your friends will have left the firm. You’ll feel like the kid who had to repeat their last year of high school. Most 3rd years I know developed a special, truly broken brand of jadedness and cynicism. And a year in finance is also a pretty long time for career development. Lots of the top people in finance will hop around several times in order to angle for promotions, and doing a 3rd year deprives you of that fast track. Most top analysts I know did not do a 3rd year I obviously still know a ton of extremely bright and capable 3rd years, but the most intense and “hardo” finance people still all got out of banking as soon as they could. The people at the top buyside jobs and the people who have gobbled up the most promotions both left banking early on. I also think buyside firms have a slight impression that the top talent is all going to be gone before they hit their 3rd year. It’s a bit like how the top NBA recruits won’t do all 4 years in college, they’ll leave after just 1 year in the NCAA. The very top talent doesn’t need the extra year to prepare themselves for the real world. That won’t prevent firms from hiring people who do a 3rd year, but it will likely mean that firms have a higher level of scrutiny. Observations of Doing a 3rd Year for Buyside Recruiting I would generally recommend people to only do a 3rd year if you really think you need the extra time to prepare for recruiting or if you started in a sub-optimal role. If you started in a bad group or firm, a 3rd year is likely going to be your best bet for recruiting. The top bulge brackets and elite boutiques have a definitive advantage over their peers for private equity recruiting. Here are some other recruiting insights that might be helpful: To be explicit, a 3rd year has essentially just postponed buyside recruiting by one year. So for me, instead of recruiting in my first year in 2016, I would have recruited in my second year in 2017. You might be surprised, but a fair amount of reneging and visa problems occurs at the buyside level. Some people continue to recruit for other firms or change their minds and end up rescinding their offer. As a result, many private equity firms still hire for immediate starts. 3rd year analysts are prime candidates for these roles as they’ll have more experience. I generally think that if you have lateraled firms in your first year, you should probably wait to recruit. It’s odd and difficult to recruit for buyside firms if you’ve only been in your investment banking group for a few months. You should ideally at least have one deal or one serious project before recruiting with that firm. For example, if you started at a regional boutique and end up lateraling to a top firm like Goldman or PJT part way through your first year, you might still get contacted by headhunters in the first round of recruiting. However, I would personally advise people to wait until their next year to fully recruit. I know a few examples of people who immediately lateraled and then recruited, but it’s a riskier proposition. Still entirely viable, but it’s a very “bet-on-yourself” move that doesn’t work for everyone. Some smaller elite firms (like small hedge funds and venture capital firms) don’t hire every single year. If you’re trying to go to a specific firm, there is some merit to doing a 3rd year and waiting for a spot to open up. I wouldn’t actively recommend this, but I know some 3rd years who landed great hedge fund spots because they were patient and those hedge funds don’t hire every year.

If you're interested in breaking into finance, check out our Private Equity Course and Investment Banking Course, which help thousands of candidates land top jobs every year. Overview There are two major categories of investment banks: bulge brackets and elite boutiques. Each of the top investment banking firms in the world fall into one of these two categories. We’ve outlined the nature and business model of elite boutiques in a prior post. So, in this post, we’ll focus on bulge brackets, how they operate, and the pros and cons of working for them. Below is a list of the top investment banks, ranked by M&A deal volume in 2019. Of this top 10, Goldman Sachs, J.P. Morgan, Morgan Stanley, Citi, BofA Securities (Bank of America), Credit Suisse, and Barclays are definitively bulge brackets. I would still consider RBC Capital Markets to be more of a challenger bank or middle market firm and not a global bulge bracket. On this list, Evercore, Centerview, and Lazard are decisively “elite boutiques”. If you want to learn the technical and interview skills needed for a top bulge bracket, you should check out our Investment Banking Course. What is a Bulge Bracket? Bulge brackets refer to the largest global, diversified investment banks in the world. These bulge brackets are diversified firms, offering a wide variety of banking products to their clients. Bulge brackets tend to have a meaningful presence in multiple geographies and are not as domestically focused as some smaller investment banks. Bulge brackets offer a range of services and can provide a client with a full suite of banking solutions, which elite boutiques cannot do. Bulge brackets can advise a company on an M&A transaction, but they can also provide the debt financing for the deal. Their equity research team can help issue reports on your stock for the public markets and their sales and trading team can help you place your large buy orders of public stock. Many of these bulge bracket firms also have some consumer facing arm and many will also deal with deposits and credit cards (e.g., Goldman Sachs, J.P. Morgan, Citi, Bank of America, etc.) Here are some of the key front office banking functions a bulge bracket has: Investment Banking Advisory (e.g., advising Salesforce on an acquisition of Tableau Software) Investment Banking Financing (e.g., helping Apple issue bonds in the debt capital markets by lending the company money, finding other buyers, and pricing the transaction) Equity Research (e.g., agreeing to write an extensive public markets report on a newly IPO’d company like Roblox) Sales and Trading (e.g., helping a hedge fund efficiently buy and sell shares in a company) Wealth Management (e.g., helping rich clients invest and manage their money) For example, here are the different business divisions that Goldman Sachs has: In contrast, an elite boutique typically would only offer Investment Banking Advisory services. Some elite boutiques also have equity research arms (like Evercore and Guggenheim), but the business focus of elite boutiques is still going to be M&A advisory. Elite boutiques are more like specialists, they focus on giving independent strategic advice, while bulge brackets offer a full suite of products. From a client’s perspective, there are pros and cons of using either kind of firm. Who are the Bulge Brackets? It might seem like there is a concrete list of bulge bracket investment banks, but bulge bracket membership is often debated. There isn’t some regulatory body that explicitly knights different investment banks as bulge brackets, it’s more based on prevailing opinion and gets socialized by vocal members of the media. It’s kind of like how sports pundits will argue over which players are worthy of the hall of fame. In the 1990 book The House of Morgan, the author dubs the top tier of investment banks as “bulge brackets”. These banks were the titans of their industry and represented the very pinnacle of investment banking. The author named the following banks: Morgan Stanley, First Boston (which merged with Credit Suisse), Kuhn Loeb (merged with Lehman Brothers), and Dillon Read (which turned into UBS). The point being that empires rise and fall and banks’ relative positioning change all the time. Many of the world’s best investment banks a few decades ago have since been acquired or have gone bankrupt. Goldman Sachs might be the paragon of prestige now, but a few decades ago, they weren’t necessarily recognized as such. Nevertheless, if it’s a ranking you want, it’s a ranking you will get. In order to assess who is a bulge bracket, I’m going to rank the different investment banks across a number of factors. I also am going to err on the side of caution and lean on the side of dubbing fewer bulge brackets as opposed to more. I don’t think the list of bulge brackets should change on a yearly basis, so we should try to pick firms that have great staying power. Global M&A Deal Value Represents the total value of all M&A deals that the investment bank worked on. This will give priority to firms that work on the world's largest M&A transactions. It might seem biased to focus on M&A as opposed to financing, but I believe that industry people view rankings more in accordance with this definition. Financing is an important part of the business, but becomes more of a balance sheet war as opposed to a depiction of which investment banks are coveted and desirable to work at. Focusing on financing would bring in names like BNP Paribas and HSBC to this list, which are still great places to work at, but don’t carry the same level of traditional cachet. Global Investment Banking Revenue Represents the total revenue generated by a company’s investment banking division (M&A, IPOs, financing, etc.). Total Revenue Total revenue generated across all business divisions (inclusive of consumer lending, sales and trading, equity research, etc.). This statistic is a lot less important due to the size of some companies' consumer arms. Prestige / Industry Perception "Prestige" ranking, per Vault (which is based on surveys). This might seem a bit cheesy or stale, but I think the Vault ranking is remarkably accurate to what I would choose if I had equivalent job offers from each firm. Business Model Bulge brackets are diversified, so elite boutiques like Evercore and Lazard would be exempt from this status regardless of their revenue. Based on these screens, I would say the global bulge brackets are currently: Goldman Sachs Morgan Stanley J.P. Morgan Bank of America Citi Credit Suisse Barclays I would personally not consider UBS, Deutsche Bank, or Jefferies to be bulge bracket banks. They are meaningfully smaller than the others, they don’t work on the largest transactions, and they generally aren’t as coveted places to work. UBS and Deutsche Bank have had their share of scandals over the years and Deutsche Bank leadership has de-emphasized investment banking as a priority. Tiers within the Bulge Brackets And as you can probably see, there’s also a very clear divide in tiers even with this category of “bulge brackets”. If I had to be snooty about it, I think I would only comfortably predict that four firms would still be cemented as bulge brackets a decade from now: Goldman Sachs, Morgan Stanley, J.P. Morgan and Bank of America. The investment banking divisions of Citi, Credit Suisse and Barclays are nearly half the size of the other bulge brackets. And each of these firms have also faced their share of business challenges in investment banking. Citi’s global M&A investment banking revenue has declined year over year. Credit Suisse’s leadership has been urged to close their investment banking division and faced a huge multi-billion-dollar collapse from its dealings with Archegos Capital. Barclays is a well-run bank, but they are less geographically dominant than the other bulge brackets and don’t have nearly the same scale as the tier with Goldman Sachs or Morgan Stanley. Several years ago, Barclays became focused on trimming its investment banking operations, and completely pulled out of APAC and Russia, choosing to shed large amounts of investment banking jobs. I would say this representation of tiers is reflective of how the firms are viewed at least within the investment banking industry. Goldman Sachs and Morgan Stanley tend to be more coveted roles as opposed to Citi and Credit Suisse. That’s not to say this should be treated as a de facto list on which to base your career decisions… but it’s what I would do. Check out this post if you're wondering which schools place the best into investment banking. The Defining Characteristics of a Bulge