Interview Process at TPG Growth & 3 Distinct Skills in Growth Equity – Tammie, TPG Growth
Q. Give me an example of the drag-along provision in use?
The drag-along provision protects the interests of the majority shareholders (usually the early, lead investors) by enabling them to force major decisions such as exiting the investment.
This provision will prevent minority shareholders from holding back a particular decision or taking a specific action, just because a few shareholders with small stakes are opposed to it and refusing to do so.
For example, suppose the stakeholders with majority ownership desire to sell the company to a strategic, but a few minority investors refuse to follow along (i.e., drag-along the process). In that case, this provision allows the majority owners to override their refusal and proceed onward with the sale.
Q. How does the “proof-of-concept” and “commercialization” stage differ?
When a company is at the proof-of-concept stage, there’s no working product on hand. Instead, there’s just a proposed idea for a certain product, technology, or service
The commercialization stage typically refers to the Series C to D (and beyond) funding rounds, and there are usually several large, institutional venture firms and growth equity firms involved
Thus, it’s difficult to raise much capital; however, the amount of funding required is usually very minimal since it’s only meant to build a prototype and see if this idea is feasible in terms of product-market fit
Here, the role of the capital and the firm is to guide the company experiencing high growth to get past the inflection point by helping refine the product/service offering and the business model
At this stage, the investors providing this type of seed investment are usually friends, family, or angel investors
The commercialization stage is when the value proposition of a startup and the possibility of a product-market fit have been validated, meaning institutional investors have been sold on this idea and contributed more capital
The focus at the proof-of-concept stage is validating the idea with the goal of showing this potential to outside investors to raise capital
Especially in highly competitive industries (e.g., software), the focus shifts almost entirely to revenue growth and capturing more market share, as profitability is not the priority
Why growth equity vs. private equity
One angle of the why growth equity interview question you should consider ahead of time is why growth equity instead of private equity. Let’s walk some possible angles now.
Invest in fast growing sectors – growth equity tends to invest in leading companies in the fastest growing markets. Compare this to private equity, which tends to take controlling stakes in solid companies but ones in slower growth industries. I spoke about this reason specifically in my interviews. I said something along the lines of “I’d rather invest in companies that are growing and innovating, rather than slow growth industrials or plastics companies” – the latter of which I had some exposure to in investment banking, so I could speak to this credibly.
Make money from growth, not debt – along these lines, you can also talk about the fact that because you are investing in high growth companies, you do not need to rely on debt to achieve adequate returns. You may not be against debt for all companies per se, but perhaps it’s just more exciting or rewarding for you to make money by helping companies grow.
Exposure to operations and best-in-class managers – even though growth equity typically entails a minority (e.g. 10%) ownership stake in each company, there is still a role for the firm to have influence with management (who is at the cutting edge of their industry) and to get involved in the operations (usually, strategic advisory or M&A support).
Spirit of collaboration with management teams – because target firms usually have ample options during fundraising, growth equity firms usually cultivate a friendly and collaborative relationship with management teams in order to win the deal and to gain influence once they have. Not always, but this can be the opposite of the dynamic between private equity and their management teams. It is usually the case that private equity firms purchase a controlling stake (often of under-performing companies). As a result, private equity firms can have a contentious relationship with management (if they haven’t replaced them with their own handpicked team already).
How do you interview for growth equity?
Growth Equity Interview Exercises
Ask questions to “management” that pertain directly to determining whether it would be worth scheduling further calls (i.e., straight to the point) Show adequate industry knowledge to come across as competent in the industry vertical and having done enough research ahead of the call.
What does a growth equity associate do?
What Do Growth Equity Firms Do? Growth equity firms, or growth equity divisions of investment firms, invest minority stakes in companies with proven markets and business models that need the capital to fund a specific expansion strategy.
Does growth equity pay well?
Analytical modeling: The primary function of the associate is to provide all analytics required for the principals and partners to make an informed decision about a deal. Common tasks include preparing preliminary due diligence reports and modeling growth forecasts.