Much has been written about the relative returns of PE vs VC, however today we wanted to take a look at the differences between the two asset classes from a personal career perspective. How are PE funds difference from VC in terms of number of junior investing jobs, recruiting and job progression? Is VC really worth the hype and is it true that PE is entirely comprised of burned out Goldman Sachs bankers? Lets dive in!
A) Size of the asset classes
PE is staggeringly larger than VC not only in terms of total assets under management (AUM) but in number of people that it employs. To make the comparison, we have created the below market map, which plots the top 15 funds in each asset category by the number of people employed (x-axis). In order to make the chart fit, we had to make the x-axis logarithmic (!), which goes to show just how much bigger the mega funds are than their VC rivals. For example KKR employs 3,100 staff, where as Andreessen Horowitz (a16z) is more than 10x smaller, employing only 290 staff across all of its locations.
Market Map of top 50 PE and VC funds globally
This variance can be explained by a number of factors:
Geographic dispersion: KKR has 21 global offices (!), including all major finance hubs across US, EU, India, China, Japan, etc. By comparison, the only American VC fund with sizeable international operations is Sequoia, which has a sizeable presence in India and China, however lacks any meaningful scale in EU or other geographies.
Asset class diversification: The large staff numbers of the likes of Apollo, KKR and Blackstone also represent the diversification that those funds have pursued away from pure private equity into adjacent strategies (e.g., credit, real estate, distressed debt). This has allowed them to grow AUM significantly, thus increasing cross pollination in advisers, local country knowledge, as well as professionalising their support functions. By comparison, VC funds are fare more pigeonholed in their core strategy of early stage investing, with only a subset of funds launching larger vehicles to allow them to write follow-on cheques into their more successful portfolio assets.
The chart below, which compares the top 10 PE funds vs. the top 10 VC funds, further illustrates the point. Blackstone alone, employs more people than the entirety of Sequoia, Accel, a16z, Benchmark, etc, which is a staggering realisation particularly from a recruiting point of view. Probabilistically speaking, assuming that these funds source from the same talent pool, an equally qualified candidate has more than 7x the probability of landing a job at a top 10 PE fund than a top 10 VC fund, simply because of the variance in the number of jobs available.
B) Composition of workforce
An observation which we have discussed previously is the vast difference in composition of roles between a PE and VC funds. VC funds are exceptionally top heavy. Partners make up c. 40% of the dealmakers at Accel, where as at an even more growth-oriented firms like GA or Insight, that ratio becomes closer to 10-15%. This has implications no only on the incoming analyst/associate classes, but also on the overall internal career progression opportunities. I.e., how does one get promoted to Partner if there are no Senior Associates, VPs, Principals or Directors to speak of in the org structure.
C) Background of employment and recruiting
This will come as no surprise to our regular readers but the work backgrounds for PE juniors are exceptionally formulaic. Close to 50% of any incoming class at a large PE shop come from GS, Morgan Stanley or JP Morgan exclusively, which does not leave much room for diversity. On the contrary, VC funds are far more eclectic and bring a large number of their juniors from tech and academic backgrounds, as highlighted below: