Switching from Consulting to Private Equity

Doing the Greenback Boogie: Switching from Consulting to Private Equity

Private Equity (PE) funds represent some of the most lucrative players in the business world. It’s not uncommon for total comp in PE to go into the seven figures once you reach the Principal level – hello carried interest (a direct cut of deal profits).

 

In fact, perhaps ironically, a project I worked on for a brand owned at the time by a PE fund motivated me to leave consulting. After our project, the fund sold the company for a 10x multiple, nowhere near what Bain was paid for contributing the insights that drove the multiple. I discovered something I never knew before: I wanted to be on the owner side of a business, instead of the advisory side. I wanted my comp to be deal-related and value-related, not just time and service related. So, in an indirect way, even though I didn’t leave to go directly to PE (I ended up building my own small family office that buys companies and real estate – another story for another time) – PE was one of the reasons I left Bain.

You may be in the same place – looking to leave consulting and break into PE. Or maybe you have more foresight than I do, and you’re interested in going TO consulting precisely so you can leave someday for the PE game. Well, Private Equity attracts some of the brightest (and most competitive) minds around. So if you’re looking to go from consulting to PE, how do you it? And why?

First off, some hard truth. PE funds in general are not automatically in love with management consultants. Why? They care less about your strategic and operational experience than your modeling chops, and bankers are on par better at modeling than consultants. You change this calculus by proving you have killer financial modeling skills (you better know how to build a LBO), showing experience working on the valuation/advisory side of multiple transactions, and highlighting the fact that you’re willing to work banking hours. Even then, it can be an uphill climb, since you’re going up against Analysts and post-MBA Associates from bulge-bracket banks.

But if that’s the issue – skills and demonstrated commitment – it’s not impossible. Therefore – what do you have going for you as a management consultant looking to transition over to PE?

First, whether at a small or large fund, you’ll spend a vast majority of your time building models in Excel and creating decks in PowerPoint. The big challenge comes in the jump you have to make between consulting modeling skills and PE financial modeling skills. Consulting just doesn’t require the level of mastery in creating certain models that PE does. However, it does give you a solid foundation from which to quickly up-skill. And, you’ll be more holistic when you’re thinking about operational upside and modeling that.

On the bright side, after a couple of years at a top consulting firm, you won’t have any issues translating your presentation skills to PE. In addition, at larger funds, you’ll be interacting with Finance Directors and CEOs even at a junior level. You already have practical business experience, and the senior-level client management skills you honed in consulting will serve you well here.

Note: If you don’t have previous banking experience, leaner, smaller firms – where you’ll also have to conduct due diligence and deal financing – can be a particularly hard sell unless you come from an extensive rotation in a group on sequenced due diligence like the PEG (Private Equity Group) at Bain.

In addition, as a management consultant, you have better networking opportunities than most. Partners at your firm (especially MBB) can connect you to their counterparts in PE, and you may have even had investment banks as clients.

So, a quick recap of what PE firms are looking for from management consultants:

• Killer financial modeling skills
• Advanced business understanding to quickly spot value
• A commitment to a 24/7 work lifestyle
• An interest in quantitative > qualitative work

Other topics that might interest you:

• Management Consulting vs Venture Capital
• 3 ways financial advisory consulting bests strategy consulting
• 5 reasons to choose strategy consulting over financial advisory consulting