What is the Growth Equity Modeling Test Interview and How to Ace It
Table of contents
- Understanding the Growth Equity Modeling Test Interview
- Tips to Ace the Growth Equity Modeling Test Interview
- Conclusion
If you’re interviewing for a job in growth equity, then you’ll likely face an important step in the process: the growth equity modeling test. The growth equity interview process is challenging and is designed to assess your financial analysis capabilities, modeling skills, business acumen, and ability to think critically. In this article, we’ll dive deep into what the growth equity modeling test interview entails and provide you with actionable strategies to help you ace it and land a job in growth equity.
Understanding the Growth Equity Modeling Test Interview
There are typically two different types of modeling tests during a growth equity interview. The first is a more basic modeling test and the second is a more comprehensive case study.
- Basic Modeling Test – The basic modeling test is usually tied to a transaction or investment scenario provided by the interviewer. This test will evaluate your fundamental understanding of a transaction structure, finance, accounting, and Excel skills. Based on the scenario provided (typically one to two paragraphs long), you’ll be asked to make basic P&L projections and calculate returns, which may involve either an LBO or a growth equity/cap table waterfall returns model.
In an LBO model, you’ll assess the potential returns of acquiring a company using a mix of debt and equity. For a growth equity investment returns model, you’ll focus on projecting the returns for your company’s portion of ownership based on the waterfall/cap table structure and liquidation preferences.
This basic modeling test typically takes around an hour or two to complete and serves as a preliminary screening to ensure you have the necessary skills to proceed to the more comprehensive case study.
- Comprehensive Case Study – If you pass the basic modeling test, you’ll typically move on to a more comprehensive case study. This case study involves analyzing a CIM (confidential information memorandum), developing an investment memo, projecting financials, and calculating returns.
The investment memo will include your investment thesis, identified risks, and other key considerations like diligence suggestions. You’ll need to demonstrate your ability to quickly read the CIM, identify what matters, think critically about the investment opportunity, and articulate your thoughts in a clear and concise manner.
For the financial projections and returns calculations, you’ll typically be asked to build either a growth equity returns waterfall or an LBO model. However, some firms may focus solely on LBO modeling for entry-level roles, as growth equity waterfall modeling is less common and more complicated (but you should be prepared for either).
You’ll usually have 3-4 hours to complete the case study, after which the team will review your work. You will likely be asked to present your findings and answer questions either on the same day or at a later date.
Tips to Ace the Growth Equity Modeling Test Interview
- Brush up on your accounting and finance fundamentals – A solid understanding of accounting and finance is crucial for success in the modeling tes. You should be able to understand each financial statement (P&L, balance sheet, cash flow statement) and the links between the three statements. Also come prepared with an understanding of valuation methodologies, key returns metrics (e.g., IRR, MOIC), and how to identify the pros and cons of an investment. This last part is arguably the most important. A growth equity firm can teach an employee how to model returns correctly, but its a lot harder to teach someone business acumen. You should be able to demonstrate your ability to think critically about a business model, competitors, market landscape, etc. and present your findings.
- Practice, practice, practice – Familiarize yourself with the structure and components of LBO and growth equity waterfall model. Build sample models and work up to practicing under time pressure to simulate interview conditions. Utilize our growth equity interview guide to help prepare, which includes a full case study, LBO model, and growth equity waterfall model.
- Pay attention to detail – During the various modeling tests / case study, be detail oriented in your work. Double-check your formulas, ensure your spreadsheet is well-organized and easy to follow without errors, and format your analysis with red, green, and black coloring (typical financial modeling colors). Small errors can make a big difference in your overall assessment.
- Manage your time effectively – With limited time to complete the case study, time management is important. Allocate your time between reading the CIM, developing your investment memo, building the financial model, and reviewing your work. Don’t get bogged down in minor details at the expense of completing the overall assignment. Try to focus on what matters. The interviewers know that you only have 3 hours to complete the case study and an hour to complete the modeling test, so they don’t expect you to have every single detail identified.
- Communicate your thought process – When presenting your case study, try to clearly articulate your investment thesis, assumptions, and reasoning behind your suggested investment or pass. Be prepared to defend your conclusions and answer questions about your approach and thought process/business understanding. Demonstrating strong communication skills and the ability to think on your feet will help set you apart from other candidates.
Conclusion
The growth equity modeling test can be challenging, but with proper preparation and practice, you can perform well. Focus on building a strong foundation in accounting and finance, familiarize yourself with LBO and growth equity returns modeling, and practice until you feel confident. Remember to pay attention to detail, manage your time effectively, and communicate your thought process clearly. By following these tips and studying our investment guide, you’ll be well-positioned to ace your growth equity interviews.
Interviewing for Growth Equity or Venture Capital Jobs?
There are many similarities between growth equity and VC investing, and many firms will invest in both growth stage companies as well as earlier-stage companies. Because of the overlap between these two professions, the interview process is typically very similar as well. The best way to prepare for a growth equity or VC interview is to spend ample time preparing. First, you will need to nail down your understanding of the interview process itself and what to prepare for. Then you will need to ensure you have an in-depth understanding of the investment process, technical aspects (e.g., deal structures), technical and behavioral interview questions, and responsibilities of an investor. Next, you will need to learn how to analyze a business from an investors perspective including financial modeling, returns modeling, and business diligence. Finally, you will need to work on your ability to present your findings in a clear, concise, and confident manner.
Leverage our free resources or complete VC & Growth Equity interview guides to help you prepare for all of these items.
Full interview guide
Learn how to master the interview process for for roles at top tier growth equity and venture capital firms.
Free resources
Leverage our free resources to help you prepare for the FDD interview process.