Breaking Into Finance (Craig Thompson)

We're back with another strong mock interview! Joel is a student at Vienna University student at Vienna University (Austria) recruiting for investment banking after management consulting and photography internships.

If you are interested in schedule a mock interview, email me at craig@breakingintofinancepodcast.com with a short note and a copy of your resume.

Ahead of Round 2 deadlines for several MBA programs in early January, we're breaking down the relative value of the MBA vs. Masters in Finance vs. CFA and how to know which one is right for you.

Now that we've debunked the myth that everyone who successfully gets a banking job has been on The Path since they were eight years old, I sit down with Alex Lawson to hear about how she navigated her way from Boston University to investment banking at Goldman Sachs and then eventually to Sixth Street.

We introduce Olivia O'Reilly and Blaise Siefer, two current liberal arts students at Middlebury College who will be learning the technicals along with listeners over the next several episodes. Olivia and I work through a personal finance example to illustrate what each of the three financial statements does and the benefits / information we get from being able to track each of them.

In a follow up to Episode 49's breakdown of the various functions in bulge bracket investment banks, Craig shares his thoughts on how to compare and contrast different IB opportunities along with a checklist of skills developed in each role.

In this episode I sit down with Rodrigo Castellanos, VC & Growth Equity investor at StepStone, to talk about his path into finance, and MBA and then to growth equity & venture investing. Rodrigo breaks down how late-stage venture and growth investors think about valuation and make investment decisions. Learn about how and why privately owned startups that are unprofitable today can still merit multi-billion dollar valuations!

On this episode, we break down all the various divisions that are commonly found inside the "bulge bracket" banks, then go into a lot more detail on the investment banking division and the variety of roles that exist across IB.

This episode is Part 1 of a multi-part series on the various roles, responsibilities and exit opportunities that exist across IB roles, divisions and firms.

Ever wonder what the differences are between investment banking, venture capital, private equity and hedge funds? In Part 2 of a 3-Part series, we're talking about the private equity industry and how it differs from VC and Hedge Funds. Topics include a quick history of Private Equity (it's evolved a lot since the 1980s!), attributes that make for a successful investor and an introduction to the LBO model.

In this episode, we build on last episode's discussion of working capital components. We work through a few examples to illustrate the impact of working capital on a business and discuss what real-world activities might lead to changes in working capital. We also talk about relationships between real-world business strategy issues like how poor inventory management can manifest in high balance sheet inventory, which causes a drag on cash flow generation. This episode also has a YouTube recording (https://youtu.be/VPn_3pgfZvg), but it's much less critical than the last episode.

In this episode we go a level deeper into the Income Statement, the line items that it tracks between the top line (revenue) and bottom line (profit), as well as some ratios and definitions.

In this episode Craig sits down with Sam Rosen (VP, Venture Capital at GIC) to discuss the current startup landscape, the pros & cons of going into venture vs. working at a startup, and some frameworks and advice for how to do your diligence on finding a startup to work for.

Ever wonder what the differences are between investment banking, venture capital, private equity and hedge funds? In the final part of a 3-Part series, we're talking about the hedge fund industry and how it differs from VC and PE. In the second half of the episode we wrap up our discussion by talking about the social impact of each industry. This is an especially important part of the conversation if you care about ESG (Environmental, Social & Governance) criterion as a part of your investment strategy and personal philosophy.

On this episode Craig breaks down how private equity firms make money and the most common elements of valuation creation that private equity-owned companies can generate to produce a profit for their PE ownership.

I'm joined by Kristen Meredith, a VP at Prysm Capital, who has carved a unique path in the investment world. Kristen is one of the lucky few to skip banking (she started her career at Blackrock) and then landed a PE associate role in Paris at Eurazeo, before landing her current growth investing role at Prysm.

I've known Kristen for over a decade as a fellow Middlebury & Wharton alum, so it was particularly fun to hear her advice about building investment judgment, life as a PE Associate in Europe and some frameworks for how she evaluates growth investments.

We're back with another interview with Austin Kipp where he shares his story and tips for breaking into investment banking (and then private equity investing) even after starting his career in a different industry (IT). In this interview Austin gives his take on cold outreach, networking advice and how to build your finance knowledge and rebuild your resume to execute a career pivot.