Bracket Let's now explicitly articulate the defining characteristics of bulge bracket firms: Bulge Brackets Have Many, Diversified Business Divisions As previously mentioned, bulge brackets are often characterized by their diversified business models. Bulge brackets don’t just do investment banking M&A, they also do financing deals, IPOs, and have other divisions such as equity research, sales and trading, and even consumer divisions. Bulge Brackets Have Balance Sheets The clearest divide between bulge brackets and elite boutiques / independent advisors is the presence of a balance sheet. No matter how good Evercore or Centerview become at M&A, they’ll never have the means to truly lead a debt financing because they don’t have a balance sheet. You need a corporate balance sheet in order to lend money. Bulge Brackets Have Global Presences and Multiple Offices All of the tier 1 bulge brackets have truly global presences and multiple offices. They do deals in every geography in the world. Bulge Brackets Tend to Work on the Largest Transactions As a result of their scale, suite of offerings, and geographic diversification, bulge brackets are often the banks hired for the very largest transactions in the world. The largest transactions commonly involve some element of financing, which is why it’s sometimes difficult for elite boutiques to lead those transactions. This is certainly not always true and one could argue that the tide is changing towards the side of elite boutiques, but it’s still generally true. Elite boutiques often advise on the sell-side or can advise extremely cash-rich companies (like Big Tech), which eliminates the need for a financing division. However, historically, the largest transactions every year tend to still primarily be done by the bulge brackets. Pros and Cons of Working for a Bulge Bracket Here are some high-level pros and cons for working for a bulge bracket. Pros Stronger Brand and Prestige Outside of Finance To me, the most enticing thing about working for a bulge bracket is that the brand tends to be a little bit better known outside of finance. I think maybe one third of people who do investment banking end up leaving finance altogether, in which case it can be much more helpful to have a well-recognized and well-respected brand like Goldman Sachs or Morgan Stanley. If you want to do something like politics, raise money, or build a reputation in a different country, it can be helpful to have a more recognizable brand on your resume. I’m still deciphering the true value of this in my own life, but you can sort of notice the impact when people write executive biographies. Executive biographies will almost always explicitly mention if an employee worked at a top bulge bracket, but I find that’s less commonly the case for top elite boutiques. There is of course also the “social” value you get at cocktail parties when you talk to people in other industries and they know where you work. Your parents will likely be prouder of you when they can bring to their peers that their child works at the Goldman Sachs. Literally no one will care that you worked at a top group at Evercore, unless you’re maybe skulking at an undergrad party at NYU or IU. Exposure to More Categories in Finance As mentioned, bulge brackets have financing arms and commonly work across geographies. If you’re at an elite boutique, you’ll never be able to be the bookrunner on an IPO or be the lead on a debt financing deal. These are important functions in finance that people in elite boutiques will never be exposed to. This can be a bit of a disadvantage depending on what you end up doing. Larger Professional Network Bulge brackets are large and you’ll be exposed to a larger cross-section of people. This can make things more bureaucratic, but you’ll theoretically be able to interact with a more diverse network. Elite boutiques will have meaningfully smaller analyst classes and only a few divisions. At a bulge bracket, there will be tons of people around the globe across a variety of functions. You could argue that you don’t actually benefit or get to interact with all those people, but I think you still get the benefit of loose affiliation. Think about how self-righteous McKinsey people feel when they see another ex-McKinsey employee out in the wild. It’s a bit like that. More Lateral Opportunities Another understated benefit of the bulge bracket structure is that it’s very, very easy to lateral to different geographies or functions. You can start out in a more esoteric banking function and slowly lateral groups to ultimately end up in a New York investment banking role. Or if you’re trying to return to your home country, it might be easier in the context of a bulge bracket. I’m from Toronto, and every bulge bracket at least has an office with a few people there, while many of the elite boutiques don’t have any presence there. Some of these bulge brackets even have investment arms (e.g., Goldman Sachs, Morgan Stanley, and J.P. Morgan), which can give you one more path to get from the sellside to the buyside. More Corporate Infrastructure This is way more tactical, but some elements of the job are easier at a bulge bracket. Bulge brackets have resources and things like a dedicated presentations group or a hyper-efficient bookbinding service. At elite boutiques, work can sometimes feel a little janky because there isn’t necessarily the scale or resources to be extravagant. Cons Slightly Less Pay than Elite Boutiques (probably 10-15% less at the analyst and associate level, but much less at the higher levels) One of the main reasons why people leave bulge brackets for elite boutiques is that bulge brackets will take a higher percentage of the deal fee, leaving less for the deal team. If you’re a rainmaker MD, you’ll likely maximize your career earnings at a place like Centerview. Tends to be Much Harder to Climb the Ladder The other main reason why people leave bulge brackets is because it tends to be harder to climb the corporate ladder. These companies are much larger and have much longer histories, meaning that there is generally a glut of people at the mid-level. It can take significantly longer to reach partner at a bulge bracket where there are many mouths to feed. Tends to be More Bureaucratic and Less “Entrepreneurial” From a cultural perspective, these bulge brackets are often described to be more bureaucratic and often more politicized. Many of these banks are among the largest firms in the world and are heavily scrutinized. Larger organizations tend to have to be more careful when managing their personnel. Conclusion There are certainly advantages to being at bulge brackets, notably the brand and exposure to the financing business function. If you think there’s a good chance you’ll leave finance, you might be a lot better off with a big brand. That being said, I personally think that there are enough benefits to being at a top elite boutique that I would still prefer to be at a top elite boutique over most of the bulge brackets. I’ve gone on record saying (and stand behind) that I would take Goldman Sachs and Morgan Stanley over Evercore, but Evercore over every other bank. You can check out our Elite Boutique Investment Banking Primer for more detail on that.

If you're interested in breaking into finance, check out our Private Equity Course and Investment Banking Course, which help thousands of candidates land top jobs every year. Overview One of the most frustrating obstacles to deal with as an international finance hopeful is visa problems. If you are a student at a non-U.S. school, an international student at a U.S. school or an international employee, you will have much more difficulty landing top U.S. jobs than your U.S. peers. For many junior roles, there is often enough talent available domestically that U.S. firms are often not motivated to take a chance on an international hire. International hires often require more administrative work, are more expensive (due to added legal fees), and come with more risk (due to the chance of visa being rejected). There are a number of unique obstacles you have to face as an international candidate that U.S. candidates will never understand. If you're an international student at a top school in the U.S. and you're on an F-1 student visa, you'll still only have 12 months after graduation to land a new visa. For investment banking, you typically need to get either an H-1B visa or a TN visa (if you're from Canada / Mexico) to work in the U.S. thereafter. As an international candidate, you will generally always be tied to a visa whenever you are in the U.S. You will have much less certainty as you go through the recruiting process. You will always have to consider whether a firm will deny you because of your international status. I’m not going to pretend like I have a defensible blueprint for people for every country (because there isn’t one), but I can share a couple of tips and strategies that helped me. Please note that I am Canadian, which has one of the friendliest working agreements with the U.S. I know that I am much luckier than many people are. By the way, if you want to maximize your chances of breaking into a top investment bank, you should start preparing with our Investment Banking Course. Seek Legal Guidance The very first thing you need to do is just go talk to or e-mail a lawyer to see what is even in the realm of possibility. You essentially want to find out which visa makes the most sense for you given the passport you have. Ideally, you’ll be able to speak to an immigration lawyer that has represented people in your country. Here are a couple of great immigration lawyers that I have either directly worked with or who helped with peers of mine: Fragomen Garfinkel Immigration Allen & Hodgman Fragomen has a helpful blog that posts a lot of immigration statistics and is a resource I used a lot when recruiting. I would essentially just do a Google search for “immigration lawyer united states [your country]” (or something to that effect) and then e-mail 10 or so lawyers. It’s unlikely they’re going to help you that much because you won’t be paying them anything, but I think you can maybe get them to answer one or two simple questions for you. You might want to ask simple things like: Which U.S. visa is the most common for someone with my passport and industry? How long does it take for that kind of visa to typically be processed? Do you know of any obvious restrictions that would prevent me from obtaining that visa? What does the process to a green card look like for someone from my country? Do you know of any lawyers who specialize in representing people from my country? During my time in the U.S., I met people from many countries (commonly from Singapore, Korea, the UK, Australia, and the EU). Everyone had a different path to the U.S and the specific country you’re from will have a dramatic impact on what is available to you. There are unique nuances to each country and lawyers will know these nuances far more than anyone else. So, by far the most important thing is to just quickly connect with a lawyer. Lean on Alumni and People from Your Country Secondly, you’ll want to find alumni and fellow country-people who have been in your situation. As unique as you might be, it’s highly unlikely you’re the only person who has wanted to work on Wall Street in the history of your country. There must be someone else who has walked your path, who knows which firms like your country, and which lawyer firms will go to bat for you. Your goal is to find precedents of people who came from your country and ask them how they dealt with visa situations. Look at finance alumni who graduated from your university. Look at cultural clubs at your university and see who went to work in investment banks and private equity firms. As a Canadian, I know for example there is a Facebook group filled with people with the TN Economist visa, which essentially is people who want to pursue finance or consulting. I found this group through a university alumnus and the group is dedicated to help people in my situation. I also know that a group of helpful