| Topic Name: |
LBO v. VC |
| Message Name: |
VC v. LBO: The Difference |
| Date Posted: |
05/18/2001 |
| In Reply To: |
I'll be starting at a BB this summer and would eventually like to make the move to either an LBO shop of VC firm.
1) What are the major differences between the two? VC firms finance deals, but then how are they different from banks or other lenders?
2) For an analyst (which is what I assume I'd be with two years IB experience), what are the major differences in terms of the responsibilities?
3) I had planned on going into an M&A group because I've been told that is the best prep for PE. But then I hear that if I want to go into LBO, work in financial sponsors or high yield. And if VC, an industry group. Please clarify.
THANKS! |
| Message: |
The principal difference between LBO and VC investing is the stage of a company's life cycle that you're investing in. Think of it as spectrum: on the left you have seed financing and on the far right you have LBO investing. A company seeking seed financing is typically at the product/service validation phase and doesn't have any revenues let alone profits. For hefty returns, investors will provide funding to get the idea from concept to start-up. In contrast, LBO deals are typically done for companies that have an establish profit record, the reason being that if the investor group leverages it up, it needs to be able to pay the debt back.
While I am not in the field myself, I have met plenty of people who are in the LBO business. The common experience seems to be M&A, leveraged or acquisition finance, and transactional law.
Regarding VC positions, it has been my observation that indepth industry experience is a necessity due to the technical aspects of such investments. Bascially, you need to be able to validate if a new product/service can be commercialized. That's why you find that VCs tend to be engineers and have extensive line experience.
Hope this was helpful.
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