Careers in Australian Finance - Private Equity & Venture Capital

Careers in Australian FinanceThis Post is part of the Careers in Australian Finance series.

What is Private Equity & Venture Capital
Private Equity and Venture Capital Firms are very similar types of firms that focus on companies in different stages of their development. Private Equity Firms focus on more mature businesses, while Venture Capital Firms focus on firms in their earlier phases. Both Private Equity and Venture Capital firms will purchase large stakes (often 100%) in companies, and use their management expertise to try and drive returns on their investments. Private Equity firms will usually purchase companies using a capital structure that contains a large proportion of debt vs equity, and will try to drive returns predominantly through operational improvement and leverage. Venture Capital firms will generally make investments based on a belief in the commercial viability of a new product, and will feed the company money as it requires it in order to support the development of the product and business. For Junior Analysts you will build Financial Models and prepare investment papers. More senior Private Equity and Venture Capital workers will spend time managing investments and sourcing new deals.

These career paths are quite highly sought after, as the work is similar to a lot of the Corporate Finance and M&A work, but the pay can be absolutely phenomenal (talking 8 figures) if you are a senior manager in a successful Private Equity or Venture Capital firm that has some big successful deals. Juniors generally start on 6 figure salaries plus bonus, however you generally need some experience before being eligible for these roles. To give you some perspective on the potential pay, some big companies such as Google received Venture Capital support when they were being founded, and the Venture Capital firms involved can get cuts up to 50% of the equity in the business or more for their initial investment. Think about the returns a company would have got for investing $500K in Google as a start-up for 50% of the company (I’m not saying this is what happened, but this is a possible theoretical arrangement). That company is now worth US$162 Billion… Not every deal is going to turn out like this (in fact in Venture Capital most go bust), but you should be able to get the picture on the pay proposition if things work out well… Private Equity is not as high risk, but does not offer quite the same potential returns either. Private Equity deals generally aim for approximately a 20-30% return per annum over a 5 year investment horizon, however often charge up to 2% of funds under management plus a 20% performance fee on profits, so if you have a successful deal that is large enough the fees generated can be massive.

The hours in these sorts of firms vary. Venture Capital firms rely on an entrepreneur to run the business development and therefore generally provide guidance which is less time consuming, whereas Private Equity firms generally manage the companies they invest in, which leads to some substantial hours, comparative to or even exceeding those seen in M&A. 

What do I need to do to get a job in Private Equity & Venture Capital?
In Australia the Private Equity and Venture Capital markets are relatively undeveloped compared to the rest of the Western World, so there are not that many jobs in these fields going around, especially for Venture Capital. As such these Firms are quite selective in their recruitment, and I have generally not heard of people getting graduate jobs directly in these sorts of businesses. In order to break into these fields you will need to generally have at least two years of Finance related experience, and that experience will need to be accompanied by strong financial modelling skills and experience, and a strong academic background. These firms like to recruit people who have worked in Corporate Finance or specifically M&A previously, but will consider people from different career paths if they are impressive enough. Studying the CFA will help a lot in your cause, predominantly because it displays an ability to work and play hard, but also because of the knowledge you gain from the course work. This is a tough field to break into, and even more so to advance in.

Who is hiring in Private Equity & Venture Capital in Australia?
There are no firms that consistently hire Junior employees into Private Equity and Venture Capital, so the best advice is to keep your eyes peeled on Job Boards. All the multi-national investment banks run these businesses to some extent, and my understanding is that Credit Suisse is one of the better firms for Private Equity globally (they also do all the Corporate Finance and Broking roles, but I thought I’d mention them particularly at this point), along with Goldman Sachs. As well, AVCAL is a great place to find out more about these industries. The link below takes you to their site, landing on a list of their Partner firms: