Alex Choi: Volition Capital
Chapter 1: Career Paths Within Finance
Lesson One: Recruiting Season
- Recruiting season for junior summer internships typically kicks off in sophomore spring. This accelerated timeline can be overwhelming, especially when the sophomore internship may not yet be solidified and future career path is still uncertain.
- In many schools, the traditional and more prominent path for business majors is to go into investment banking or consulting. These two career paths tend to have a more structured cycle, where firms may come on campus for informational sessions and post opportunities on your school’s career portal.
- Recruiting is definitely a learning process through a lot of trial and error. As sophomore summer internships lack a formal recruiting process, the best way to go about finding an internship is too cold email alumni. Although the response rate usually ranges from ~5-10%, persistence is key. After you receive a response, set up an intro call to learn more about the role.
- Having internships before your junior summer will give you the experience and relevant technical skills needed to excel in your next role. Spending time in different roles can help you figure out what parts of a job you like or dislike and help determine where your personality and ambition align best for your long-term career goals.
- Before recruiting for junior summer internships, it is useful to do some research into the vast career paths within finance.
Lesson Two: What are the different career paths within finance?
- Before your junior fall semester, your knowledge of finance career paths can be limited to investment banking; however, after looking deeper into the available career paths, you may realize that there could be a better fit elsewhere.
- Before focusing on a specific division or role, it is important to understand the different career paths within finance. Finance roles, for the most part, can be bucketed into three categories: corporate development, sell-side, and buy-side.
- In corporate development, your goal is to improve the financial and operating performance of the company through strategic initiatives such as partnerships, mergers & acquisitions, or restructuring(1).
- The sell-side refers to firms that deal with the creation, promotion, and selling of traded securities and provide advisory services for mergers and acquisitions. The sell-side comprises of investment banking firms(2).
- In investment banking, you assist corporations and institutions in capital raises, mergers & acquisitions, and advisory services.
- The buy-side refers to institutional investors who raise money from investors and invest that money across various asset classes. The buy-side comprises of venture capital, private equity, or hedge funds(3).
- In venture capital, your firm invests in early-stage companies that are pre-revenue and have a high level of risk.
- In private equity, your firm invests in later-stage, mature companies and takes control of the company, adds debt to the balance sheet, and utilizes the cash flows to pay down the debt and exit with a return.
- In hedge funds, your firm invests in all types of securities such as stocks, bonds, derivatives, currencies, and real estate.
Chapter 2: Venture Capital
Lesson One: What is venture capital?
- We mentioned what venture capital was in the previous post but let’s dive deeper. A venture capital firm raises money from limited partners such as endowments, public pensions, high net worth individuals, and foundations to invest in promising companies and earn returns for their investors. Every investment has two parties that come to the table, the entrepreneur and the venture capital firm.
- Venture capital firms can have several funds of pooled capital, where they manage portfolios of companies that are in different sectors, such as healthcare, consumer and retail, and technology.
- Every fund has a life cycle that can span from 5-10 years, where the firm must generate returns to pay back their investors. The hopeful exit for portfolio companies is to either go public or strategically get acquired at a promising multiple.
- You might be curious how venture capital firms keep the lights on. Generally, the firm takes a management fee of ~2% of the raised money to cover company expenses. The profits after the initial capital are paid back to limited partners, and split 20/80, are also known as carried interest.
- Working on the buy-side can be stressful as your firm must answer to its investors. Although there is a high risk, this form of investment is another way for investors to diversify their portfolios which may be spread across stocks, bonds, and real estate.
- On a final note, venture capital firms could return 20%+ on average while the stock market only returns ~7% annually.
Lesson Two: What is growth equity?
- Before explaining what growth equity is, you must understand that venture capital is an umbrella term that comprises all stages of investing.
- In venture capital, there are different stages of funding – angel, seed, Series A, B, C, etc.— investments at these various stages are referred to as angel investments, venture capital investments, and growth equity investments.
- Angel investors are often retired entrepreneurs or executives who fund companies at the seed stage, aka the earliest stage, where the companies are pre-revenue and have an idea for a product or service(4).
- Venture capital investors typically invest at a later stage than angels, where the company is at the stage of executing the idea, but are not profitable yet.
- Growth equity firms invest at a later stage than venture capital investors, where the companies have a proven track record and the financials to support them.