Waterloo alumni constantly update a “USA Intern” guide for Canadians, that is filled with helpful resources. If you ask around, you’re bound to find some helpful communities like the ones below: Canadian TN / H1B Support Group on Facebook Unofficial Waterloo USA Intern Guide U.S. Immigration Forum hosted by Law Offices of Rajiv S. Khanna, P.C. Canada Visa Forum All of this visa information is extremely nuanced and is country-specific, so it’s stuff you have to research on your own. Focus on Firms who have Sponsored Visas in the Past After connecting with a lawyer and speaking with some country alumni, I think the next thing to do is to narrow your focus on firms that will explicitly hire from your country. If you can’t find a single person from your country at a given firm on LinkedIn, then there’s a good chance that that firm won't sponsor a visa for you. Some paths and firms are much more friendly to people from different countries. For example, I know that some firms like Evercore, JP Morgan and Goldman have tended to help and hire Canadians more often than firms like Citi or Bank of America (this is why half of Ivey ends up at Evercore every year). Here are a couple of steps / observations that might be helpful to be aware of: Check each firm in the H1B Database The H1B Database is a repository of all of the H1B visa entries in the U.S. The H1B is one of the most common visas in the U.S. and a great deal of finance and technology workers use it. It’s extremely helpful to check this database to see which firms actually sponsor people for visas. It might not be a good use of your time to network with a firm that has no or very few sponsored visas. Larger firms will generally be more open to sponsoring visas I find that larger firms tend to be more open to sponsoring visas than smaller ones. Larger firms mean more employees and that generally means they’ve encountered a specific visa issue before. I know of many smaller buyside firms that wanted to hire someone, but encountered visa issues and didn’t want to go through the trouble of figuring out the solution. Visas are a key reason people stay in banking vs. going to the buyside Relatedly, one of the key advantages of staying in banking with a multinational diversified firm like Goldman Sachs or Morgan Stanley is that they are much better equipped to deal with legal and logistical problems. Some of the most coveted buyside roles are firms with under 20 people, where everyone went to the same two or three schools, meaning they will have very little experience dealing with an international person. Recognize the Power of Lateraling I think it is extremely helpful to be honest and transparent with yourself. Recruiting directly into a New York banking analyst position from an international country, especially from a non-target, is extremely, extremely hard. It’s hard enough recruiting from a target school with an international passport, so being fully international is extremely challenging. In my experience, banks and firms are much more likely to take a chance on an associate, experienced hire, or someone who has proven themselves to the firm. As a result, you should really recognize how common and plentiful lateral opportunities are. We've written a full article on how to pursue off-cycle opportunities and lateral jobs. It is much better to get some experience in a smaller finance city (like Calgary or Sydney) vs. putting all your eggs in one basket and missing out on an unlikely New York spot. If you know you have a tough visa situation, you should really think about the lateral game. Tons of people lateral every year because there is so much attrition in investment banking and finance. If you do well in a satellite office as an analyst, you will be one of the first people they consider when a spot opens up in New York or San Francisco for example. Similarly, it’s better to get some investment banking experience, even if it’s with a local boutique, vs. giving up entirely. I can think of many, many Canadians who started out in a Big 5 Canadian bank in Toronto and then lateraled to a top bulge bracket or elite boutique in New York after a year or so of working. I also know a lot of people who started in Salt Lake City with Goldman Sachs in a middle-office role and slowly climbed their way to a great buyside role. Consider Working in International Finance Hotspots First For some people, working in the U.S. directly out of school will simply be off the table due to their visa or personal situation. It’s good to be aware of this so you can dedicate your energy most effectively. If your ultimate goal is still New York or San Francisco, it might still be helpful to first focus on getting anywhere in investment banking and ultimately lateraling. Many of the largest investment banks will have offices all around the globe and again are much more friendly towards internal transfers than a new hire. Here are some non-U.S. cities that will hire investment banking analysts every single year. Some of these cities might be easier to target depending on your passport. Some cities might be considered less desirable and have less competition. London (though still very competitive) Singapore Hong Kong Zurich Toronto (lots of people lateral to New York every year from Toronto) Calgary Frankfurt Dubai Goldman has a number of offices around the globe and it's often easier to start in a satellite office and eventually transfer to the U.S. There are pros and cons to working at a firm's headquarters vs. a firm's satellite office. Getting an Offer is Different from Getting a Visa The last thing I’d like to remind you is that getting a verbal or even written offer from a firm is extremely different from getting a visa. You need to stay diligent until you actually cross the border and get visa approval before completely celebrating. Plenty of people get rejected at the border or encounter visa problems before their starting date. I can think of a couple of people who got rejected at the border and the firm had to rescind their offer. The implication is that you should still continue to look for contingency plans and don’t completely stop networking just because you received an offer. You shouldn’t be actively looking for new work, but you want to still be reasonably sharp and prepared if something awful happens. One common case I’ve seen this is in private equity recruiting. On-cycle recruiting is sometimes so hectic that the interviewers won’t remember to ask about your visa situation. They might give you an offer during the on-cycle process but later realize they don’t have the capacity to accommodate a visa. These things happen all the time and border security tend to be unsympathetic and indifferent to how much you want the job.

If you're interested in breaking into finance, check out our Private Equity Course and Investment Banking Course, which help thousands of candidates land top jobs every year. Overview The Paper LBO is one of the most common interview questions you’ll encounter during private equity recruiting. The Paper LBO has the same structural mechanics as the leveraged buyout model, which is the primary financial analysis used in private equity. The Paper LBO is a popular interview question because it is efficient to administer, allows the candidate to explain their thought process, and touches on important technical private equity concepts. The “Paper” LBO does not use Excel and is designed to be completed with just a pen and paper. In essence, the Paper LBO simplifies the complexities of building a complex financial model without forfeiting the key principles of an LBO. In order to conduct a Paper LBO, you will need to be aware of the following concepts: Enterprise Value Sources and Uses Forecasting Financials Building to Free Cash Flow Rule of 72 (approximating IRR) To fully learn all of these concepts, you might want to check out our Private Equity Recruiting Course. This course covers all of the private equity technical information you’ll need to know. The course has several Paper LBO examples and also dives into the intricacies of building an LBO model in Excel. Paper LBO Format A typical Paper LBO is going to have the following “rules”: Interviewee will only use pen and paper Interviewee is expected to show their work Typically given less than 10 minutes to complete Numbers provided will be relatively simple to compute Numbers can be liberally rounded when being computed If you’ve done investment banking interviews, you’ll realize that this is quite similar in format to complex accretion / dilution questions. You’re essentially given a bunch of numbers and then have to quickly sort out the proper steps to get to an answer. The typical steps to complete a Paper LBO are the same as an ordinary LBO model. These steps can be condensed into the following: Step 1: Determine Transaction Assumptions a. How much are we purchasing the company for? b. How much debt and equity are being used to buy the company? Step 2: Forecast Income Statement and Cash Flow a. How much free cash flow is the business generating? Step 3: Calculate Debt Paydown and Returns a. How much debt is paid down during the forecast? b. How much cash are we getting back on our investment? c. What is the implied return profile of the investment? Example Paper LBO Prompt Let’s go over a simple Paper LBO one might encounter in a private equity interview. It’s common to either be orally told a bunch of facts about or simply receive a list of information like below: Assume that we are a private equity firm purchasing "Company Alpha" at the end of 2021 Purchase multiple is 10x LTM EBITDA $200mm of revenues in 2021, which is expected to grow at $25mm annually through the forecast EBITDA margin of 50%, flat throughout forecast D&A and Capex are both 10% of revenues, flat throughout forecast No change in net working capital Tax rate of 50% Initial leverage of 5x LTM EBITDA – assume all debt is paid down upon exit Interest rate of 10% Assume exit after 3 years of projections at a 10x LTM EBITDA multiple Question: What is the implied MoM and IRR of this investment? From this list of information, you have enough to compute this investment’s MoM and IRR. It may also be helpful to remember that we just need two numbers to compute an investment’s MoM and IRR 1) the initial equity amount and 2) the ending equity amount. Said differently, our Paper LBO is simply a model for us to build to these two amounts (initial and ending equity). Example Paper LBO Solution Step 1: Determine Transaction Assumptions a. How much are we purchasing the company for? First, we want to determine what the total cost of the business was. This amount is commonly referred to as the Purchase Price and reflects how much money was spent to acquire the business. At its simplest, all you need to get to Purchase Price is a multiple and a metric. Here, we’re told that the purchase multiple is 10x LTM EBITDA. This means we are going to multiply the number 10 by what we calculate for LTM EBITDA. The deal is completed at the end of 2021, so the LTM (“Last Twelve Months”) pertains to the year 2021. To get 2021 EBITDA, we can multiply the figure of $200mm in revenue by the EBITDA margin of 50%. LTM EBITDA = $200mm * 50% = $100mm. Purchase Multiple * LTM EBITDA = 10x * $100mm = $1B Purchase Price b. How much debt and equity are being used to buy the company? A company’s purchase price is going to be simply composed of either debt or equity. We can calculate the amount of debt being used by looking at the leverage number – leverage is often reported as a multiple of EBITDA. We can then back into what is being used for the equity amount. This equity amount of $500mm represents the initial investment and how much money we as the private equity firm put into this deal. Purchase Price = $1B. Initial Leverage of 5x LTM EBITDA means that we had 5x LTM EBITDA of debt on the business at acquisition. 