Ace the Growth Equity Case Study Interview

Intro to case studies

The growth equity case study is the source of much anxiety for candidates preparing for interviews.

In general, case studies are often the difficult part of any private equity interview — even more so than why growth equity or other interview questions. But case studies can be especially challenging in growth equity given the wide range of case study types. In this article, I shed some light on this part of the interview and how best you can prepare.

One reason why this exercise can be more challenging than it is for private equity case studies is there are many different shapes it can take, and you don’t know which type you’ll get. That is, the exercise could focus on modeling expertise, investment judgement, or prospecting ability.

It can be difficult to know what to expect; however, most growth equity case studies fall into four different categories.

Growth equity modeling test

This usually takes place on-site. The firm will give you some source material on a company, which can range from a 10-k (if the company is public) to an internal investment committee memo (if the company is a portfolio company).

The exercise will usually last 1-3 hours; as such, to expedite things, you’ll usually be given a model template from which to build your model, however not always.

After completing the model, you may be asked to also leave time to create slides or draft a mini-investment memo. In this memo, you’ll be asked whether or not you support proceeding with the investment and why. (You knew I was going to say this, but of course, the “why” is most important).After time is completed, you’ll may be asked to present your work to investment professionals at the firm. Or, they will “grade” your work separately and get back to you on if you “passed.”

Keys to success in this type of case are:

1. Technical growth equity modeling chops – is your model right? Does it include all the required features to properly analyze the growth company?
2. Investment fundamentals – how do you think about growth investments? Does the way you’ve thought about the opportunity make sense and are you focused on the right areas?
3. Ability to articulate or present your work – are your thoughts well-organized and do you articulate them succinctly and confidently? This is very important in growth equity as I believe firms place a premium on these skills in growth
4. Time management – did you complete the entire exercise?

If these sound daunting, or you have questions about any of these areas, just remember these aren’t impossible skills to practice! In fact, I believe most, if not all, candidates can completely master these if they are truly dedicated and learn the right frameworks to apply.

To excel in growth equity modeling, it’s important to get into the technical details of historical trends, projections, and exit calculations. Here’s a more detailed look at these components:

Historical Financial Analysis:

• Revenue Trends: Analyze year-over-year revenue growth to identify patterns and anomalies.
  • Example: Year 1 Revenue: $10M, Year 2: $12M (20% growth), Year 3: $15M (25% growth). Consistent growth indicates a stable business model with potential for scaling.
• Expense Breakdown: Categorize expenses into fixed and variable costs to understand the cost structure.
  • Example: Year 3 Expenses: $7.5M (fixed: $3M, variable: $4.5M). A high proportion of variable costs can indicate scalability with increased revenue.
• Profitability Metrics: Calculate EBITDA and net income margins.
  • Example: Year 3 EBITDA: $5M, Net Income: $3M. Improving margins over time suggest operational efficiency.

Financial Projections:

• Revenue Projections: Forecast future revenue based on historical trends, market growth, and company-specific factors.
  • Example Projection: Year 4 Revenue: $18.75M (25% growth).
• Expense Projections: Estimate future costs considering operational scaling and efficiency improvements.
  • Example: Year 4 Expenses: $9M (20% growth from Year 3).
• EBITDA and Free Cash Flow: Calculate projected EBITDA and adjust for changes in working capital, CapEx, and taxes.
  • Example: Year 4 EBITDA: $9.75M, Free Cash Flow: $6M.
• Sources & uses and pro forma balance sheet: One of the key differences between LBO and pure growth models is the growth models are usually minority investments with different types of investment structure (see full growth equity modeling course for detailed walkthrough)

Valuation Methods:

• Multiples Valuation: Use industry-relevant multiples like EV/Revenue and EV/EBITDA.
  • Example: 10x EV/EBITDA, leading to a valuation of $97.5M.

Exit Scenarios:

• Initial Public Offering (IPO): Assess readiness for public markets, including financial health and market conditions.
  • Example: Projected IPO valuation based on peer comparisons.
• Acquisition: Model potential acquisition offers using different EBITDA multiples.
  • Example: Acquisition at 12x EBITDA in Year 5, resulting in an exit valuation of $144M.
• Return on Investment (ROI): Calculate ROI based on initial investment and exit valuation.
  • Example: Initial Investment: $48M, Exit Valuation: $144M, ROI: 200%.

