Hi there,

(1) Many people from PE/VC have an investment banking background, and consultants may have advantage in financial modelling. Is financial modelling always a must, and what key skill can consultant leverage?

Financial modelling is a must when you are in that role. However, it is not a must prior to the role. You will have to learn it and get good at it. If you know it beforehand, you will have higher odds of getting the role and succeeding in the role. However, you do not need it in order to get the role.

(2) Is consultant level (associate level at McKinsey) the best level to switch? I've heard that switching career from Manager at consulting to PE/VC is harder, as the skill set are not necessarily transferable. As more junior consultant, you enter PE/VC at lower ranks but have space to further build skills.

It is genuinely going to depend on you and your situation. However, yes, generally speaking, the hardest time to join consulting or make a switch is at the project lead/manager level

Hi,

Giving my perspective having worked in BCG's PIPE practice and also having considered exits to PE / VC. 

(1) Many people from PE/VC have an investment banking background, and consultants may have advantage in financial modelling. Is financial modelling always a must, and what key skill can consultant leverage?

• Firstly, I do not think consultants have an advantage in financial modelling vs bankers
  • This is because consulting is way more varied than banking and entails multiple different activities/tasks that do not involve financial modelling
  • If you entered MBB as a junior consultant in the generalist role - you would not have done more 3-statement models (let alone an LBO model) vs a banker
  • The other thing is that consultants often approach modelling from an 80/20 POV - if its good enough, it works. This means often that our models may not always be of the same standard in terms of elegance / formatting / structure vs. what a banker would do
• Secondly, whether financial modelling is important really depends on the role
  • For value creation / ops team, this is less crucial
  • For deal team side, this is something you need but not something that is an ultimate deal breaker based on the people I know who have made the transfer to deal team
  • Take note for VC, the kind of modelling and diligence you do as part of the deal team is often not to the same depth/extensiveness (esp in sourcing stage) vs PE - for various reasons
• Thirdly, skillsets you can leverage - again depends on the role
  • Deal team: 
    • Business sense/judgment
      • ability to critically think and assess a business, come up with a thesis
    • PMO 
      • alot of what junior PE people do is manage process)
    • Relationship management
      • less with the CXO level of target/assets, but still important for junior stakeholders for gathering data etc
      • For VC, this is particularly important where sourcing becomes a big task and you interact a lot with founders
  • Ops/value creation team
    • Problem solving
      • Essentially using your problem solving skills to identify levers to increase value/profit
    • Relationship management
      • You will have to deal with the asset stakeholders/founders - a lot of the ops team role is about influencing
    • PMO
      • You may also have to manage projects/programs, e.g. it is not uncommon for value creation teams to hire MBB/consulting firms to strategize/implement value creation levers

(2) Is consultant level (associate level at McKinsey) the best level to switch? I've heard that switching career from Manager at consulting to PE/VC is harder, as the skill set are not necessarily transferable. As more junior consultant, you enter PE/VC at lower ranks but have space to further build skills.

• It is more ideal to switch the more junior you are - and typically this applies to many industries, not just PE/VC
• In SEA, it is more common for consultants to join VC than PE, as VC requires less ‘hardcore’ banking skills for seed/early stage diligence and modelling

Happy to chat more - just pm me

All the best!

Dear candidate,

a) PE/VC, financial modelling is really great most associate roles or manage roles require you to be fully familiar with it,but you could do for example if you wanted to CFA, or accounting certifications alongside to cover this. Ideally though, pick it up for free from your job.

Consulting skills: so many are transferrable. Your ability for client leadership; meaning guiding conversations, discussions and management; improvments at portfolio companies at senior level with a bigh picture view of operations. Also working structuredly; committedly and clearly on the right questions.

b) stay on as long as you want in consulting; eg the longer you stay on the higher a role you can get in PE, in PE there are few entry opportunities because funds are tiny, they hardly hire, they have already junior staff and promote from within. However it is not as much fun to work for long in a junior role, therefore if you are comfortable in consulting and can be promoted quickly; do this and then network and get a more senior role in PE later through networking. For example if you switch to PE but you are not as naturally comfortable with getting promoted and you are overall stuck at a low career level then it is much more difficult for your overall career to get ahead. Therefore if you are happy with consulting; stay on; then network and switch. Remember also funds are relatively small compared to consulting firms there are the same people you work with and promotions can seem more personal and very limited. 

c) This besides; note PE is a great industry, in particular the topic of value creation is so exciting and is one of the many reasons why it is so suitable for consultants. you can be so creative; so impactful, and very senior executive-minded, when solving PE questions. You can learn about entire industries and understand what makes companies profitable and how you can advance them fast.
 

c) Cases for example can give you a good first idea of PE style work, too, because in cases we often take a big picture view on a company. So if you enjoy cases it is a good start to say PE might interest you. Also note that there are only a small number of top performing PE and VC funds, many funds make almost no notable margin for investors, and a few funds make a huge profit for investors. It is important to be with those funds that makea huge profit, aim for these.

Best regards

1. Consultants do not have an advantage in financial modelling, quite the opposite. Where they may have an advantage is is business model and industry understanding, competitive analysist, etc. Financial people model better. Consultants are better at understanding (or estimating) how some fundamental drivers will behave in the future.

2. Yes, you are correct. It's easier to move when you have less experience.

Financial modelling may not be super critical as a requirement to join, but I would say if you manage to join a PE/VC you would want to get familiar with it as you ramp up your role in PE/VC. There’s likely a great level of detailed discussion on structuring deals with your colleagues and the ability to run a financial model goes hand in hand with structuring deals. 
 

In a PE/VC environment, once you get to a fairly senior level then networking and business development competencies become fairly critical. Some consultants may have a strong network through personal or client relationships, but the skillset required does tend to diverge as you get Manager or beyond Manager