5x LTM EBITDA = 5x * $100mm EBITDA = $500mm in Debt. Purchase Price of $1B - $500mm in Debt = $500mm of Equity. Step 2: Forecast Income Statement and Cash Flow a. How much free cash flow is the business generating? The next step is to calculate how much free cash flow is generated over the forecast period. This step represents the bulk of the calculations and mental math. Your task is to essentially build from revenue to free cash flow every single year by calculating all of the steps of an income statement and cash flow statement. Fortunately, the numbers provided in a Paper LBO tend to be simple, which makes this tedious, but oftentimes not particularly hard. From the prompt, we know that the forecast period is 3 years. Therefore, we have to calculate how much free cash flow is generated over these 3 years in order to calculate how much debt is paid down. The deal closed at the end of 2021, so Year 1 = 2022 Revenue Forecast 2021 Revenue (Year 0) = $200mm 2022 Revenue (Year 1) = $225mm, + $25mm from previous year 2023 Revenue (Year 2) = $250mm, + $25mm from previous year 2024 Revenue (Year 3) = $275mm, + $25mm from previous year EBITDA Forecast 2021 EBITDA = $100mm, 50% * Revenue 2022 EBITDA = $113mm, 50% * Revenue 2023 EBITDA = $125mm, 50% * Revenue 2024 EBITDA = $138mm, 50% * Revenue D&A Forecast 2022 D&A = $23mm, 10% * Revenue 2023 D&A = $25mm, 10% * Revenue 2024 D&A = $28mm, 10% * Revenue Capex Forecast 2022 D&A = $23mm, 10% * Revenue 2023 D&A = $25mm, 10% * Revenue 2024 D&A = $28mm, 10% * Revenue The Free Cash Flow Formula is as follows: Revenue EBITDA (50% margin) Less: D&A (10% of revenue) Less: Interest (Constant 10% interest rate on $500mm of debt) EBT Less: Taxes (50% rate on EBT) Earnings Plus: D&A Less: Capex (10% of revenue) Less: Change in Net Working Capital ($0) Free Cash Flow Our goal is to essentially arrange all of these formulas so we can get to Free Cash Flow for years 2022, 2023, and 2024. This may ultimately look like the below forecast: It is worth noting that we have made the interest calculation simpler here for the purpose of this question. We say that debt is not paid down until exit, implying that we do not have to calculate debt paydown on a yearly basis. In most Excel financial models, you will compute an annual debt paydown. We have also made the Free Cash Flow calculation simpler. Here, net income is equivalent to Free Cash Flow. That is because D&A and Capex have the same % driver and there is no change in Net Working Capital. Step 3. Calculate Debt Paydown and Returns a. How much debt is paid down during the forecast? We can safely assume here that all free cash flow generated was used to pay down debt in this forecast. This should be your default assumption in Paper LBOs unless there is other information given. Therefore, we can calculate how much debt is paid down by just summing up the free cash flow generated over the 3 years. Free Cash Flow 2022 = $20mm Free Cash Flow 2023 = $25mm Free Cash Flow 2024 = $30mm Cumulative Free Cash Flow = $75mm Initial Net Debt – Cumulative Free Cash Flow = Ending Net Debt $500mm - $75mm = $425mm in Net Debt b. How much cash are we getting back on our investment? We then plug this debt paydown amount into the exit assumptions of the investment. Exit LTM EBITDA = 2024 EBITDA Exit Multiple = 10x Exit Enterprise Value = $138mm * 10x = $1,380mm Exit Equity Value = Exit Enterprise Value – Ending Net Debt = $1,380mm - $425mm = ~$950mm - $1,000mm of Exit Equity Value c. What is the implied return profile of the investment? Finally, we will use the Rule of 72 to calculate the implied return profile. Exit Equity Value = $950mm - $1,000mm Initial Equity Value = $500mm Implied MoM = Exit Equity Value / Initial Equity Value = 2x MoM 72 Doubling over 3 years = ~24% IRR using the Rule of 72 Therefore, the Paper LBO implies that an acquisition of Company Alpha would have an IRR of ~24% and an MoM of 2x over the 3-year hold period. All of the calculations were intentionally made simple enough so that you can reasonably compute the arithmetic in your head. It would take an experienced candidate less than 5 minutes to complete this question. Additional Complexities What we walked through here is one of the simpler possible iterations a Paper LBO. We have much more complex examples in our Private Equity Recruiting Course. Below are some common complexities that would make the Paper LBO harder to accomplish: Using NTM multiples instead of LTM Paying down the debt over time Multiple investors in the cap table Options in the cap table Preferred stock or other kind of structured security (requiring the calculation of PIK interest) One-time cash outflow (e.g., paying a dividend in the 3rd year)

If you're interested in breaking into finance, check out our Private Equity Course and Investment Banking Course, which help thousands of candidates land top jobs every year. Overview Investment banks are financial institutions that assist companies with financial transactions and corporate finance decisions. Investment banks are responsible for helping companies IPO, complete acquisitions, raise financing, provide equity research, and much more. Investment banks are essentially responsible for helping companies with all matters related to the capital markets. The investment banking landscape is fairly complex and there are a few major categories of investment banks that exist. The different kinds of investment banks have different business models and are exposed to different types of deals. I would categorize the investment banking landscape into the following categories: Bulge Bracket Investment Banks Middle Market Banks Elite Boutiques or “Independent Advisors” Regional / Industry Boutiques There are two simple categorizations that help us discern which firms belong to which category. These categorizations are based on business model (balance sheet or no balance sheet) and size (largest transactions or not). This is illustrated in the graphic below. Put simply, bulge brackets and middle market investment banks still have a balance sheet and engage in functions such as lending and capital market offerings. From a size perspective, bulge brackets and elite boutiques work on the largest transactions, while middle market banks and “regional” boutiques work on smaller deals and may be more geographically focused. If you are interested in learning about the valuation and financial modeling required to break into investment banking, you should check out the Valuation and Finance Starter Kit. Bulge Brackets Bulge brackets and middle market banks have balance sheets. Having a balance sheet means that you can easily help companies raise cash and do capital markets transactions. As a “balance sheet bank”, you have the ability to underwrite and lead financing deals because of your firm’s capital. Firms like J.P. Morgan and Bank of America have huge balance sheets and win lots of business because of their ability to lend at a competitive rate and get good market terms. An investment bank with a balance sheet can also lend money to a company and run an initial public offering. Bulge brackets are in part known for working on the world’s largest financial transactions. All of the bulge brackets are geographically diversified firms and work with the largest companies in the world. Bulge bracket deal size is significantly larger than that of the middle market. The top bulge bracket firms include: Goldman Sachs Morgan Stanley J.P. Morgan Bank of America Citi Barclays Credit Suisse Bulge brackets and elite boutiques are often regarded for their exit opportunities. These firms work on the largest transactions and their analysts often get the most coveted buyside positions, such as private equity. Middle Market Investment Banks I would generally think of middle market firms as a smaller version of bulge brackets. Functionally, they provide very similar services and will help companies raise money and IPO. However, middle market firms have a much smaller scale. This often means that middle market firms focus on smaller “middle market” companies or are focused on a single geography. The actual job function is quite similar at the employee level, but the companies you deal with tend to be meaningfully smaller than that of bulge brackets. There aren’t very strict definitions of what the middle market represents, but I would generally say that middle market firms tend to work with companies below $1B in enterprise value. From this Wall Street Journal M&A league table, you can see that the average transaction size (total deal size divided by # of deals) for a bulge bracket or elite boutique is generally above $1B. A middle market firm will still expose you to the capital markets and you will still be involved with things like IPOs and financings. Some notable middle market firms include: Jefferies RBC Capital Markets Macquarie HSBC BMO Capital Markets KeyBanc Capital Markets Stifel As a note, I’m inclined to consider Deutsche Bank and UBS as “upper middle market” investment banks given that they’re decisively not Bulge Brackets in my mind, but they’re certainly ahead of these other firms. Elite Boutiques / Independent Advisors On the other side of the business model spectrum, we have elite boutiques. The primary difference between bulge brackets and elite boutiques is that elite boutiques do NOT have balance sheets. Elite boutiques tend to be focused more on M&A, restructuring, and providing strategic advice. Elite boutiques do not have the capabilities to underwrite large financings. Elite boutiques are also commonly referred to as “Independent Advisors” – the term suggesting that bulge brackets cannot be independent due to their reliance on capital markets business. When pitching for investment banking services, an elite boutique will often frame themselves as providing intellectually honest and unique advice. The logic here is that a bulge bracket firm with many different business divisions will have competing interests. For example, the capital markets MD makes money when its client issues more debt, but the restructuring MD might think that amount of leverage would hurt the business. From a career perspective, many people actually choose to work at elite boutiques instead of bulge brackets. The very top elite boutiques like Evercore, Centerview and Moelis will actively compete with the largest bulge brackets for deals. The top elite boutiques / independent advisors include: Evercore Centerview Moelis PJT Partners Lazard Qatalyst Regional / Industry Boutiques The fourth category of investment bank is regional / industry boutiques. This is a bit of a catch-all that covers all other boutiques and smaller investment banks. Anecdotally, I find that many of these boutiques are started by people who left large bulge brackets or elite boutiques and want more economics or autonomy. In essence, these regional / industry boutiques are very much just like smaller elite boutiques that may be earlier in the lifecycle. Some notable investment banking boutiques include great firms such as: Piper Sandler Stephens Union Square Advisors SVB Leerink FT Partners Similar to elite boutiques, most of these regional / industry boutiques will not have a balance sheet and may be more focused on doing sell-side engagements, restructuring, or giving independent advice. From a career perspective, these regional / industry boutiques are likely the best place to look if you have little to no finance experience and are seeking to break into investment banking. These firms tend to have the most unstructured recruiting processes and may be more willing to take a flier on someone with an untraditional resume. The approach here is to do a solid outreach campaign to a large number of boutiques. Merchant Banks, Wealth Managers, Corporate Banking, etc. The aforementioned categorization of firms is neat and works for pure investment banks, but the mosaic of corporate finance as a whole is extremely complicated. Bulge brackets offer a full suite of corporate banking, financing, merchant banking, wealth management, etc., but there are many firms that only focus on one of these functions. As such, bulge brackets may compete with a variety of firms that do not explicitly fall under the investment bank designation. Especially at the regional level, you’ll find many firms with confusing business models that seem to evolve over time.