Olivia joins us for Part 2 of a two-part deep dive on how debt and interest expense impact the three statements. We pick up where we left off on Part 1, so please listen to that episode first if you haven't already. This episode also breaks down the Statement of Cash Flows in more detail. Lastly, here is a YouTube playlist with a video breakdown on how to look up and review financials statements for public companies: https://www.youtube.com/playlist?list=PLxRwOicsrdZjlYEmM-Wkq8oPYmUvtIjcx

How did Google add nearly $1 billion in profit during their most recent quarter without actually doing anything? In this episode, we break down a Wall Street Journal article about earnings management practices, and in particular some interested accounting decisions made by Alphabet (Google's parent) and Carvana.

On today's episode, Ian Becker and Ben Piekarz join the show to discuss their experience helping launch a student-run long-short equity fund at Brown University.

They explain the mechanics of shorting stocks, how hedge funds use pairing trades to manage risk and they provide an example of a successful pair trade. Lastly, they offer advice for students interested in starting a similar strategy and building knowledge and experience in finance.

On today's episode, we're using the ongoing OpenAI debacle to discuss the mechanics of how corporate governance works, why it matters for finance professionals and frameworks for understanding the relative power of CEOs, Board Chairs, and equity holders.

On this episode we're sharing a conversation that Craig had with Gurjeet, a current Sophomore at Princeton University, where we discuss some strategies for preparing for investment banking and investing interviews. We also spend a lot of time talking about startups and entrepreneurship, and the pros/cons of trying to startup a business as an undergrad vs. pursuing finance or consulting. Even on this podcast I will readily admit that investment banking isn't the best answer for everyone! Hopefully this gives listeners some context on whether it's right for them

A short current events piece drawing on reporting from Matt Levine at Bloomberg. We break down the ramifications of rising rates for highly levered companies (companies with a lot of debt relative to their EBITDA). This is a concrete example of how understanding the impact of debt on profitability is an important concept for young analysts.

This episode covers the accretion / dilution analysis, which is a tool that public companies and investment banks use to help evaluate potential acquisitions. Blaise, Olivia and Craig discuss several accretion / dilution examples to demonstrate how the source of funding (cash vs. equity vs. debt) can impact meaningfully impact whether a deal is accretive or dilutive.

What is a P/E ratio and why does it differ by company? How do you value companies with low or negative earnings? Olivia and Craig use the example of comparing a gas station to a software business to discuss why and how analysts use different ratios to compare the valuations of similar companies. This is the foundation of valuing a company based on how their financial ratios compare to other comparable publicly-traded businesses.

Ever wonder what the differences are between investment banking, venture capital, private equity and hedge funds? Over the next two weeks we'll talk about each industry and how they differ from what another. In this episode, we'll talking about venture capital, the attributes that make for a successful investor and the financial metrics you'll need to become an expert VC investor.

In this episode Olivia is back to help us run through a more detailed example of how a change in revenue impacts all three financial statements. We also introduce the role of taxes and how tax accounting can (slightly) complicate our three statement math

How big is a Ford Motor Company? By "market cap" (aka market capitalization aka equity value) it's ~$47 billion, but that measure of size doesn't take into account their debt! In fact, Ford's enterprise value is well over $100 billion. In this episode, we tackle the difference between equity value and enterprise value, and why enterprise value if market cap is quoted so much more frequently. Related topics we discuss include net debt, capital structure decisions and some valuation ratios including P/E (which uses equity value) and EV/EBITDA (where EV stands for enterprise value).

Those who follow us on social media will know that last week I was fortunate enough to be invited to Middlebury College for a guest lecture series on a variety of topics that are highly relevant for our listeners. On today's episode, I wanted to share the top 5 most frequent questions I got asked and give some quick thoughts on how I answered each.

The idea that everyone who breaks into finance did everything by the book - perfect grades, elite schools, early internships at big-name firms - is a myth. It's true for a vanishingly small number of people, but it's instructive to know what "The Path" looks like so that you can orient yourself and best determine your next steps. As management researcher Peter Drucker once said, "You can't manage what you can't measure." Our goal here is to give undergrads a framework for measuring their progress, along with some tips to succeed.

On this episode I sit down with Chandler Dula, a recent graduate of Williams College, to talk about the strategies he used to gain three high-profile finance internships - including a rare Sophomore M&A investment banking internship! We also discuss his decision to help start the Margins Finance Club at Williams, a fun story about "bid day" from his junior internship and how to plan for the logistical realities of finding NYC summer housing.

This episodes builds on the valuation ratio content from the last episode, and uses the example of Cava's recent IPO to illustrate the importance of using several different ratios to try to triangulate valuation.

I got to sit down with Saumil Jariwala to discuss his path to private equity, including my path from consulting (not banking!) to PE. We also spend a substantial amount of type talking about the history and opportunity in the search fund space, a small but rapidly growing and highly profitable segment of private equity.

For those who listen to the full episode, here are links to some of the additional educational resources Saumil mentions during the interview:

1) Stanford GSB Study: https://www.gsb.stanford.edu/faculty-research/case-studies/2022-search-fund-study-selected-observations
2) HBR Review: https://hbr.org/2017/01/buying-your-way-into-entrepreneurship

3) Buy Then Build: https://www.amazon.com/Buy-Then-Build-Acquisition-Entrepreneurs-ebook/dp/B07JKM2F5Q

4) List of prominent search fund investors: https://searchfund.org/

Pete Fraser, an investment banking associate at Guggenheim, shares his journey from working in a steel mill into investment banking. He discusses the importance of finding a mentor and making conscious decisions about career paths. Pete also highlights the role of business schools in preparing students for investment banking interviews and the differences between bulge bracket and boutique banks. He emphasizes the need for intentionality and finding fulfillment in a career in investment banking. Pete also shares advice on dealing with imposter syndrome and the importance of setting priorities.

Pete's book is Running with the Bull: A Survival Guide to MBA Recruiting (https://bdmrka.com/)

Our first mock interview episode! Alexandra is a student at UPenn recruiting for investment banking and private equity roles after interning in private credit at a blue chip firm.

If you are interested in schedule a mock interview, email me at craig@breakingintofinancepodcast.com with a short note and a copy of your resume.

On this episode, Craig chats with Eddie Ackerman, Finance Operating Partner at Thomvest, about his career path and lessons learned along the way.

We also do a deep dive on how the role of the CFO has evolved over the last 30 years and what that means for aspiring CFOs. CFOs require a combination of quantitative and qualitative skills, including financial expertise, data analytics, and strategic decision-making. The CFO role today requires substantially more strategic thinking than is has in prior decades.

In this episode we discuss Spotify's Q2 2023 earnings report. We break down the nitty gritty on how to use a company's financial statements to go one level deeper than the news headlines and understand what's actually going on at the business.

Link to video with screenshare: https://youtu.be/24b0wyA1bq4

Link to Spotify investor presentation: https://www.sec.gov/Archives/edgar/data/1639920/000114036123035965/brhc20056303_ex99-1.htm

In this bonus episode, we wanted to publish a quick but important question that Blaise had on how an acquisition or merger can create value. This episode gives a short intro to synergies and some different ways that two businesses combining can (sometimes but not always) generate greater profits than the sum of the parts.

In this episode I chat with Blaise and Olivia about capital expenditures (aka "capex"), what it means to capitalize an asset and the role of depreciation in "averaging out" the cost of capital expenditures. As part of discussing how capex affects each of the three financial statements, we also introduce the "Cash from Investing" section of the Statement of Cash Flows in more detail.

This episode is all about cold outreach. Who to target, what to say, how to say it, when to follow up and why overlapping affinity groups can be so powerful when it comes to effective out-of-market interviews. We use a specific example of a cold email I sent to illustrate best practices for cold outreach.

After a few week's off, we're back to share a sneak preview of some great content we have lined up for this year.

First full episode of 2024 will drop tomorrow!

On today's episode, we're sharing a Q&A session that Craig held with Will, a recent graduate from Castleton University who is eager to find a way into a private equity investing role. We touch on a number of topics including the value of a Masters in Finance program, the CFA and whether taking coding classes to learn some basic coding in languages like Python will give you a leg up in the process.

For folks new to the show interested in similar questions, I'd highly recommend also listening Episode 4, where I talk to Austin Kipp about his journey from working in IT to investment banking at Credit Suisse and PE investing at Thomas H Lee Partners.

Today I'm joined by Aaron Tobias, a Senior at Middlebury College and incoming Investment Banking Analyst at Morgan Stanley to talk about his recruiting journey as well as his advice for navigating the interview process.