- Growth equity investors try to minimize risks and achieve venture-like returns by looking at companies that have scaled while being capital-efficient or bootstrapped.
Lesson Three: Investment Thesis
- Every firm has its own approach and investment style. Venture capital firms invest in many companies with the hopes that a few become “unicorns,” or home runs.
- ‘Unicorn’ is a term used in the venture capital industry to describe a startup company with a valuation of over $1 billion(5).
- In contrast, growth equity firms are more selective as they write larger check sizes. They take a minority stake in the company, which means they don’t get as involved in the day-to-day operations as a private equity firm would.
- They identify high-growth companies that have clear trajectories, the ability to capture more market share, and the potential to scale.
Chapter 3: Understanding the Basics of Growth Equity
Lesson One: The Journey to Growth Equity
- When applying to firms during your junior fall semester on your career portal, there may be a heavy concentration of opportunities in investment banking, consulting, and corporate finance roles. However, look into whether your school has opportunities in venture capital, and specifically growth equity.
- Before interviewing with Volition Capital, it is helpful to familiarize yourself with the terminology of the venture capital world in order to understand what the role entails.
- Growth equity is unique from an investing standpoint. It sits in the middle of traditional venture capital in the early part of the spectrum while private equity is on the opposite end. As venture capital is not a common career path followed by graduates immediately out of school, only a few can speak to these experiences.
Lesson Two: Terminology in Growth Equity
- A crucial part of interview preparation is understanding the metrics and terminology in growth equity. After reading various sources, please see below a quick 101 compiled on some vocabulary that one should be familiar with.
- When a growth equity firm screens potential companies, they prioritize understanding the potential and scalability of the product or service. To do this, they first assess the market size. Let’s use the example of a restaurant payment software company based in the US. Let’s take a top-to-bottom approach and looking at its Total Addressable Market (TAM), Serviceable Available Market (SAM), and Serviceable Obtainable Market (SOM). TAM would be the global demand for this type of software. Let’s imagine the market size is $100 billion globally. As the company is based in the U.S., the next step would be to determine SAM. SAM is the demand in the U.S. so for this example, we will estimate it as $40 billion. The last and most important step is the portion of this market we think we can capture, which is SOM. Usually, taking 1% of market share is ideal, equating to ~$400 million.
- Once on the job, you will realize that the terminology and metrics studied in preparation for your interview/position at Volition are quite relevant in conversations with CEOs and entrepreneurs as they talk about performance metrics.
- Certain performance metrics you should know are Monthly Recurring Revenue (MRR), Annualized Run Rate (ARR), Churn Rate, Burn Rate, Customer Retention Rate, Customer Lifetime Value (CLV), Average Sales Cycle Length, and Customer Acquisition Cost (CAC).
- MRR is revenue in a given month that is contracted and recurs every month.
- ARR is multiplying MRR x 12.
- Churn Rate is the rate at which the company is losing customers or revenue through subscription cancellations.
- Burn Rate is the amount of venture capital cash used or “burned” in a given period.
- Customer Retention Rate is the rate at which customers renew their subscriptions.
- CLV is the projected revenue a customer will bring during their lifetime.
- Average Sales Cycle Length is the average number of days taken for a lead to convert into an active paying customer.
- CAC is the cost of acquiring a new customer.
Chapter 4: The Internship Experience at Volition Capital
Lesson One: Day-to-Day Responsibilities
Part One: Software & Tech-Enabled Services Team
- Despite the pandemic hitting right before the summer internship, it did not affect the interns’ experience at Volition Capital. While the first half of the internship was virtual, some interns signed leases in Boston to fully commit to the internship experience and went into the office during the second half.
- The internship was broken up into two rotations that gave interns the opportunity to spend ~5 weeks with both of the investment teams: the Software & Tech-Enabled Services Team and the Internet & Consumer Team. They were all assigned a mid-level and junior-level mentor to coordinate projects they worked on and to answer questions.
- The first rotation was with the software team, where some interns focused on healthcare software. Junior mentors gave a daily task of sourcing ~10-15 companies with high growth and capital efficiency. The companies would ideally have exponentially increasing headcount with little to no raised capital.
- The scope of companies identified ranged from practice management software to remote patient monitoring software/healthcare data analytics. To provide some context, healthcare management software facilitates medical billing, patient record portals, and appointment scheduling. Remote patient monitoring software tracks patients and transmits patient data electronically for clinicians to oversee. Healthcare data analytics helps one understand historical data patterns to utilize and transform data into actionable insights.