If you're interested in breaking into finance, check out our Private Equity Course and Investment Banking Course, which help thousands of candidates land top jobs every year. Overview There are generally two kinds of people who end up in finance: People who are passionate about finance, and People who understand that a career in finance has many benefits and are willing to put in the energy and time to break in. Of course, these are not mutually exclusive groups, as most people who genuinely like finance also recognize the immense benefits it comes with. But I have found that most of my peers in finance eventually embody one of these two attitudes. There are people who read finance forums and 10-Ks in their spare time and then there are people who wistfully daydream about the moment they can exit to a portfolio company. Like most naïve college students, I thought I was staunchly in group #1, but it turns out that I was a fraudulent pretender belonging to group #2 all along. If you already know you're passionate about finance, you should check out our Valuation and Finance Starter Kit in order to improve your technical skills. Of my investment banking analyst class, maybe a quarter of people left to non-finance paths within 5 years. Many of these people knew at the outset that finance wasn’t for them, but still decided to pursue investment banking in order to get better exit opportunities down the road. If you’re trying to decide about whether the grind of investment banking or private equity is worth it for you, a good place to start might be to ask yourself the following questions. Step 1: Think about how much you genuinely like finance What do you do with your non-career energy? The most enlightening thing to think about is what you focus on outside of your career. A key insight for me is that my peers who are excelling in finance devote lots of their energy to finance in their free time. During university, some people continued to immerse themselves in finance even after recruiting was over or when the grades didn't matter. The most passionate finance people were looking at stocks in high school and were watching CNBC at breakfast. It’s relatively easy to have a surface level interest in finance, but the people that really succeed in finance are those who are true students of the craft. Think about what a large common denominator of people are drawn to finance memes or the cultish jokes from r/wallstreetbets or r/cryptocurrency. It’s extremely easy to like the idea of finance or the more gambling-oriented euphoria that comes with investing. But then think about how many people are truly willing to do the diligence and self-study to learn about the underlying mechanics of corporate finance. Consider how r/wallstreetbets is over ~60x bigger than r/securityanalysis, which is probably the largest serious subreddit for finance. Some questions that might help you understand your true interest in finance: Do you listen to investing or finance podcasts? Do you read finance textbooks or finance primers for leisure? What kind of electives did you take in university? When did you first become interested in finance? How actively do you manage your personal account? Are you constantly looking for new or novel investing opportunities? How excited do you get when you talk about finance? It is extremely obvious who likes finance and who is a Pretender when you’re at a group dinner or party. If you’re having dinner with true-blooded hedge fund or private equity people, they will invariably talk about their favorite businesses, stocks, or investment opportunities after maybe five minutes of pleasantries. They’ll begin frothing at the mouth as they gush over the free cash flow profile of a company while the Pretenders will awkwardly look at each other. So, when you talk about finance and your career, what aspects do you talk about? If you talk about the investing, the businesses, the deal making, the nuances of industry, then you might really like finance! If you talk more about bonuses, the gossip of people moving around, and which private equity firms empirically have the best business school placement, then you might just be a Pretender. Step 2: Think about how much energy you are willing to put into your career Which long-term goals are most interesting to you? This is much more philosophical in nature, but it can be instructive to think about what kind of career and life you want. Almost everyone can devote the first few years of their working lives to investment banking, but sharp trade-offs start to appear in your late 20’s. Do you want to have a family around society’s median age to do so (27 to 31 for women)? Do you want to do long-term travel before you have kids? Finance is a pretty grindy job through your 20’s, which will likely force you to sacrifice some other lifestyle options. Many careers in finance have a culture of weekend work, which may make it harder for you to go on trips or travel internationally. The demands of the job are often so high that you can’t overcome it with pure intelligence. Lots of people are smart or cunning enough to waltz into investment banking, but very few people are competent enough to excel at a tough buyside role without trying. On the other hand, the potential salary in finance starts to multiply in your late 20’s, so if you leave finance too early, then you’re depriving yourself of key wealth-generating opportunities (e.g., carry or co-invest). If your goal is to earn lots of money, then it generally makes sense to keep working hard in finance. Do you have any extremely ambitious wealth goals? E.g., being a hundred millionaire or owning a sports team? Do you want to own multiple properties? Do you want to earn enough so you can self-fund a startup or other ventures? Do you want to retire relatively early? Do you want to get married and have children? Do you want to be able to do long-term travel trips? If you earn more than $150k, which is what virtually everyone in a corporate finance role like investment banking or private equity earns, you will be in the top 20% of U.S. earners. If you have a specific wealth goal, staying in finance might be the easiest way to achieve that outcome. If you want to retire extremely early, your best chance might be to grind it out in finance until your early 30s and then quit. Step 3: Network and reach out to people until you find mentors with the same values as you You should recognize that if you go into finance, virtually every career choice and situation that you could face has been mulled upon. You aren’t the first person to hate investment banking after a few weeks. You aren’t the first person to switch to a hedge fund and wonder if you’d be happier in venture capital. All of these outcomes have happened and it becomes your job to find people who have been in those situations. Harvard psychologist Dan Gilbert, who is a renowned author on the topic of happiness, suggests that we need to find people who resemble us in order to make the best life decisions. “… one way to make predictions about our own emotional futures is to find someone who is having the experience we are contemplating and ask them how they feel. Instead of remembering our past experience in order to simulate our future experience, perhaps we should simply ask other people to introspect on their inner states. Perhaps we should give up on remembering and imagining entirely and use other people as surrogates for our future selves.” (Daniel Gilbert in Stumbling on Happiness) To me, this is why networking is so important, particularly with people who are 5-10 years older than you. You want to find people who were in similar career forks as you that also have a similar life perspective to you. It generally helps if they’re much older so they’re more detached from the career question at hand. In my opinion, people who are your age or only a few years older likely won’t have the maturity or honesty to transparently give you an assessment of their career choices. If you happen to be in a similar social circle, they will still likely be steeped in cognitive dissonance and give you a biased or unhelpful answer. Similarly, your goal should be to talk to 1-2 new people per week until you’re relatively confident that you’ve found someone with your ideal career path. You should try to find someone who has a similar outlook on life and that has financial and family goals that make sense to you. Note that if you want to do something very radical (like start your own small business, go to medical school, or pursue art), you’ll likely have to search much harder in order to find the right mentor. I had to search very long until I met people who helped sort out my career choices. Conclusion As much as I disliked aspects of my work in finance, I would still do investment banking and private equity if I had to. I learned that I was not passionate about finance, but I think the immediate career benefits are still large enough that it is worth doing for many people. It gave me the opportunity to go to business school, exit to tech, and save enough money to pursue my own interests. It still took a tremendous amount of work and I devoted much of my life in university to breaking into finance, but collectively it looks like it was a worthwhile decision.

If you're interested in breaking into finance, check out our Private Equity Course and Investment Banking Course, which help thousands of candidates land top jobs every year. Overview The default graphing function in Excel is not good. Despite being the backbone of every financial model in the world, Excel has a notoriously fickle graphing function that by default will create clumsy and unprofessional outputs. Many investment banks have dedicated graphics teams or Excel plugins to help optimize this process, but you will still invariably spend many, many hours making graphs look presentable. In this post, we’re going to cover some of the basics and conventions you should adhere to when creating graphs in Excel. Most people spend their first summer internship learning how to make decent-looking graphs. So, if you can already make good graphs by the time you become an intern, you’ll soon be entrusted with more important tasks. If you’d like to learn more fundamental finance skills and improve your modeling, you should check out our Valuation and Finance Starter Kit. Design Principles and Finance Formatting Conventions Design Principles Let’s begin by talking about intuitive design principles that you should keep in mind when creating graphs: Make sure data items are evenly spaced and do not overlap with one another Be as concise as possible – most people can only focus on 2 or 3 data points at a time Use color to clearly indicate different segments or categories Graphs in the same presentation should follow the same scheme (color, font, etc.) in order to improve visual consistency If you adhere to these principles, you will have a much higher chance of effectively communicating information. Generally speaking, your goal when making a graph is to visually communicate an idea without any further explanation. Finance Formatting Conventions Aside from these design principles, it’s also very important to be mindful of the specific formatting conventions that have emerged over time. There are certain formatting conventions that are generally adhered to in all professional finance graphs: Units are clearly displayed and are thoughtfully selected (e.g., $ in millions) Title font is larger than other fonts All font types are the same font No background gridlines (generally) No graph outline boxes Individual data points are visible Decimals of data points are thoughtfully selected (e.g., don’t need two decimal points for IRR, don’t need decimal points for a two-segment pie graph) Graph categories are ordered in a thoughtful way E.g., by descending magnitude, by descending %, alphabetically, etc. Compound annual growth rate is included where relevant These conventions might not mean a lot without context, so let’s walk through a couple of examples that illustrate how this will differ in practice. There are a lot of different rules, which can take time to implement. It can be really helpful to know the best Excel and PowerPoint hotkeys, which will speed up your graph-making tremendously. Amateur vs. Professional Graph Examples If you go through any serious investment firm’s presentations, you’ll see that they tend to adhere to the same principles and formatting rules. The best place to learn about finance conventions is to study what the best private equity and hedge funds have publicly published. 10xEBITDA has a good collection of these presentations. Let’s go over a few common graphs that you will have to make as an investment banking analyst or private equity professional. We’ll take one random graph from Seeking Alpha and compare it to a similar graph made by a professional investment firm. Example #1: Vertical Bar Graph I’m not cherry picking here, I literally picked the first graph I could find from Seeking Alpha. This graph compares the revenue between Amazon and Facebook. What’s wrong with this graph? Well, the background is black, which is distracting, ink-consumptive, and looks bad if you have many other graph colors. Additionally, the total numbers are in billions, but they’re still using millions as units for some reason. Two decimals are shown for the dollar values even though they’re just zeroed out and unearth no new information. There are also no CAGRs and the designation of TTM is unclear (would be better to do TTM Q2’21 or whatever it actually is). Lastly, the revenue figures between Amazon and Facebook are so different that this isn’t even a very instructive graph. Facebook revenue looks like it barely grows because the magnitudes are that different – it probably would be much better to have it in two side-by-side graphs, where you could also show CAGRs. This graph is from Pershing Square’s presentation on Starbucks in 2018 (which also turned out to be a great stock pick). The graph is comparing Starbucks’ U.S. and Rest of World # of stores. It’s clean and easy to tell what numbers refer to what. The units are in an intuitive and understandable format. The CAGRs are displayed so you can make quick implications (e.g., the Rest of World division is growing materially faster than U.S.). The two things being compared are close enough in numeric value that you can actually tell how each one is changing year over year. If I had to give nitpicky comments, I would say that you could probably color coordinate the bars to the CAGR table. I would probably also retitle the titles to “2010A to 2018E CAGR” because the FY designation isn’t used anywhere else. The overall title (“U.S. & Rest of World Units…”) is also in a hard-to-read font choice, as the bold makes some of the letters a bit too condensed. Example #2: Financial Summary I kid you not, this is an actual financial summary output in a top Seeking Alpha post. To start, this is a direct screenshot (not even an enhanced metafile output) of an Excel workbook. The gridlines are still visible. All of the values have two decimal points even though they’re still just zeroed. Some of the calculated statistics are off to the right, but they’re so far out that you’d need a ruler in order to match it up the figure they correspond to. There’s also inconsistent titling (“Gross Profit” vs. “gross profit”). This output is a tragedy and a scourge upon our people. From an analytical perspective, this is also way too much information to try to display in a single chart. I would definitely make different financial summaries for each business. If you absolutely had to include this information on one output, you’d at least try to reduce the total numbers displayed. That means cutting down all unnecessary digits – I would do zero decimals for both percentages and dollars, as they don’t change the implication of the data. I would also get rid of all of the numbers on the right and just include CAGRs for each row. Lastly, I would also add some colors to titles (e.g., Amazon, Facebook, the year row) in order to separate information and section things more visually. This is from Marcato’s presentation of Buffalo Wild Wings, which is a pretty clean and professional looking deck. This is the financial projection summary of Buffalo Wild Wings, the company being pitched. What’s great about this is that there are clear headings and the most important figures are bolded. You can tell that the author of the graph is pointing your attention to the “% Franchised” row because of the yellow outline box. The long-term % Franchised target is obviously 90%. The decimals are chosen tastefully and relevant statistics are made available. There is a clean dashed line showing what are "actuals" and what are "expected". Example #3: Line Graph Let’s look at another Seeking Alpha graph. This is very clearly made using Excel’s default graphing function and has a ton of beginner mistakes. The dates get cut off after 2019. There are no data labels on any of the data points. The two different lines are the same color and there is no legend, making it virtually impossible to distinguish what is happening. The gridlines don’t do very much to assist in the understanding of the graph. The outline of the box is unnecessary as it doesn’t separate the graph from other diagrams. We finally come to a report straight out from the Bain Capital Global Private Equity Report, which, in my opinion, is an artistic masterpiece. It should be no surprise that a private equity firm with consulting culture makes the most beautiful and intuitive graphs in the world. This graph clearly articulates how “Other PE” is growing faster than traditional buyouts. It displays two decades of information and has two clean CAGR lines to show where the trend changes. The colors, decimals and font choices are tasteful and presentable. The title is clear and all of the data is evenly spaced out. The colors also correspond to the colors used in the remainder of the presentation. Conclusion In summary, you should see that there are a lot of small differences that separate amateur from professional presentations. It might also be helpful to keep a list of these principles and formatting conventions handy as you make your own graphs. Additionally, it can be very helpful to keep a couple of professional presentations by your desk so you can reference how the best investment firms make graphs. Similarly, in investment banking, it’s very wise to keep an old pitchbook that your MD already signed off on close by to reference.

