Despite market uncertainty and volatility in 2021, private investing firms were able to find success, leading to an optimistic outlook for 2022. In order to meet their organizational goals this upcoming year, firms are eager to onboard new talent. This means that if you’ve been contemplating a move into or across private investing for a while, now may be the right time. Before jumping straight into your job search, you should first determine which area of private investment you want to pursue—and whether that means staying in one lane or diversifying your experience.
“Many people who are looking to transition to the buyside, specifically private investing, are told they have to follow specific paths,” says Eric Vaheb, a Director within The Execu|Search Group’s Financial Services division. “While these firms provide slightly different offerings, they have the same end goal to deliver growth solutions to companies. You can make the choice between private equity, private credit, and venture capital feel less daunting by understanding what area interests you and learning what’s best suited to your skillset.”
So, how do you decide which area of private investing is the right fit for you? Here’s what you need to consider:
Private equity firms either invest in a private company as a stakeholder or take majority control of a company altogether. In fact, this area of private investing, where companies target middle-market companies, is currently the fastest-growing area in the field. “Typically private equity buyout firms will invest in companies that have already established themselves to some degree, so by making actionable changes, you’re able to maximize the profitability of the portfolio company and help grow it to new heights,” says Eric. “Private equity firms are a great fit for someone with a management consulting or M&A investment banking background. This is especially true for individuals who like to be hands-on, more operational, and focus on a smaller set of companies.”
Venture capital firms invest in early-stage companies in order to make major impacts in their infancy. The key difference between venture capital firms and private equity firms is the types of companies they invest in. While private equity firms typically invest in established or cash-flow positive companies, venture capital firms invest in newer companies with a tremendous amount of growth potential. Because of this, there’s considerably more risk working for a venture capital firm than there is at a private equity or private credit firm.
With that being said, the high-risk, high-reward nature of a venture capital firm can pose a lot of exciting opportunities for you. “You get to be much more hands-on, both in the early phases and as the company scales,” says Eric. “Because of this level of ownership afforded to you at a venture capital firm, those with a management consulting and/or banking background would be a great fit for these opportunities.”
Unlike private equity and venture capital, private credit firms offer debt products to help finance acquisitions or other general corporate purposes. Despite this difference, they both need each other in order to succeed. “You can’t have private equity without private credit because it’s an integral part of the deal process,” explains Eric.“Credit adds another avenue to finance a firm’s needs without diluting ownership, making it an attractive and utilized product by most private companies. In fact, most private equity transactions use private credit because it is a way to leverage the deal and maximize profits.”
If you’re interested in having a broad overview of private investing, private credit might be the right area for you. “Finance professionals interested in private investing can find a lot of reward working in private credit because it offers the opportunity to invest across the capital structure, giving you exposure to both credit and equity,” says Eric. “They’re great opportunities for leveraged finance professionals or coverage bankers passionate about private companies and cross-capital structure solutions.”