Q&A: IVCA Scholars Nate Barajas, Angela Chi

September 8, 2009

CHICAGO - “ With school starting and summer drawing to a close, IVCA scholars Nate Barajas and Angela Chi talk about their summer internships at Prairie Capital and Thoma Bravo, respectively.

Barajas, who is returning to the University of Illinois at Urbana-Champaign (UIUC) campus for his senior year, is an accountancy and finance major. Chi will graduate in December from the University of Illinois at Chicago (UIC) with a degree in finance.

In this interview, the two reflect on their internship experience and the current economic climate as they head into their final year of matriculation.

IVCA: Having interned for Prairie Capital (Barajas) and Thoma Bravo (Chi) this summer, what direct experiences supplemented your studies?
Nate Barajas: I took a couple classes last semester that related to corporate finance. Many of the concepts I studied in class popped up at some point during the internship. However, the real-world application of academic concepts really helped enhance my knowledge of the material. As I'm taking a couple more classes this semester that center around corporate finance, I'm sure I'll see more applications in the upcoming year.

Angela Chi: I would say this experience will give me a practitioner's perspective as I continue my study in finance.

As a student, I learned theories from my professors in school. For example, my education has given me a solid foundation of accounting that came in handy in doing a PE deal. But when you are actually putting the deals together, you need to look not only the numbers but also factors. Whether it's the management or the corporate culture, those factors are usually much more difficult to quantify. Still, they are nevertheless of tremendous importance. I think having the experience of doing an actual deal will allow me to mindful of the limitations of the methods and theories that we teach in our business schools.

IVCA: What opportunities did you receive as an IVCA scholar that benefited you in your internship program?
NB: There were numerous networking opportunities spaced throughout the summer that helped me get to know more people around the industry. For example, I went to the IVCA summer White Sox game in June. I met a lot of people in the industry and got to hear their thoughts on my career path and interests.

Everyone I met throughout the summer was more than willing to help me with my career. Those resources should prove valuable come recruiting season in the fall. Also, the IVCA informed me that I still have the privilege of coming to any IVCA social event after the summer. I hope to take advantage of these events to expand my professional network and learn as much as I possibly can. There were times throughout the internship when I was faced with a challenge that I didn't understand. I would sometimes feel uncomfortable approaching my colleagues about something that seemed so obvious. Instead, I would speak with professor Dan O'Connell and he would help me understand the issue. Our meetings really helped me wrap my head around some of the nagging issues within the job. I'm very grateful for it.

AC:  Not only did I get to meet many interesting people within my firm but I was able to network with many professionals in this industry outside of my company through IVCA-sponsored events. We met with accounting firms, valuation firms, investment banks, fund-of-funds and many other kinds of firms. It was definitely a great experience.

IVCA: What activity in your internship defined the type of work you anticipate doing within the industry?
NB: I did a lot of financial modeling when I was at Prairie. LBO and DCF models seem to be standard practice in corporate finance. I had the opportunity to use Prairie's specialty LBO and DCF models to evaluate potential business opportunities. To help me understand the models better, I decided to build the models from scratch in my spare time. This strategy made me a lot more confident in my modeling skills. I now feel like I can build an LBO in my sleep!

I also did a lot of industry research for the firm. The research ranged from reading over analyst reports to making phone calls to industry players to gain a better understanding of a particular issue or challenge within the space. I really had to filter extensive amounts of information to determine what was relevant to Prairie. For example, I read through close to 500 pages of industry research and trade-journal articles for a diligence assignment. While anyone can find the information, what truly makes a strong financial analyst is the ability to decipher and filter that information and relay it to the right people. I did some of the same work an analyst would do at a private equity firm. Most analysts are hired directly from investment banks and thus are expected to have a particular skill set going into the job. While it was challenging, I feel I picked up both investment banking and private equity skills throughout the internship.

AC: I was able to take on progressively more complicated and challenging tasks as my internship continued with the firm. My internship started from simple prospecting investment opportunities and researching different industries. I researched the industry and filtered out the potential opportunities based on our investment parameters.

I also read the analyst reports and articles to find out the attractiveness of an industry and its major players. Furthermore, I had the opportunities to interview the store managers and owners as well as discuss the market trends and a business overview to have further knowledge in the industry. I also participated in the due diligence process in many potential investments and presented my findings to the associates and vice presidents.

Before this internship, I knew that it is a challenging industry because one must look for the information that is not publically available. After the internship, I also learned how to valuate companies, research potential investments and how the deal flows through. The overall experience has been rewarding. I have learned so much in 10 weeks.

IVCA: What activity surprised you in your internship as far as the responsibility and knowledge that you received from it?
NB: I feel I took out a lot more than I initially expected from this internship. I feel a lot more confident when discussing the industry now. At the beginning of the internship, the professionals mainly gave me relatively simple work to test my abilities.

I worked hard to make a strong first impression. By the end of the summer, I was performing the same kinds of tasks that a first-year analyst would. Additionally, the professionals at Prairie made my internship experience extremely worthwhile. Everyone made a significant effort to keep me as involved as possible over the course of the summer. By the end of the summer, I really felt like I was part of the group and the culture at Prairie. It's a great place to work and the people there are incredibly bright and friendly. I really hope to keep in touch with them as I continue my professional career.

AC: In the beginning, I did mostly prospecting and basic associate work. Toward the end, though, I was able to independently conduct real industry analysis. For example, if my supervisors feel a certain industry may be attractive, they would ask me to conduct some research by talking to industry professionals and reading trade publications.

After I conducted my research, I would create a list with all the potential targets. The associates and vice presidents will then begin calling on them. It's really great to see how the deal works out.

IVCA: What contact did you have with outside portfolio companies or service providers? What did you observe from those interactions?
NB: I did get the opportunity to sit in on calls with investment bankers, diligence providers and senior lenders. The calls were all great learning experiences. In addition, the IVCA set up lunch meetings with some private equity service providers. Through these, I had the opportunity to meet with Chicagoland investment banks, transaction advisory and valuation firms, fund-of-funds and senior lenders. The meetings really helped put those phone calls at Prairie Capital into perspective.

AC: Because of the dislocation in the market, my observation is that deal activities have slowed down considerably. Hardly anyone is selling companies. This is rightly so because the price has been so depressed. But many of our prospect companies are telling us to stay in touch in six-month to one-year increments. We are basically still actively seeking opportunities. Once the capital market conditions improve, it's not inconceivable that we will see more deals coming through.

IVCA: Given the types of business practices that precipitated the current economic downturn, what type of ethics programs are being propagated at the university level? What did you learn about ethics in your internship?
NB: Overall, I feel that Prairie Capital's philosophy hasn't changed at all since the economic downturn. The firm tries to invest in companies with a defensible market niche, a strong management team and strong growth prospects.

The company looks at more than 1,000 potential transactions a year. However, they filter this vast number down to two or three investments a year. Impatience and greed were the catalysts of this recent economic downturn. Excesses in both factors can lead to an increase of risk for the investor or the underwriter.

Prairie is very skeptical to invest in companies with complex business models and little industry visibility. Their philosophy has left them in a very strong financial position. Prairie is raising a new fund right now. I feel it has encountered fewer fund-raising obstacles than some of its peers due to its fund performance during this recession.

AC:  I think there is definitely a heightened awareness of ethical issues on the part of educators. For example, in my school, we hold four ethic panel discussions a year. There are industry representatives and school staff representatives. All the students can join to discuss different scenarios and case studies on business ethics.

IVCA: What type of mentoring program did Prairie Capital and Thoma Bravo set up for you both? What impressed you about their approach?
NB: Prairie has three senior analysts who were only a few years older than me. I reached out to them with any questions or concerns I had during the internship.

We would discuss the industry over lunch. They would give me advice on an appropriate career path for an undergraduate in my position. The guys were absolutely great. They really helped me understand Prairie and the industry in general.

AC: Go back to what I said previously about learning different aspects of the deal such as accounting and valuations. I not only learned one aspect of the private equity business but also got a pretty broad overview of all the players that make a deal work from investment bankers to accountants. It showed me the different areas I can focus on when deciding my career path.

IVCA: What career do you anticipate following your bachelor's degree? Do you plan to go further with graduate studies?
NB: I plan to pursue a career in investment banking after this graduation. Working for a private equity firm such as Prairie seems like an ideal situation. However, I do understand that it takes a few years of experience to contend with such bright people. Most investment banks have two- or three-year analyst programs for college graduates.

I plan to pursue such opportunities over the next few months. Most people tell me that investment banking is the best way for a finance student to begin a career. You literally cram in four years of experience in two years. This career path will allow me to pursue virtually any career I'd want in corporate finance. I feel that investment banking will open a lot of doors.

AC: I am interested in investment banking because it seems the most logical path to private equity. I plan to work for a few years and then pursue graduate work depending on what I've learned.