If you're interested in breaking into finance, check out our Private Equity Course and Investment Banking Course, which help thousands of candidates land top jobs every year. Overview Investing jobs are one of the few career paths in which it’s entirely possible to double your compensation every couple of years. A successful investment fund has the opportunity to generate profits at an exponential rate and a fund’s size can scale independently of the number of investment professionals. Entry level roles in private equity already pay a high amount, with 25-year-old private equity associates at top funds earning in excess of ~$300k. And if you’re able to climb the ladder at a well-performing fund, then you’ll continue to see your compensation grow every single year. It’s often difficult to get clear compensation data for private equity because of the scarce number of data points and relatively secretive nature of the industry, but we’ll do our best to scrape reputable sources. In this post, we’ll go over data primarily made available by Heidrick & Struggles, a private equity executive search firm. I’m also old enough now where I have a clearer picture of what mid-level private equity people actually make. In this post, we will discuss the different components that influence a private equity employee’s compensation. Compensation in private equity is most directly influenced by the following factors: Seniority of role (more senior = more compensation) Size of fund (larger fund = bigger investments = more potential profits) Performance of fund (better investments = more potential profits) Private Equity Ladder and Seniority It’s important to understand the organizational structure and different levels of seniority in private equity. It’s common for each promotion level to result in a 50-100% increase in compensation, e.g., the jump from Associate to Vice President can result in a 100% increase in your overall compensation. Just like in investment banking, the more junior roles at the Analyst and Associate level focus primarily on building models, doing nitty gritty analysis, and other tactile diligence streams. The Analyst and Associate are most commonly pre-MBA. Analysts are hired out of the top finance schools in the world (Penn, Harvard), while associates are hired from the top investment banks in the world in a very comedic recruiting process. The mid-level roles, which are typically given the title of Vice President or Principal, have more to do with execution. This is a fairly broad mandate, but it can include things like helping outline an investment memo, revising term sheets, scoping out industry landscapes, and liaising with consultants / lawyers. The specific designation of Vice President or Principal differs at each firm – sometimes Principal is the equivalent of Senior Associate (like at KKR) and sometimes it is the role right before Managing Director. The most senior role is Managing Director and Partner. These professionals are focused on sourcing new deals, making investment decisions, and leading the organization. The average compensation of these individuals is hard to identify and generalize because it becomes primarily dependent on the performance of a fund. You get a lot more equity at this level, so if the fund performs well, you will get paid a lot. Analyst (0-2 years of experience): $150-$200k Associate (2-4 years of experience): $250-$350k Vice President (5-8 years of experience): $400-$700k Principal (9-12 years of experience): $800k-$1.5mm Managing Director / Partner (10+ years of experience): >$1.5mm These figures pertain to what the largest North American funds pay. These figures also represent an average across a wide cross section of funds, so you’re bound to see a moderate amount of variation. It’s also worth noting that this compensation comes in a combination of base salary, bonus, and carry (investment profits). It’s common for a private equity professional’s base salary to represent less than 50% of their overall compensation. Base compensation is the salary that is regularly paid out on a biweekly basis. Bonus is typically paid out once per year (often at the end of a calendar year). Carry is less linear and is distributed as companies are sold or dividends are paid out. Private Equity Fund Size Aside from an employee’s seniority, the other most significant factor determining one’s compensation is the size of the fund. Larger funds are able to buy larger companies and can therefore generate larger profits. However, you don’t always need to scale an organization or personnel in order to get those larger deals. All else being equal, buying a larger company will result in potentially larger profits from a dollar perspective. For example, a lower-middle-market fund acquiring a $10mm business is still going to need a few investment professionals to close a deal. At the very least, you’ll need a Partner to sign off on the deal and likely a mid-level employee to do the diligence, modeling and execution. On the other hand, if you’re at a top mega fund, you’ll be chasing much larger deals, but your deal team isn’t going to grow that proportional amount. At a mega fund, you might chase >$1B deals, but your deal team might still only be 5 or 6 people. Accordingly, if the $10mm and $1B companies have identical investment structures and return profiles, the $1B deal will have meaningfully larger profits by virtue of its magnitude. This tends to be why firms like to raise larger funds and chase bigger deals, sometimes at the cost of investment precision. This is why the largest hedge funds often eventually gravitate towards being overall asset managers – you have the opportunity to make the most money if you can deploy the largest funds. Using the associate position as an example (due to the relatively larger number of available data points), we’ll be able to see how compensation fluctuates significantly depending on fund size. Per the Heidrick & Struggles report, we can see that an associate at the largest fund can make twice as much as someone at a sub $500mm fund. <$500mm: $177k $1-$2B: $211k $6-$10B: $284k $20-$40B: $299k >$40B: $336k This is why there is so much competition for mega fund and upper middle market fund roles – the compensation can be twice as much if you are at a top fund. Fund size plays a huge role in compensation. This divergence in compensation is also why many people opt to stay in investment banking as opposed to pursue lower-middle market roles. The compensation at a large investment bank is often much higher than at smaller private equity funds. One important structural point about fund size is that it tends to be much harder to climb the career ladder at established mega funds. Even if you’re a brilliant hard-working private equity vice president, there’s no guarantee that you’ll be able to move to the next level. Your competition will be filled with other brilliant hard-working individuals. As such, it’s ordinary for mid-level people to move to more senior roles at smaller private equity funds to progress their career. Private Equity Fund Performance The final most significant factor influencing one’s compensation is the private equity fund’s performance. Performance is one of the hardest things to gauge and can fluctuate on a year-over-year basis. This is also because private equity deals with private investments, which can be difficult to value. Even if you were a pension fund investing in one of these private equity funds, you might still not accurately know how well a fund is doing. Private investments are illiquid and valuing certain investments in their early years can be relatively meaningless. I do think it’s worth noting how much fund performance does matter at the mid- and senior-levels though. Once you get carry, your earnings potential can be 2x or 3x higher if you’re at a top-quartile vs. a third-quartile fund. The difference between a fund earning a third-quartile return like 10% vs. a fund earning a top-quartile return like 25% can easily be a gap of several million dollars per person. This older Preqin report shows us the IRR quartiles by "vintage", which refers to the year a fund was launched. We can see how the “first quartile” funds denoted by Q1 are in the low to mid 20% range, while third quartile is closer to 10%. For illustration, a $1B fund growing at 10% annually will be valued at ~$2.5B at the end of 10 years, while an equivalent fund growing at 25% annually will be valued at ~$9B. In terms of profit, the second fund will have around 5x as much profit to distribute to its employees. The below chart (figures in millions) illustrates this visually. Practically speaking, these wide gaps in performance occur all the time. Top technology funds like Thoma Bravo, Vista Equity, and Silver Lake have been able to post mid 20%+ annual returns on the advent of SaaS and software businesses. Despite doing comparably similar work, a Vice President at a similarly sized fund might only take home a fraction of someone at Thoma or Vista does. Summary It's easy to see how private equity can pay so much when you consider its business model. A top-performing fund that invests in large businesses will have a huge amount of profits to distribute to its employees. While starting salaries may still be comparable to the top salaries as an engineer or product manager, the real divergence in pay becomes evident at the mid level and beyond.

If you're interested in breaking into finance, check out our Private Equity Course and Investment Banking Course, which help thousands of candidates land top jobs every year. Overview Love them or hate them (but, probably… generally hate them), private equity headhunters are a very, very important part of the recruiting ecosystem. Private equity firms, hedge funds, and other elite buyside institutions are often too small to have a dedicated recruiting function. Many of the most coveted investment firms have fewer than 30 investment professionals and most of these professionals are wholly focused on winning deals or earning alpha. As such, headhunting firms earn their keep by doing important tasks that private equity firms and hedge funds often don’t have the time to do themselves. Headhunters are essential for organizing candidate information, doing an initial screen to filter out poor fits, and keeping a pulse on the industry’s recruiting dynamics. This recruiting function is in sharp contrast to investment banks, which is where the majority of private equity candidates come from. Although equally predatory towards its candidates, investment banking recruiting is carried out by corporate HR functions. Resultingly, most candidates pursuing on-cycle private equity recruiting will have no prior experience dealing with headhunters. This leads to rampant information asymmetry and can make it difficult for candidates to effectively navigate the recruiting process. If you’re interested in learning more about how to deal with headhunters and the key North American private equity firms they cover, you should check out our Private Equity Recruiting Course. In this post, we’ll name some of the key headhunters and cover some high-level detail attributes of headhunters. Key Headhunting Firms for Private Equity In the United States, which is the home to the majority of private equity mega funds and upper middle market firms, headhunting is controlled by a surprisingly small number of firms. There are just a handful of private equity headhunters that represent North American large cap and upper middle market clients. In total, almost 100% of >$1B private equity funds are represented by the same ten or so headhunters. Private equity headhunting is a very top-heavy business, with the same top four firms representing most of the large cap clients. In my view, the four main headhunting firms in private equity at the large cap and upper-middle market level are: Amity Search Partners CPI Henkel Search Partners Ratio Advisors This essentially means that if you want to go to a mega fund, you absolutely need to nail your 30-minute interviews with these headhunters. There is a very small margin of error. The other key headhunting firms include: Dynamics Search Partners (excellent for hedge funds) Gold Coast Search Partners Oxbridge Group Carter Pierce (west coast focused) Bellcast SG Partners SearchOne GoBuyside All of these headhunters are notable, but most of them only have 2 or 3 large cap clients at max. Note that a headhunter firm’s structure is remarkably similar to that of an investment bank. It is a commission-driven business where junior headhunters focus on execution and senior headhunters try to win new clients. Just as in investment banking, you will find that senior headhunters commonly leave to start their new firms. This is a people-oriented business with very low capital requirements. Once a top headhunter has a a list of trusted clients, it’s very logical for them to go off on their own. In recent years, this was demonstrated when Ratio Advisors spun out of Amity Search Partners and when Gold Coast Search Partners spun out of CPI. Ratio and Gold Coast both took several high-quality clients with them. Important Considerations When Dealing with Headhunters There are a couple of strategic observations that can be helpful to be aware of as you are going through your own recruiting process. Headhunters are compensated per placement and can receive 20-30% of a single year of salary I want to be clear that headhunters generally aren’t actively malicious actors. I have a couple of finance friends who went down the headhunter road and I would describe them as affable and reasonable. Unfortunately, the incentives at play ordinarily force headhunters to be incredibly sales-y. It is unlikely they will ever have your genuine career interests at heart and you should view them as a first round of interviews as opposed to a career counsellor. The goal of a headhunter is to efficiently place candidates at firms they represent. They want to make sure that the candidates showed to the firm are of an acceptable quality. They also want to make sure that the firms they represent have a high acceptance rate on their offers (i.e., every offer they extend to a candidate is accepted). The hasty nature of the private equity process exacerbates this dynamic. Some common headhunter behaviors to be aware of include: Headhunters may aggressively steer you towards certain firms because they think it will result in a faster placement for them. Headhunters may not show you to new firms once you receive an offer in order to preserve their clients’ acceptance rate (e.g., if you receive an offer from American Securities, they might not give you any other interviews so that you’re more likely to accept that first offer). Headhunters may quickly typecast you in order to pigeonhole you towards a specific client (e.g., keep you in the same geography or industry). Headhunters have the ability to screen and filter out candidates It is important to take headhunter interviews seriously. Some people take interactions with headhunters lightly and underestimate their influence on the process. Even if you’re a great candidate at a top firm and know your technical skills, you could easily get bounced if you butcher your behavioral interview with a headhunter. Private equity recruiting processes are often tightly controlled by headhunters. Networking is still important and helpful, but all candidates that get put in front of a buyside firm will have gone through a headhunter screen. Most of these headhunters have direct investment banking or buyside experience and many will dive into the strategic or technical parts of your deals. The small number of headhunting firms means that impressions can last a long time You should be careful to manage your communication with headhunters very carefully. I generally recommend not to even respond to headhunter emails until you’re absolutely certain that you will be recruiting soon. It can send the wrong message to take headhunter interviews and then ultimately decide that you want to postpone recruiting. Similarly, you will likely see the same headhunters and same people throughout your career. If you want to stay in private equity or move to a hedge fund after your associate position, you will be talking to the exact same people at the exact same headhunter firms. The buyside world is extremely small. The impressions and preferences you indicate to them at the start of your career will be pinned to your profile and referenced in your subsequent interviews with them. Further Reading These are just some of the most high-level considerations when dealing with headhunters. If you’d like to see a list of which firms each private equity headhunter represents or learn more about the recruiting timeline, you should check out our Private Equity Recruiting Course.

If you're interested in breaking into finance, check out our Private Equity Course and Investment Banking Course, which help thousands of candidates land top jobs every year. Overview There are two main categories of investment banks: elite boutiques and bulge brackets. Elite boutiques are smaller organizations that focus solely on investment banking, while bulge brackets are large firms that provide many different corporate finance solutions. In this post, we’re going to take a data-driven approach to assess private equity placement at the top elite boutiques. To set the stage a little, it’s important to realize that recruiting for and at elite boutiques can be a heavily nuanced process. The variance in culture is particularly noticeable at elite boutiques given their smaller size – a few large personalities can meaningfully change how recruiting processes are handled. This also applies to satellite offices at bulge brackets, where one MD or VP might dictate the entire office attitude. When I was recruiting for investment banking, I found that the bulge brackets tended to be quite similar in their persona. The bulge brackets all had a similar aura of intense facelessness that I assume all large corporations gravitate towards. On the other hand, the elite boutiques I interviewed with had more distinctive traits. Different elite boutiques had clearer values and culture. Evercore prides themselves as being collegial and actively helped us recruit for buyside jobs. Centerview leaned into being a highly intellectual firm that puts the client first. The Moelis bankers I met had a certain self-deprecating sense of work ethic that both intrigued and scared me. The main point is that despite being part of the same sub-category, each elite boutique provides a dramatically different work and recruiting experience. If you'd like to optimize your own private equity recruiting chances, you should check out our Private Equity Recruiting Course. Elite Boutiques in this Study In this post, we’re going to look at how the top elite boutiques place into private equity and examine why differences in recruiting performance might exist. We’ll be covering the following elite boutiques, which we would identify as the top elite boutiques in the investment banking industry. Lazard Evercore Moelis Centerview These four elite boutiques are the ones that most consistently place into top private equity firms around the globe. The notable exclusion from this list is PJT. Despite being a top elite boutique with phenomenal placement, PJT’s short history means that their lifetime placement numbers are still very low. Having been founded in 2015, there’s only a small number of analysts who have gone through recruiting. I will also note that my professional experience is U.S. based and so I likely have some biases with how this data is interpreted. Ranking Methodology To complete this exercise, we’ll be looking at LinkedIn data collected and analyzed by ListAlpha.com, a people intelligence platform that allows you to profile private equity funds and find potential introduction angles into those funds. To see their commentary on private equity placement, you can check out their blog post. For this study, we looked at placements at the very largest private equity firms, which we previously identified in this post. Please note that the methodology used in this post is different from the manual process we did for school placement, which assessed profiles based on actual company websites. The approach in this post using ListAlpha relies on self-reported information on LinkedIn. This may decrease the data integrity slightly, but we think the dataset is large enough where the takeaways are logical. In the outputs, we have included the per capita %, but this number can be a bit noisy given how it’s a static point (compared to what is essentially several years of private equity placement). Note that the employee number used to calculate per capita % includes all employees (not just investment banking professionals), so it is better to be interpreted as a directional figure. Private Equity Placement Data and Takeaways Lazard is the best overall placing elite boutique and dominates on a global basis. I am pleasantly surprised to see how strong Lazard’s placement is on a global basis. They absolutely dominate the global rankings, which largely comes from their absurdly strong European presence. The competitive landscape and ranking of elite boutiques differ all over the world. Lazard is likely the only elite boutique that is dominant in both North America and Europe. Lazard is by far the oldest of the top elite boutiques and has roots in Europe, so it is unsurprising that this is the case. Lazard’s European dominance is particularly evident if you look at the placement for the European-based private equity firms like EQT, Permira and CVC. At these firms, Lazard has more placements than the other 3 elite boutiques combined. If you start your career in Europe, it seems like Lazard is the elite boutique to be at. Lazard and Evercore are tied for #1 on a North American basis. When you double click on the U.S. placement, you see that Lazard and Evercore are the strongest when it comes to overall private equity presence. Both Lazard and Evercore have nearly double the placement of Moelis and multiples more than Centerview. This disparity in placement highlights how vastly different recruiting outcomes can be at relatively similar investment banks. What’s interesting is how different private equity firms can favor certain firms much more than others. Blackstone and Warburg disproportionately hire from Evercore, while Brookfield and Ares hire disproportionately from Lazard. It’s also worth observing that Lazard doesn’t have an advantage at the U.S. offices at European funds (e.g., Apax, EQT, Permira, CVC) Evercore is the best firm for U.S. private equity recruiting at the junior level. I asked the ListAlpha folks to provide this cut on U.S. placement at the associate and senior associate level because it’s what best coincides with my personal work experience. From my personal experience at Evercore and working in New York between 2015 – 2019, it seemed that Evercore was placing much better than other elite boutiques (and most bulge brackets). Having seen the data, what I think is actually happening is that Evercore’s success is a relatively recent occurrence. I think Evercore is dominant at the junior level in the U.S. because the firm is prominent now, but its overall numbers are still on par with Lazard because Lazard has been a top bank for a much, much longer time. Lazard has been a dominant force in the industry for a much longer time, while Evercore’s position as a top M&A firm is one that has emerged over the past decade. It actually wasn’t until 2019 that Evercore outranked Lazard on the Vault list (which I think is actually a great ranking with regards to prestige). Moelis is a modest third on an absolute basis, but places similarly to Lazard and Evercore on a per capita basis. I don’t think per capita information is flawless because there is a fair amount of reporting noise, but it serves as a decent benchmark. Moelis is a smaller firm, but its analysts still place reasonably well when they’re put through the recruiting process. My impression of Moelis is that they place extremely well on the west coast (and anecdotally it seems like they have a pipeline into Apollo and Silver Lake). In my opinion, I still think it’s overall better to be at a larger firm if the per capita figures are similar. It’s more beneficial to have alumni at a larger number of firms because it gives you more opportunities to reach out to people. For example, there are several firms where Moelis has zero alumni, whereas Lazard has at least one person at each of the top 20 firms. Centerview is not a private equity feeder, but is still a phenomenal investment bank. I’ll be honest, when working through this data, our partners at ListAlpha questioned whether we should even include Centerview in the screen. And their instinct had a lot of merit. Centerview simply does not place nearly as well into private equity. The placements they do have are largely U.S. based, as their European presence is still growing. A lot of this is by design. Centerview is the lifer investment bank. They make you do 3 years as an analyst (as opposed to two) and generally heavily discourage recruiting. They also pay top of street, in line with the top private equity firms, which disincentivizes people from moving to private equity. I can actually think of a few Centerview bankers I know who tried private equity and moved back to Centerview. I still think Centerview is a great place to grow your career, you might just not have the best odds for private equity recruiting. Conclusion In closing, it seems that Lazard is the overall best elite boutique on a global basis for private equity. Evercore is dominant in the U.S. at the junior level, while Moelis is still very respectable on a per capita basis. If you’re interested in doing data analyses like this one, you should check out ListAlpha.com. Their tool allows you to analyze the career trajectories of private equity professionals to help you understand which profiles and career paths to follow. Their tool allows you to research the previous work experiences of PE associates, which is tremendously helpful for understanding your potential career options or looking for an angle into a given fund.