In my full course, I cover in detail how to prepare for the growth equity modeling exercise (including the differences with typical LBO/buyout models), frameworks for analyzing growth investments, mental models for organizing and presenting your work, as well as time management rules for the case.

Prospecting exercise

This involves the firm asking you to investigate an industry (or an investment theme) and to prepare a short brief on companies in the space.

This is usually conducted as a take home assignment, where candidates can complete it on their own time but within a certain period.

I really love this kind of exercise, because it simulates one of the best parts of the growth equity job. That is, you join one of the top growth equity firms — so that you can be empowered to look into cool industries and pick the best companies!

Sure, you’ll also build models and investment committee memos on companies you’re pursuing (which is tested more directly in the modeling exercise), but I find what really sets investment professionals apart in growth equity are the skills tested in the prospecting exercise. In a future post, you’ll be able to read about how I majorly flopped my first “on the job” prospecting case study 🙂

This exercise should not be confused with what I call the “sourcing” mock interview, which is common for undergraduate hires. In sourcing interviews, you’re asked to simulate a cold call with prospective CEOs.

After you’ve submitted your work, you’ll usually be asked to discuss or present it in person or over the phone. This is where the firm will probe your thinking and make sure your investment judgement is sound.

Keys to success in this type of case are:

1. Market analysis – How do you analyze markets? What are the competitive dynamics and what are the long-term growth fundamentals?
2. Investment fundamentals – Same as above. How do you think about growth investments? Does the way you’ve thought about the opportunity make sense and are you focused on the right areas?
3. Ability to articulate or present your work – Same as above. Are your thoughts well-organized and do you articulate them succinctly and confidently? This is a very important skill in growth equity as I believe firms place a premium on these skills in growth

Sample Market Analysis

Industry Overview: Start by describing the current state of the FinTech industry. Identify key trends and growth drivers, and highlight major players as well as emerging startups in the space.

• Example: The FinTech industry has seen rapid growth driven by advancements in technology and increasing consumer demand for digital financial services. Key players include companies like Stripe and PayPal, while emerging startups such as neobank Revolut and stock trading platform Robinhood are gaining traction.

Competitive Dynamics: Analyze competitive factors such as market share, technological advancements, and the regulatory environment. Compare the strengths and weaknesses of top companies within the industry.

• Example: Stripe leads in payment processing technology, but faces competition from PayPal/Braintree, which has a broader customer base. Regulatory changes in data privacy are influencing how these companies operate.

Growth Fundamentals: Assess the long-term growth potential of the industry. Identify key challenges and opportunities that may impact growth.

• Example: The online payments industry is expected to grow at a CAGR of ~5-10% over the next five years, driven by the increasing adoption of digital payment systems and continued proliferation of e-commerce. This relatively low growth profile means you need to find high growth challengers who can take share in addition to riding the organic growth rate of the overall market in order to generate 25%+ returns.  

Company Prioritization: Create a shortlist of companies with the highest growth potential. Justify your selections based on their market position, innovation, and financial health.

• Example: One interesting challenger company in the online payments space is Rapyd.  Founded in London, it provides a cardless financial network that supports various payment methods for businesses. They serve the ~2.3 billion people who don’t use credit cards in their daily lives, focusing on alternative payment methods such as cash payments, bank transfers, and mobile transfers.  This is attractive since it’s a large market, but likely one that Stripe and other incumbents won’t focus on given their current customer base. They’ve raised a $100M (Series C) round, but will likely need more capital to take advantage of their large and growing TAM.

In prospecting exercises, the investment fundamentals and the ability to present are under a microscope. However, you’ll note market analysis is also a key to success. This is slightly different than the modeling exercise, where market analysis can be important but is tested less explicitly.

Market analysis is critical in prospecting exercises because you’re not only assessing one company, but you’re making broad generalizations (and prioritizing) across multiple companies. That means, you need to step back and assess the market as a whole.

