FEATURE
PAPER
Understanding
the Skills Needed for Careers in Private Equity Investing: Implications for Curriculum Development
The
following paper was presented at the 2006 USASBE/SBI Conference.
It was written by William A Andrews of Stetson University.
Abstract
Using the same framework
for evaluating an investment in a publicly-traded company
versus a privately held company can be a recipe for disaster.
While there is some overlap in the
evaluation process, there are significant additional considerations for investing
in a privatelyheld company that require a broader set of
skills. The article identifies 5 skill-sets that are critical
to successful private-equity investing that are not generally taught as part
of the
finance/investment curriculum in universities. Curricular implications for universities
and
corporate training programs are discussed.
Executive Summary
The skills involved in being a successful private equity investor are much broader than those
required to be a successful public equity investor. A general partner of a large Atlanta venture
capital (VC) firm, summed it up this way, “There is a saying in the industry that it costs $40
million to educate a venture capitalist”, referring to the high cost of learn-by-doing in this
industry. Clearly, in his mind there is a significant gap between those sufficiently schooled in
investing to begin a career in private equity and those who are good at it.
Read
the Entire Paper...
TIP
OF THE WEEK
Secondary
Sources of Information
A search of secondary sources of information
will include journals, trade magazines, reference books, government
publications, and annual reports of public corporations - normally
available in a university or community library and on the Internet.
Historical data, such as annual reports over a 10 to 15 year
period, can often help analysts spot trends, cycles, and seasonal
variations in the industry. Trade magazines provide a good
sense of key firms and of the directions the industry may be
taking.
The data collected should answer the following questions:
1. Is the
industry growing? Growth is measures by sales volume, number
of employees, units produced, number of new companies entering the industry,
and so forth.
2. Where are
the opportunities? Does the industry provide opportunities
for new businesses with strategies involving new products and/or processes,
innovative distribution, or new marketing strategies?
3. What is
the status of any new technology? How quickly does the industry
adopt new technology, and does technology play a significant role in the
competitive strategy of firms in the industry?
4. How much
does the industry spend on research and development? Expenditures on R&D indicate
how important technology is, how much needs to be spent, and how rapid
the product development cycle is.
5. Who are
the major competitors? Which firms dominate the industry?
6. Are there
young, successful firms in the industry? This information
will provide an indicator of how formidable the entry barriers are and
whether the industry is growing rapidly.
7. What does
the future look like? What appears likely to happen over
the next five years? What are the trends and patterns of change?
8. Are there
any threats to the industry? Is there any chance that new
technology will render obsolete either the industry or that segment of
the industry in which the entrepreneur is doing business?
9. What are
the typical margins in the industry? Looking at gross margins in the industry provides an
indication of how much room there is to make
mistakes. A gross margin is derived by dividing gross profit
by sales. It indicates how much money is left to pay overhead and make
a profit.
If the industry typically has 2 percent margins or less,
as the grocery industry does, making a profit will require selling in
large volumes and
keeping overhead costs to a minimum. Where margins run
at 70 percent or higher, there is a lot more room to play, but generally
these industries
(such as the software industry) have relatively short product
life cycles, so R&D costs are high.
Kathleen
R. Allen. Launching New Ventures: An Entreprenurial
Approach 4th Edition.
2006. Houghton Mifflin Company. pg 99-100.
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CONFERENCES
ISM
|
| Who: |
Institute
for Supply Management
|
| What: |
92nd
Annual International Supply Management
|
| Where: |
Las
Vegas, Nevada, USA |
| When: |
May
6-9, 2007 |
|
|
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IIEE
|
| Who: |
Illinois
Institute for Entrepreneurial Education
|
| What: |
2007
Youth Entrepreneurship Conference
|
| Where: |
Lincolnshire,
Illinois, USA |
| When: |
May
3-5, 2007 |
|
|
|
AACSB
|
| Who: |
AACSB
Communications
|
| What: |
World
Class Practices in Management Education
|
| Where: |
Beijng, China |
| When: |
May
20-22,
2007 |
|
|
|
FU
|
| Who: |
Fordham
University
|
| What: |
The
Fordham University Pricing Conference
|
| Where: |
Fordham
University, New York, New York, USA |
| When: |
September
28-29, 2007 |
|
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ICSB
|
| Who: |
International
Council for Small Business
|
| What: |
World
Conference
|
| Where: |
Turku,
Finland |
| When: |
June
13-15, 2007 |
|
|
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CALLS FOR PAPERS
ASBBS
|
| Who: |
American
Society of Business
and Behavioral Sciences |
| What: |
10th
International Conference of the American Society
of Business
and Behavioral Sciences
|
| Where: |
Waikiki
Beach, Hawaii, USA |
| When: |
June
28-30, 2007 |
Submission
Deadline:
May 20, 2007
|
|
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USASBE
|
| Who: |
United
States Association for Small Business and Entrepreneurship
|
| What: |
USASBE
2008 Annual Conference
|
| Where: |
The
Westin La Cantera Resort - San Antonio, Texas |
| When: |
January
10-13, 2008 |
Submission
Deadline:
August 15, 2007
|
|
|
|
FHSU
|
| Who: |
Fort
Hays State University
|
| What: |
Annual
Business and Leadership Symposium 2007
|
| Where: |
Hays,
Kansas, USA |
| When: |
September
26-27, 2007 |
Submission
Deadline:
September 17, 2007
|
|
|
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FBD
|
| Who: |
Federation
of Business Disciplines
|
| What: |
Annual
Meeting
|
| Where: |
Hyatt
Regency, Houston, Texas, USA |
| When: |
March
4-8, 2008 |
Submission
Deadline:
To Be Announced
|
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