If you're interested in breaking into finance, check out our Private Equity Course and Investment Banking Course, which help thousands of candidates land top jobs every year. Overview Throughout your career in finance, you’ll be asked to prepare several different kinds of deal summaries. When you’re preparing for private equity interviews, you’ll need to know how to summarize your investment banking deal experience and thoughtfully talk about the dynamics of each deal you worked on. You can check out a free preview of our Private Equity Recruiting Course, in which we walk through a private equity deal. When you’re on the job as an investment banking analyst, you’ll need to send out e-mails that summarize important public deals in order to efficiently inform your team. When you’re building an investment committee memo in a buyside role, you’ll be asked to summarize relevant precedent transactions or make case studies on similar investments in order to help validate a thesis. To help you with these tasks, we’re going to explain how to put together a simple deal summary. There’s not really a strict format and different firms will do things differently, but below are some helpful guidelines I try to refer to. Please note that the term “deal” is relatively broad here and covers all forms of corporate transactions, including: Mergers Acquisitions Private equity investments Equity or debt financing deals (e.g., an IPO) Corporate partnerships Determine the Purpose of the Deal Summary The first step in creating a deal summary is to think about the purpose of the summary. In an interview, you’re only going to have 2 or 3 minutes to give an overview of the deal, so it shouldn’t be very long. You’ll need to know the deal in its entirety, but your initial presentation of the deal should be concise. In a private equity interview, walking through your deal is probably the most common technical question after the Paper LBO. Some deal summaries will become full-on case studies that could be 10-20 pages. Some summaries will just be a one-page write-up that gets appended to an e-mail. You should really think about who is reading the summary and what information they are really looking for (a senior banker who only wants the headline? An interviewer who is trying to evaluate you? A VP who needs to be more detailed and knowledgeable about the topic?) Context really matters. As usual, the best approach here is to look for precedents – look for examples of appropriate deal summaries for that purpose. Think About What to Include The second step is to list out and organize all of the information you might want to include in the summary. A good trick for this is to just look up the company’s investor presentation or press release and see what information they decided to include. Also note that there are many different kinds of deals and contexts out there, so you won’t always be able to consistently touch on everything from each category. An IPO won’t have a strategic buyer; an equity financing might not have a relevant debt multiple; a private company deal might not have publicly available EBITDA. Below is a list of the key categories I try to think of when putting together a summary. Business Model Goal: Give a clear description (in 1-2 sentences) of how the company makes money Explain what specific functions in the value chain the business does (designing products, manufacturing, distributing, etc.) Include any key customers or suppliers that can help explain the business or give context Involved Parties Goal: Articulate the key parties and stakeholders in the transaction, which may include: Buyer Seller New and existing investors Any other key stakeholders (e.g., founder, competitors, impacted political groups) Deal Rationale / Investment Highlights Goal: Summarize the 2-4 main conversation points of the transaction, which may cover questions like: What did each party get out of the transaction? What was the strategic rationale of each party? What were the characteristics of the deal process (auction, proprietary, competitive process, etc.)? What was the IRR or MoM of the transaction? What were the financing elements of the deal? (cash / stock mix, terms of financing package) Financial Metrics Goal: Touch upon the key financial metrics of the deal Enterprise value Revenue (can be used to calculate EV / Revenue) EBITDA (can be used to calculate EV / EBITDA and EBITDA margin) Revenue YoY growth Debt multiple In an interview setting, you’ll want to also discuss your involvement on the deal and the specific tasks you did. Your Involvement Goal: Convince the interviewer you actually contributed to the deal by discussing what you did What were the specific tasks or elements of the project you were responsible for? Who did you interface or directly work with? What are some obstacles you had to overcome to get the deal done? If this is an e-mail summary, you’ll likely also want to attach some relevant documents or include helpful articles if there are any. For example, if it’s a public company, they will be required to post company filings regarding the transaction. Company filings (e.g., DEFM14A, S-4, etc.) Company press releases Equity research Relevant news articles Example #1 (Private Equity Transaction in an Interview Setting) Let’s go over an example of how you might walk through a deal in an interview setting. We’ll cover Thoma Bravo’s acquisition of Calypso Technology in March 2021. We’ll present it as though you were an investment banking analyst on the deal. Question: Could you please walk through this first deal on your resume regarding Thoma’s acquisition of Calypso? Answer: Yes, I’d be happy to. Earlier this year, I was involved on Thoma Bravo’s $3.75B acquisition of Calypso Technology, a SaaS company that provides trading, risk and compliance solutions for financial institutions. Calypso is a B2B business whose flagship product, Bank-in-a-Box, helps companies with all aspects of their day-to-day financial management. For example, they help companies with electronic trading, risk management of derivatives, and cash management. Calypso designs and distributes its software products, which are used by over 40,000 market professionals. I was an analyst at Jefferies and we co-advised Thoma Bravo with Evercore on the transaction. My primary task was assisting with the development and sanitization of the buyer’s operating model. I went through the data room in order to assess potential headcount reduction and built out schedules to help underwrite the EBITDA forecast. Thoma Bravo acquired the business at an enterprise value of $3.75B, which implied a ~37x EBITDA on the business’ $100mm of LTM EBITDA. Thoma acquired this business from Bridgepoint and Summit Partners, who paid $800mm for the business in 2016. The transaction underwrote meaningful EBITDA growth over a 5 year horizon, largely from cost savings and realized operating leverage. Thoma typically invests in businesses with this kind of stable subscription-based model and Calypso’s net retention rate is among the best in the industry. Additional Resources: Thoma Bravo Press Release: https://www.thomabravo.com/press-releases/thoma-bravo-to-acquire-calypso-technology-from-bridgepoint-and-summit-partners Bloomberg Article: https://www.bloomberg.com/news/articles/2021-03-19/thoma-bravo-is-said-to-near-3-7-billion-deal-for-calypso-tech Example #2 (Written Deal Summary) To give another example, let’s look at a growth equity financing deal and how one might summarize this in an e-mail. We’re going to look at Splice’s Series C funding round. Splice is a private company, so there is a limit to the amount of detail we can include. Investment Highlights In March 2019, Splice raised a $57.5mm Series C round from a consortium of venture capital firms led by Union Square Ventures and True Ventures USV was an initial investor of Splice back in 2013 Round also included Matthew Pincus, LionTree, Lerer Hippeau, Founders Circle Capital, Flybridge and DFJ Growth Estimated valuation of $500mm (per Bloomberg) Funding raised to date of $105mm Splice is an online platform and marketplace that helps musicians purchase sounds, download instrument presets, and rent digital instruments Splice has been described as a “GitHub” for music producers Investment will be used to develop additional products and features on the platform – the money will be used “to improve the existing marketplace and workflow tools” Business Model Splice designs and maintains a digital platform in which users can buy sounds (Splice Sounds), rent digital instruments (Rent-To-Own), and collaborate with other musicians (Splice Studio) Splice charges users a monthly subscription fee (~$10-$20 depending the plan) to get access to the company’s digital platform Customers are musicians who are looking to buy sounds from the marketplace “Suppliers” are musicians and audio engineers who upload these sounds, who then earn a share of the marketplace revenue Splice has paid $15mm in royalties to these music creators As of 2021, there are ~4mm Splice users, who collectively download more than ~400mm samples per month Company has 140 employees and was founded in 2013 by Steve Martocci, who previously founded and sold GroupMe Additional Resources TechCrunch: https://techcrunch.com/2019/03/20/splice-sample-marketplace/ Music Business Worldwide: https://www.musicbusinessworldwide.com/how-splice-which-paid-out-11m-in-royalties-to-musicians-in-the-first-9-months-of-2020-wants-to-help-a-million-more-people-to-make-music/ Variety: https://variety.com/2019/music/news/splice-raises-57-5-million-in-latest-funding-round-1203168844/ Bloomberg: https://www.bloomberg.com/news/newsletters/2021-02-21/want-to-make-a-hit-record-from-your-bedroom-ask-splice USV: https://www.usv.com/writing/2013/10/splice/

If you're interested in breaking into finance, check out our Private Equity Course and Investment Banking Course, which help thousands of candidates land top jobs every year. Overview The Rule of 72 is a clever mathematical formula that can be used to determine an investment's compound growth rate. The Rule of 72 approximates the annual return of an investment, making it extremely useful for Paper LBOs. The Rule of 72 is just a mathematical formula and can be applied to anything that grows, such as the economy, a company's EBITDA, population, number of Instagram followers, etc. The Rule of 72 estimates the number of years required to double the value of an investment at a fixed compound growth rate. To use the Rule of 72, we divide 72 by the number of years that an investment is held for. Note that the Rule of 72 only works if the investment doubles in value over the course of the period. Question: What is the IRR of an investment that doubles in 5 years? Answer: We simply take 72 and divide by 5, as the investment doubles over 5 years. The answer is 14% IRR. If you were to calculate this in Excel, you would realize the actual IRR is 15%. We can also use the Rule of 72 to determine the number of years that are required for a number to double at a given growth rate. Question: We forecast our portfolio company's EBITDA to grow at 8% annually. How long will it take for the company's EBITDA to double? Answer: We divide 72 by 8%, which is 9. Therefore, it would take 9 years of 8% annual growth for EBITDA to double. Yes, it's that simple. We can also use the Rule of 114 for 3x and the Rule of 144 for 4x (which is just the Rule of 72 twice). Said more explicitly, we can calculate the rate that something needs to grow at to triple by using the Rule of 114. Rule of 72 MoM and IRR Chart Question: Our investment has increased from $250mm to $750mm over the course of 10 years. What is the approximate IRR of the investment? Answer: We can quickly calculate that the value of the investment tripled ($750 / $250 = 3). We then use the Rule of 114, dividing 114 by 10 years. As a result, we get 11% (actual IRR is 12%). Learn how to do a full LBO and prepare for case study interviews in our Private Equity Recruiting Course.