Center for Private Equity and Entrepreneurship (CPEE): You got a job in private equity immediately after graduating from Tuck. Can you describe your job search?
Diffendal: A couple of things happened during business school that directed me toward private equity and technology. In 1999, during the summer after my first year at Tuck, I became interested in a career in private equity after working at a startup. I just loved that environment. I made it my goal after graduation to work at a startup or to get involved on the investing side (i.e., in venture capital). Secondly, I got some media exposure during my second year at Tuck that really boosted my visibility in the VC worldand my subsequent ability to get interviews with private equity firms.
On the private equity side, my strategy was to identify connections (either a Tuck connection or a personal connection) to specific funds and evaluate whether I would be interested in joining these funds. If I was interested, I tried to leverage my connection into an informational interview. There were two or three funds where that connection was pretty strong; Broadview Capital was one of them (a couple of Tuck guys were at Broadview at that time). There were a couple of other funds where some of the older partners were Tuck alums. But mainly what I did during the spring of 2000 was sit tight. Most of my peers at that point had jobs; I was one of the 5 percent of Tuck MBAs that didn't graduate with a job. Not because I didn't want one, but because I found that the private equity cycle was one where the candidate had to demonstrate an ability to tolerate a level of risk decidedly above what would be the norm for those pursuing a banking or consulting job.
During that spring, I'd fly out to Silicon Valley every other week and sleep on friends' couches. I would call up the connections I'd identified and say, "I'm Ed Diffendal, I'm a second-year MBA student, and I'm looking for a job in private equity. Can I come talk to you?" And I found that almost everyone took that meeting. Not necessarily because they wanted to offer me a job, but because it was an active time in the industry and everyone was looking to meet talented people.
The Tuck network effect was very strong. My peers graduating around that same time from larger MBA programs had alumni networks that were broader in terms of who they might be able to contact at a given fund, but narrower in terms of who might be willing to take a meeting. There were a lot of guys looking for the same type of job I was who could pick a fund and say, "I know there is someone from my school there," but it was really a shot in the dark whether the person was going to take that meeting. In those cases, there often had to be an additional connection for them to get a meeting, whereas the Tuck connection was enough to get me in the door.
At the end of the school year, I looked at the portfolio of stuff I had in the pipeline. I had a couple of offers on either side of the deal: a VC offer (from Broadview) and a couple of likely offers at startups. Then I looked at my skill seta strong background in consulting, working with clients on a project basisand I concluded that private equity investing was a better match for my skills. So I ended up coming to Broadview Capital. The decision to come here was based the people I'd be working with, the type of deals in which BCP specialized (slightly later-stage deals, where there is more in "tires to kick" and thus more of match with my consulting background), the size of the fund, and the reputation of Broadview. Everything seemed to line up with this opportunity, so I took it.
CPEE: Given the fact that the environment has changed dramatically since 2000, when you were on the job market, what advice would you give MBAs who want to get a job in private equity now? Do you think the job search strategy you used would still be effective?
Diffendal: I don't think the strategy of finding a private equity job now should be any different than it was three or four years ago. Private equity will remain a business that is difficult to get into, and one where you don't just sign up for interviews in the career center. I think that the changes in the market environment are going to emphasize the lack of institutionalization in the industry. As the private equity market expanded and as the market became more mainstream, more and more opportunities got posted on traditional channels like Glocap. Everyone believes that the private equity industry is contracting and will continue to contract for some time. That contraction will effectively de-institutionalize the career track. I can really speak more to the venture capital, growth side of the business and not really to the LBO/buyout side of the business. That said, everyone I know on my side got their jobs exactly the way I didthey milked their network aggressively until they found a connection to get their foot in the door, and then they wowed that person. I don't think that element of the job hunt is going to change. It will always be an informal and difficult-to-get-into business.
With all that said, my biggest piece of advice to those who want to get into private equity is to think about the long termthink about how to get to where you want to be in 10 years rather than in one year. If you want to be a general partner at a private equity or VC fund in 10 years, I am not convinced that the best way to do that is to go and be an associate at one of those firms today.
Diffendal: As opportunities, size of funds, and number of funds shrink, the number of high-caliber associate positions out there is shrinking, too. The ratio of associates to GPs at any given fund is going down. Fewer and fewer associates are needed because there aren't as many deals to review. These days, GPs really don't need (like they did a few years ago) a crew of associates to wade through eight ASP business models to find the one that they want to talk to. So the demand for associates is going down.
Simultaneously, the supply of candidates for those associate jobs is going up. Not because there are more MBA students, but because there are people who are one or two years out who've done investment banking, consulting, or private equity and who are looking for the exact same jobs.
CPEE: So what should those newly minted MBAs do to get a leg up in the private equity industry? What should their "10-year plan" be?
Diffendal: Well, my perspective from the VC side is as follows: Those who want a successful career in private equity should either go and be a successful entrepreneur or go get substantial industry experience in the technology field work for Sun, Cisco, or Veritas. If I were graduating today (especially given my background in consulting and economics), I would go out and get some hard technology experience. Three to five years down the road, the people with that kind of experience are the ones who are more likely to move into GP roles, rather than the associates.
Furthermore, the way you move up in the private equity world is by showing a track record of investing in successful deals. In the current market, there are very few of those deals, so it's much more difficult today vs. six years ago to build a track record that moves you from the associate level to the GP level. In general, the process of getting a good deal, managing the life cycle of the company, and finessing a successful exit is longer and harder than it was before. Thus, the associate track is longer and harder. If you are coming into private equity from a technology job, there is an entirely different set of expectations, because you are bringing something entirely different to the table. In short, this is such a difficult market in which to build a decent track record at a private equity fundso why not get some real industry experience and build a terrific network, instead of beating your head against a wall?