- Aside from sourcing, deal execution is another important aspect of the job. This summer, an intern assisted with due diligence on a live deal, specifically a digital asset management platform. This platform stores, manipulates, and distributes media and digital assets such as pictures, videos, PowerPoints, and more. Analyzing the competitive landscape, he outlined other software offerings, ratings, and their pros and cons. He analyzed what industries this type of software catered to, and made graphs for our decks.
- Most importantly, interns participated in phone calls with industry experts. They noted trends, expressed opinions, and discussed the future of digital asset management. They created summaries which were distributed to the internal investment team.
- Our company held a teach-in for the interns, where they worked on an investment thesis for a sector of interest and presented it to us. For Alex, his topic was remote patient monitoring where he outlined how COVID-19 accelerated the digital transformation of the space so that the future of healthcare will focus on preventative, not reactive care.
- Sourcing, deal execution, and teach-ins were the main components of the internship but one of the most exciting parts can be jumping on calls with CEOs and founders alongside analysts. The CEOs provided run-downs of their companies, backgrounds, products, or services offered and what problems they wanted to fix.
- After the end of the first rotation, some interns joined the internet and consumer team. Though the first rotation was virtual, the software team did an excellent job of communicating and engaging with interns in gaining exposure to all facets of the job.
Part Two: Internet & Consumer Team
- Some interns had the opportunity of working a few weeks in-office during this rotation despite new social distancing rules in place. They appreciated the in-office environment: getting to know the team’s personalities, communication styles, the office’s physical layout, aesthetics, and views.
- During this half of the rotation, interns sourced digital insurance companies, which were direct-to-consumer. Instead of having traditional agents laying out your insurance plan options, these companies used apps and websites to offer a marketplace for health insurance, auto insurance, life insurance, and renter’s insurance. Some notable companies in this space are Lemonade, Root, Next Insurance, and Oscar Health.
- Interns noted that the most valuable part of this rotation was performing due diligence. The mid-level mentors assigned analytical tasks that first-year analysts typically complete. While complex, these exercises were essential practice and a prerequisite for the work that follows.
- For example, an intern assisted on a live deal involving a carwash membership software. The process included cold-calls to car washes to understand the details within this industry. He took notes on current trends, pain points, and information on how they leverage technology and software to streamline their processes. All in all, he called hundreds of car washes to gather ~15 responses. On the same deal, he conducted a take-rate analysis. For those who are not familiar, think about companies like Amazon or eBay that sell goods in various categories. Out of total sales, they take a percentage value of the transactions that occur on their platforms. This is known as the take rate. He ran an analysis for Uber Rides, Uber Eats, Lyft, Grubhub, Etsy, Expedia, Booking, Stubhub, Alibaba, etc., by looking through 10-Ks and initiation coverage reports on Capital IQ.
- For his mentor’s digital insurance teach-in, he collected graphs and data that clearly indicated a shift from legacy insurance carriers. He also did insurance market sizing in different verticals and looked at consumer sentiment and their adoption of digital tools. More recently, he analyzed relevant valuation metrics for insurance companies. These included finding price-to-book ratio, return on equity, loss ratios, net premiums earned, revenue, EBIT, and market cap.
Lesson Two: Getting to Know the Firm
- An internship is a two-way street. As much as the company is assessing your ability and fit with the firm, you are also evaluating if this is a place where you would want to grow your career. To really get the full picture, take initiative, and get to know your co-workers one-on-one.
- We had weekly team meetings, firm-wide meetings, and were offered virtual coffee and lunches. Though the virtual coffee and lunches were optional, attending every opportunity to meet the rest of the firm is a great way to talk about things outside of work, encouraging a healthy work-life balance. In a work-from-home setting, it is challenging to get facetime outside of our weekly work update Zoom meetings. These optional meetings can help you get a better feel for the firm and culture.
- Email your past interviewers to touch base and get advice before the start of your internship. In a virtual setting, scheduling one-one-one Zoom meetings are helpful if you don’t have the opportunity of working in the office. Outside of mandatory meetings, this is a great way to talk and learn more about everyone’s backgrounds, experiences, interests, and hobbies.