This can be tricky for candidates, especially those coming from investment banking where analysts typically focus on discrete transactions rather than pulling back and analyzing an industry. This is one of the areas, I believe management consultants can have a leg up in private equity recruiting.

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Mini-case exercise

The mini-case is given to almost every interview candidate, in some form or another. It can happen at different points in the interview process, depending on the firm’s sequencing.

The mini-case involves a series of technical questions related to a single company or business problem. In my interviews with Advent International, I remember the mini-case was the most challenging aspect of the entire interview.

My interviewer started the mini-case by describing a portfolio company of theirs, the industry it operated in, and the broad strokes of an issue the company face. He explained the company was a distribution company that transported consumer packaged goods and was experiencing gross margin pressure.

Then, he asked a series of questions about what might be causing the company’s margin pressure, and ways I’d go about diagnosing the cause (hint: use data from the company’s balance sheet and P&L to diagnose unit cost, price, and volume trends then overlay industry analysis).

All told, this part of the interview will usually last 15 minutes or so. It can be prompted explicitly with a disclaimer like, “Now, we’ll spend a few minutes asking questions about a specific problem at a portfolio company which I’ll describe.” Or, the interviewer could start a mini-case less explicitly by sustaining a series of questions without the disclaimer upfront.

In any case, keys to success in this type of case are:

1. Clarity of thought (under pressure) – this is the biggest thing the interview is probing; can you work through difficult problems on the fly? How does your brain think through problems?
2. Ability to articulate ideas – it’s okay to think through problems out loud, but you want to make sure you’re able to summarize and synthesize your thinking where possible.

Example:

If you are presented with a scenario involving a healthcare distribution company facing declining margins. Here’s a structured approach to craft a mini-case study:

1. Diagnosing the Problem

Analyze financial statements to identify trends in revenue, cost of goods sold (COGS), and operating expenses. Look for changes in unit cost, price, and volume over multiple periods, and conduct a variance analysis to pinpoint specific areas of concern.

• Example: Analysis of financials indicated a 10% rise in COGS due to increased freight costs. Competitive pricing pressure led to a decrease in unit price.

2. Identifying Causes

Investigate potential reasons for margin pressure. Consider factors such as increased competition leading to price reductions, supply chain inefficiencies causing higher COGS, and regulatory changes impacting operational costs. Use data from the company’s balance sheet and P&L to support your analysis and interview key stakeholders (e.g., finance, operations) to gain insights.

• Example: Supply chain analysis showed logistical inefficiencies contributing to higher freight costs. Regulatory review indicated new compliance requirements raising operational expenses.

3. Recommendations

After identifying the causes, propose actionable steps to address the margin pressure. Suggestions might include renegotiating supplier contracts to lower COGS, optimizing logistics and inventory management to reduce operational costs, and implementing cost-saving technologies (e.g., automation). Additionally, explore alternative revenue streams to diversify income. Support your recommendations with data and industry best practices, and create a detailed action plan with timelines and responsible parties.

• Example: Propose renegotiation with logistics providers for better rates. Suggest implementing a new inventory management system to minimize stockouts and excess inventory.

Mock sourcing call

In this case study, candidates are asked to role play that they are cold calling an investment prospect CEO (role played by the interview) and asking to learn about the company and to setup a meeting to learn more.

This type of interview is most common for analyst or associate roles, especially where the roles are focused on cold calling or business development.  

I cover this type of case study in detail in my growth equity mastery course.

How important is the case study in growth equity interviews

Forget about interviews for a minute, and let’s think about what actually sets people apart as high performers in growth equity. At a highest level, the job is to find the highest growth markets, and then invest in the market leaders.

When you break this down, this means success is a function of the investor’s ability to pick the right market, to source the best companies within it, to pick the best company to pursue from all the companies you’ve sourced, and then to convince the company to take you on as a partner (aka “win” the deal).

All these core competencies map to the different skills tested in a case study. That’s why it is given lots of weight during the interview process.

Granted, it can seem a bit absurd to take one discrete portion of the interview process (that may only last 1 hour), and project forward the person’s career potential as an investor. However, this all the firm has to go on, so it’s an important piece of the puzzle.