Aaron's free resource recommendation: Bill Ackman's Everything You Need to Know About Finance in Under an Hour

(https://www.youtube.com/watch?v=WEDIj9JBTC8)

On this episode I catch up with Taylor Weekes, who is currently a first-year investment banking analyst at a bulge bracket bank. We touch on a variety of topics including Taylor's path to IB, advice for learning the technicals, strategies for seeking professional mentors and advisors, and her experience as a Black woman in finance.

Taylor and Craig first met when she was a Sophomore at Howard and participated in the inaugural Wharton Partners In Equity Case Competition that he helped organize as an MBA student, so this episode was a fun reunion!

Lastly, here are links to a few YouTube channels we discuss:

• https://www.youtube.com/@BreakingIntoFinance
• https://www.youtube.com/@AfzalHussein
• https://www.youtube.com/@KenjiExplains
• https://www.youtube.com/@PeterSu

Last episode we teed up the topic of exit opportunities and the types of careers paths available to finance professionals. Today we're excited to be joined by Paul Barnhurst AKA The FP&A Guy, host of FP&A Today and Financial Modeler's Corner. Financial Planning & Analysis ("FP&A") drives the strategic finance function at corporates and is an increasingly popular next step for ex-bankers. Paul is a thought leader in the space who helps break down the FP&A role, the skills you need to be successful, and his thoughts on the future of financial modeling.

You can learn more about Paul's thought leadership here: https://www.thefpandaguy.com/

In this episode we do a deeper dive on the balance sheet, with a particular focus on the differences between liabilities and equity.

On today's episode, I sit down with Charlotte Lawrence, Senior at Middlebury College at incoming investment banking Analyst at Goldman Sachs. Charlotte interned last summer on Goldman's Investment Grade Capital Markets team, which is part of their Financing Group. During the interview Charlotte gives some great advice for how to prepare for any financing group Superday, talks a little about a day in the life of a debt capital markets banker, and along the way we parse through some of the alphabet soup of financing IB terminology.

Charlotte's free resource recommendations:

• Five Things to Start Your Day (Newsletter): https://www.bloomberg.com/account/newsletters
• GS Exchanges (Podcast): https://open.spotify.com/show/4QYK5hxHNeXnevtUTsn5a7?si=56aeaba90ac64198

Blaise and Olivia join to review the difference between debt and equity as components of the capital structure, as well as the potential consequences of overborrowing.

Building on our earlier Venture Capital Primer episode, Blaise is back to discuss some strategies and tips for breaking into venture, optimal entry points for launching a career in VC, and how to stand out in the interview process (or create your own process!)

In the first of several appearances, avid listener Sherley Lopez Estrada, a Senior at Middlebury College, joins the show to talk about tips and tricks for reading finance news articles.

On today's episode we talk about the best places to get free or cheap news articles and how to use news articles to begin developing a "view" on the markets.

In this episode, Olivia, Blaise and Craig do a deeper dive on the components of a Discounted Cash Flow (DCF) model. In the second half of the video, we review a sample interview question that investment banking applicants are often asked during interviews.

This is a continuation from Episode 19, where we introduce the concept of the DCF model and how to calculate a company's Weighted Average Cost of Capital (WACC), which is commonly used as the discount rate in a DCF model.

Link to video recording: https://youtu.be/5TulszW9g7M

On today's episode, Craig sits down with Joe Magdovitz, VP and Head of Finance at Vouch Insurance. After beginning his career in investment banking and at the Fed, Joe pivoted to startup finance leadership. After getting his MBA from Tuck, Joe worked in FP&A at eBay and then went on to lead the finance function at a range of mid- to late-stage startups including Kiavi, Workrise and Vouch Insurance.

On this episode we're talking about growth equity investing with Mike Hinckley, Founder of Growth Equity Interview Guide and former investor and operator at AirBnB, General Atlantic and Deutsche Bank. We touch a number of topics including recruiting for that 2nd job after getting the Analyst job, the growth equity space, and how growth equity investors think about valuation. We also get the untold story of how Mike made his way to General Atlantic and some tips about working with recruiters.