- To reiterate, prioritize getting to know your firm. A common mistake interns make is focusing only on work without building relationships with their co-workers. Ultimately, you will have a much more fulfilling experience if you engage fully with your firm.
Lesson Three: Who excels in the role?
- Each role requires certain characteristics and traits that help one excel. In terms of growth equity, you must be tenacious, motivated, hard-working, curious, personable, and willing to take initiative.
- Do not be afraid to ask questions. Be efficient and ask for guidance from your mentor when needed.
- Have a great attitude.
Chapter 5: Getting An Internship
Lesson One: Is this your fit?
- Before your interview, assess if your personality and ambition align with growth equity. Are you the type of person that would thrive in this role?
- The best way to do this is to look at your previous experiences: clubs, internships, etc. Involvement in a startup/entrepreneurship club, investment club, as well as internships in finance, accounting, or investment banking can prepare you for a summer at Volition.
Lesson Two: Get Caught Up on All Things VC
- To prepare for your first-round interview, you should read books, listen to podcasts, watch Shark Tank, and subscribe to startup news websites.
Part One: Reading Books
- “The Lean Startup” by Eric Ries
- This book talks about Eric’s idea for the lean startup from his experiences as a startup adviser, employee, and founder. He explains the failure of his first startup and working in a company with a failed product launch to provide valuable insights.
- “Zero to One” by Peter Thiel
- Peter Thiel challenges readers to think outside the box and become innovative by asking the right questions. He analyzes how the U.S. has evolved its economy and technological trends to encourage readers to be forward-thinking.
- “Mastering the VC Game” by Jeffrey Bussgang
- This is very similar to “The Lean Startup.” Jeff Bussgang gives insights, stories and practical advice gathered from his own experiences on being on both sides of the table as both an entrepreneur and venture capitalist.
Part Two: Podcasts
- “How I Built This” by Guy Raz
- Guy Raz is the host of this podcast, where he interviews innovators, entrepreneurs, idealists, and learns about the stories behind the movements they built.
- “The Pitch” by Josh Muccio
- Josh Muccio is the host of this podcast, which features entrepreneurs in need of venture funding as they pitch to a live panel of investors, similar to the show Shark Tank.
Part Three: TV Shows
- “Shark Tank”
- Shark Tank is an American business reality television series that shows entrepreneurs making business presentations to a panel of five investors or “sharks” who decide whether or not to invest in their companies.
Part Four: Websites
- TechCrunch is an online news publisher focusing on the tech industry. It reports on business related to technology news, analysis of emerging trends in tech, tech startups, and funding.
- VentureBeat is another great resource to read, similar to TechCrunch.
- StrictlyVC provides daily newsletters through email covering venture capital news and events.
- Why read startup news?
- These websites and newsletters provide insight into companies that recently raised capital or were acquired and highlights interviews from venture capital partners, trends, and product development.
Lesson Three: Leverage Your Network and/or Cold Outreach
- Traditionally, in finance, there are target schools for investment banks, venture capital firms, and private equity shops. Target schools typically have a heavy alumni base at the firm and can be preferred for recruiting.
- Whether or not your school is a target, you should leverage your network and also engage in cold outreach to learn more about the career you’re interested in. Utilize your alumni networks, clubs, fellowships, past internships, peers, and friends.
- When networking, do not only focus on what you want and need. Remember that networking is a two-way street and you should take this opportunity to build and cultivate long-term relationships. Take this time to learn about others, hear different perspectives, and get career advice as you are starting out your career. Before you get on calls, do your research on the firm/industry and find out exactly what you would like to learn from the individual on the phone call.
Lesson Four: The Interview
- As mentioned above, researching the growth equity firm’s investment style is important. For Volition Capital, we look at meaningful founder ownership, capital efficiency, a solid revenue base, and the ability to solve a pain point in the market.
- Growth equity firms have different sector focuses that span from B2B, B2C, SaaS, Internet, Consumer, Tech-Enabled Services, Industrial, Healthcare, etc. Look into the firm’s portfolio companies and understand what types of companies they invest in and why.
- Before the interview, look at your past experiences and build a meaningful and fluent story about why you would be a great fit for growth equity.
- With this guide and your efforts, you will be more than prepared for the interview.Good luck!
(1) Corporate Finance Institute
(2) Wall Street Prep
This story is from Sutton Capital cohort member, Alex Choi.