Private equity interview case studies

Case studies also play an important part in getting into private equity. However, if I had to generalize, buyout firms are more focused on assessing the technical and modeling ability in junior/mid-level professionals, whereas growth equity may take a more holistic view of the candidate’s overall ability as an investor.

This is driven by the more varied nature of the growth equity job, which could include developing an industry thesis, sourcing attractive investment prospects, and then evaluating and executing on opportunities.

It’s more likely, at large firms especially, that a buyout analyst or associate’s typical day is more focused on the last part (evaluating and executing on opportunities), so modeling and the ability to churn through CIM’s are usually valued at a premium at these firms!

Case Study Example: Mid-Market SaaS Company

You are tasked to analyze and value a mid-market SaaS company using its financial statements from the past three years. Your goal is to forecast future performance, estimate the company’s value, and present potential exit scenarios. This example uses hypothetical numbers to walk you through each step and help you build the skills to handle similar case studies confidently.

Step 1: Historical Financials

1. Data Collection:
   • Obtain the company’s financial statements for the past three years.
   • Example Data:
     • Year 1 Revenue: $10M
     • Year 2 Revenue: $12M
     • Year 3 Revenue: $15M
2. Analyze Key Metrics:
   • Revenue Growth:
     • Calculate year-over-year growth.
     • Example: Year 1 to Year 2: 20%, Year 2 to Year 3: 25%
   • Customer Acquisition Cost (CAC):
     • Divide total sales and marketing expenses by the number of new customers.
     • Example: Year 3 CAC: $2M in marketing expenses / 10,000 new customers = $200 per customer
   • Churn Rate:
     • Measure the percentage of customers lost during a specific period.
     • Example: Year 3 Churn Rate: 10%

Step 2: Projections

1. Revenue Projections: Forecast future revenue based on historical growth and market trends.
   • Example Projection: Year 4 Revenue: $18.75M (25% growth from Year 3)
2. Expense Projections: Estimate future costs considering scaling operations and efficiency improvements.
   • Example: Year 4 Expenses: $9M (20% growth from Year 3 expenses of $7.5M)
3. EBITDA and Free Cash Flow: Calculate EBITDA by subtracting operating expenses from revenue and project free cash flow by adjusting EBITDA for changes in working capital, capital expenditures, and taxes.
   • Example: Year 4 EBITDA: $18.75M – $9M = $9.75M, Free Cash Flow: $9.75M – $2M (CapEx) – $1.75M (taxes) = $6M

Step 3: Valuation

1. Multiples Valuation: Use multiples such as EV/Revenue and EV/EBITDA for market comparison.
   • Example: Using a 10x EV/EBITDA multiple, the company is valued at $97.5M
2. Discounted Cash Flow (DCF) Analysis: Perform a DCF analysis to estimate the intrinsic value of the company.
   • Example: Year 4 Free Cash Flow: $6M, Discount Rate: 10%, NPV Calculation: $6M / (1 + 0.10)^1 + $7M / (1 + 0.10)^2…

Step 4: Exit Scenarios

1. Model Exit Strategies: Analyze potential exit scenarios, including IPO and acquisition.
   • Example: Acquisition at 12x EBITDA in Year 5, with Year 5 EBITDA Projection: $12M, Exit Valuation: 12 * $12M = $144M
2. Evaluate Returns: Assess the impact of various exit multiples on returns.
   • Example: Initial Investment: $48M, Exit Valuation: $144M, ROI: (144M – 48M) / 48M = 200%

How to improve your case study presentations skills

• Structure your presentation with a clear introduction, body, and conclusion, highlighting key points and ensuring a logical flow.
• Rehearse your presentation multiple times to gain confidence and fluency, focusing on clear articulation and maintaining a steady pace.
• Incorporate graphs, charts, and slides to visually support your arguments, ensuring they are clear and directly related to your points.
• Discuss real-life experiences and case studies you’ve worked on, explaining how specific strategies have led to successful outcomes.
• Anticipate possible questions and prepare concise, informative answers. Practice responding to questions to make sure you can address them confidently and accurately.

Send off!

Alright, team. That’s all I got for now! Check out my other posts on growth equity recruiting, and sign up for the newsletter below to receive all my best tips in your inbox. For more comprehensive interview prep, check out my full growth equity interview prep course.