This episode covers a cousin of the Accretion/dilution analysis: present value of future stock price (which you might sometimes see abbreviated as PV of FSP). This PV analysis of a company's future stock price can be helpful if a public company is determining whether to make an acquisition or investment that is dilutive in year 1 but might lead to higher earnings and/or earnings per share in the future.

As we ramp up our valuation skills, this Q&A session helps orient listens around both the most important metrics for valuing assets, as well as which (different!) historical metrics are the best predictors of value

Blaise, Olivia and Craig discuss the role of the Fed, and both the "how" and "why" central banks do what they do. We also talk about the biggest cause of the 2022 bear market, and the implications of what central bank policy decisions mean for Wall Street and valuations.

In this conversation, Craig interviews Jessica Holton about her journey from investment banking at Morgan Staley and private equity at Carlyle to eventually attending Stanford GSB for her MBA and pivoted to serial entrepreneurship. Jessica founded two businesses (BLAZE Skincare and Ours) and is also of Access Distributed, a nonprofit organization that helps students from underrepresented backgrounds break into finance.

Jessica shares the challenges faced by fellows and provides advice on networking and building relationships in the finance world. They also discuss the importance of in-person internships and how to make the most of remote work. Jessica offers frameworks for choosing the right path in banking and shares her experience transitioning to entrepreneurship. The conversation concludes with a discussion on the role of business school in personal growth and development.

Takeaways

• Access Distributed is a nonprofit organization that helps students from underrepresented backgrounds break into finance.
• Networking and building relationships are crucial for success in the finance world.
• In-person internships provide valuable opportunities for learning and building connections.
• When choosing a path in banking, consider the people you will be working with, the types of deals you will be involved in, and your interest in the industry.
• Business school can provide a supportive environment for exploring entrepreneurship and personal growth.

How did the US Government make a $6 billion accounting error with real life and death consequences? In the episode we give a helpful reminder that seemingly written-in-stone dollar figures can often be subject to caveats and interpretation.

On this episode Craig and Olivia answer your questions on topics that we've covered thus far. We cover a variety of topics including why the balance sheet needs to balance, how to calculate retained earnings, converting EBITDA to net income, key income statement metrics and how net working capital affects cash flow projections.

In this episode we introduce the concept of working capital, it's components, and why it is an hugely important component of financial modeling and forecasting. Link to video version, which includes a short powerpoint presentation that lays out various definitions and terms: https://youtu.be/IsJCoYomtrs

Olivia joins us for Part 1 of a two-part deep dive on how debt and interest expense impact the three statements. We also talk about taxes and how interest is tax-deductible. Part 2 continues with these themes, and also breaks down the Statement of Cash Flows in more detail.

In today's episode, I wanted to take a 1-week break from the interview model to talk about some investors and strategies that I admire and that have (or are in the process of) changing the industry. These are some important figures and strategies to study and understand on the road to becoming a better investor.

Key Highlights:

1. Robert Smith and Vista Equity Partners: Recognized for his pioneering insight into software companies' valuation, Smith's approach to leveraging these high-gross-margin businesses has positioned Vista as a leader in software investment

2. Seth Klarman and Baupost Group: Klarman's philosophy of being able to price anything, regardless of the asset type, showcases the depth of value investing and the principle of margin of safety. His influential work, "Margin of Safety," is a must-read for aspiring investors

3. Nelson Peltz and Trian: Through Trian, Peltz exemplifies how activist investors can drive significant changes within companies by advocating for more efficient operations and shareholder value maximization

4. Pete Stavros and KKR: 50 years after Henry Kravis, George Roberts and their mentor Jerome Kohlberg started pursuing the first leveraged buyouts, KKR continues to innovate with strategies like Stavros' decision to offer shadow equity to employees. This action has shown in several pilot investments to lead to substantial operational improvements and value creation

On today's episode we're re-airing our most-watched episode, Intro to the Three Financial Statements. We've gotten a lot of new listeners to the show, and I want to make sure everyone knows that my best content came first - the deep dives on all the technicals needed to crush your interviews and break into finance.

All our hard work is about to start paying off! Now that we've talked in detail about companies and their financials, we're ready to talk about valuation. In the first of several valuation-focused episodes, we introduce the concept of the Discounted Cash Flow (DCF) model, and the what/when/why/how of discounting future money. To do this, we do a deep dive on calculating a company's cost of capital and introduce the concept of Weighted Average Cost of Capital (WACC).