Moving to PE
Private Equity (PE) investment is hot, in Asia, in China. According to a 2008 report published by Zero2IPO Research Center, 51 PE funds investing in Asia (including mainland China) raised US$61 billion〞an extraordinary 72% higher than the yield in 2007. PE investment institutions invested about US$10 billion in 155 projects in mainland China in 2008.
It's no surprise that the rapid growth of PE investment in China results in a short supply of suitable high quality talent. While many well trained and experienced business transaction lawyers set their sight on moving in-house with a PE firm, not all are suited to the work. With opportunity to participate in successful projects, and earn high rewards, a career move to PE firm attracts many lawyers serving in top tier law firms.
To learn more about the key factors for success in a PE firm, we spoke to a noted PE insider. Mr. Gao Fei is senior in-house counsel at Morningside Ventures, a private investment company of Morningside Group. The firm invests in PE and venture capital (VC) opportunities targeted in high-tech, telecommunications, media, life science and education. Firm investments include Sohu.com, Ctrip, PayPal, The9.com and Target Media.
Gao joined Morningside Ventures after working 10 years as a lawyer in a law firm doing M&A, PE/VC and Capital Market work. From law firm to PE firm is an ideal career path, though the move brings significant changes in responsibilities, thinking model, and even life-style. For Gao, working in a PE firm combines both excitement, but also challenges. "Lawyers' advantages and disadvantages can be seen through the challenges of work in a PE firm," Gao notes.
Why choose a PE firm? - Monotony vs Variety
Lawyers in private practice work on projects involving a variety of industries. This provides a broader view. However, as outside consultants, they are usually not deeply involved in the business. They often have limited opportunity to check whether their solutions are effective. In-house counsel typically participate in the whole process, using their legal knowledge in a more practical way. However, the company is their only client; they can only work in one industry. A lawyer in-house in a PE firm enjoys the best of both types of practice, says Gao. "In a PE firm, you can work deeply in a wide range of deals. Law practice in PE firm includes both depth and width." This attracted Gao to move to a PE firm.
What are the challenges in a PE firm? - Risks vs Profits
Lawyers in PE firms encounter more complicated and tricky deals〞with much higher risks, than in-house counsel in commercial or industrial companies. A meticulous working attitude and conservative approach〞considered core strengths in lawyers〞can be weaknesses in PE lawyers. PE counsel cannot be overly cautious. A risk taking spirit is essential. Gao says, "You cannot so easily avoid risk and say 'no', since you may destroy a golden chance. The thing you should do is balance. Balance the high risks and potential profits."
How to balance the risks? What is the profit-earning model? What is the best solution to make the deal work? Lawyers moving from law firm to PE firm meet challenges adjusting to a dynamitic business process. Gao advises: "Be patient. Listen and study. Listen to your colleagues when they are discussing details of the deal, then you can find much useful side information."
Financial knowledge is essential for work in a PE firm. "Basically, you should understand what the financial statement shows. Then you can tell the good ones," advises Gao. Lawyers with a CPA qualification gain an advantage in balancing law and finance.
What is different for a PE counsel? - Documents vs Activities
Compared to the endless paperwork and research in the daily life of a law firm lawyer, life in a PE firm seems more interesting. Most deals are not started or done in the office. Attending seminars, travelling nationally / internationally and even playing golf are musts. "Social activities provide a platform for investors to exchange information and trends in the market," says Gao. Working closely with business executives enhances a lawyer's sensitivity in differentiating good projects from bad ones. Some PE lawyers successfully move to become investors. They bring logical thinking and meticulous analysis which is much appreciated.
Choices? - Stay still vs Move forward
Desire and diligent pursuit is not enough to become a PE counsel. Logical thinking, a lawyer's strength, is required. Equally important are solid interpersonal skills, strong networking ability, outstanding communication and sense for business and risk. The PE counsel is a player, participating and experiencing the entire deal process. While exciting, the role brings pressure, responsibility and change in style most lawyers may well want to avoid.
