Buy-Side vs. Sell-Side: Different Types of Firms & How to Choose One

Navigating the buy side can feel overwhelming, especially if you're coming from investment banking or top consulting firms, because the options are more varied than they seem. The firm you choose can launch your investing career or burn you out in a year. In this article, I’ll walk you through the main types of buy-side firms and share two simple litmus tests to help you figure out where you’ll thrive.

To give you context, here’s how I found my path.

I’ve been a nerd my whole life. As a kid, I binged the science and history channels, paid my own way to space camp at 12, and thought I’d pursue STEM—maybe even MIT. But by the end of high school, I realized I wasn’t wired to be stuck in a lab. I pivoted to business, drawn by the variety of companies, problems, and career paths. That led me to Brigham Young University, where I chose to study business because of its strong undergraduate programs.

During college, I interned at a local search fund where we sourced and diligenced acquisition targets with enterprise values between $20–100M. That experience sparked my interest in becoming a career investor. Many classmates were aiming for buyout firms, so I followed suit. But first, like most of us, I needed to go through investment banking or consulting.

I chose banking and joined Goldman Sachs in the Financial Institutions Group, covering asset managers and fintech clients. The people were great, and I learned a lot, but it wasn’t intellectually fulfilling. After about a year, I started exploring the buy side.

Initially, I targeted traditional growth equity firms. But after several interviews, I realized I wasn’t excited about the types of companies they were backing. Then I landed an interview at G2 Venture Partners, a venture growth firm focused on sustainability and innovation. The moment I learned who they were investing in and why, I knew it was the kind of work I wanted to do.

I was lucky enough to get the offer and spent over two years there as an associate. It ended up being the perfect fit—and in hindsight, the reasons why are pretty clear.

What is the buy side?

The buy-side refers to firms that invest in securities, such as private equity funds, pension funds, and investment managers. These firms manage money on behalf of their clients or limited partners to generate investment returns. Unlike sell-side firms, which facilitate transactions and provide advisory services, buy-side firms are the actual investors in the financial market. They analyze and purchase securities, aiming to maximize returns for their clients. This distinction is crucial in understanding the buy-side vs sell-side dynamics in the financial world.

The Different Kinds of Firms

As you can see, I went from wanting to go to a big buyout firm, to a traditional growth equity firm, to a venture growth firm. Though at first glance they may appear all to be similar, they couldn’t be more different.

Equity research is a critical component of buy-side firms, involving the analysis and assessment of companies' financial performance to identify investment opportunities.

Reflecting on my history and what inspires me, however, it makes sense why I went on this arc. To figure out what your arc may look like, you need to understand the range of options out there.

Buyout

As the name implies, buyout firms try to acquire the majority (70-100%) of late-stage industrial, financial, healthcare, and retail companies. By “late-stage,” I mean those that are producing cash flow and not growing much, or at all, at the time of acquisition.

Because these companies do have cash flow, a buyout firm uses a combination of debt (money given to them by banks) and equity (money from their own pocket) to acquire the company. Investment banks play a crucial role in buyouts by providing the necessary debt financing and advisory services to facilitate these transactions. The cash flow is then used to pay off the debt, and the company is usually flipped for profit after three to six years.

Value is generated by getting in at the right price, using strong financial engineering, and making the company more profitable, often by cutting heads. Associates at a buyout company will evaluate potential targets, build the financial models that justify the purchase price, and monitor previous investments (the “portfolio”).

Traditional Growth Equity/Private Equity Growth

Traditional growth equity firms focus on acquiring a large portion (40-80%) of mid-stage, healthcare, and technology companies. “Mid-stage” means those that are producing some amount of cash flow and are still growing at a decent clip (20-50% annually).

An investment banker often assists growth equity firms by providing financial modeling and due diligence services to evaluate potential investments.

Similar to buyout firms, they often use a combination of equity and debt to buy the company. Value is generated by once again getting in at the right price and half-decent financial engineering, as well as working with the company to continue to grow the business while keeping margins strong.

Associates will be hyper-focused on sourcing opportunities. Once they get the target through the door, they’ll likely be involved in some amount of due diligence and financial model building, and some interactions with portfolio companies.

Venture Growth

“Venture growth” isn’t an official term, but it’s what I’ll use to describe the venture capital firms that invest in high-growth companies (70-200%) in the technology space, who are usually somewhere between Series B and pre-IPO.

Venture growth firms will hardly ever use debt to make an investment. They’re also usually only one of several investors at the table in any given round. The checks range from $10-100M, depending on the round and the firm, for 5-15% of the company.

Market makers play a vital role in the trading of high-growth technology stocks by providing liquidity and facilitating transactions.

With VC growth firms, value is generated by giving the company more fuel to pour on the fire and continue growth. Getting in at a good price is nice when possible, but you are more often betting on the future upside (IPO/buyout), so it’s the exit price that really matters.

Associates again focus on sourcing companies, but they carry them through the entire due diligence process alongside more senior people at the firm. They’ll likely work with portfolio managers as well.

Early VC

Early venture capital firms invest in early-stage companies in the technology space that are often still trying to prove product-market fit or go-to-market fit. Investing occurs here at the pre-seed, Seed, and Series A rounds.

Debt is never really used, and, like VC growth firms, there can be multiple investors around the table. The investments typically range from $500K-15M.

Here, value is generated by betting on the right founder and idea. Sometimes, the firm can use its network and expertise to help the company reach success. At this stage, you’re basically banking on one or two of the companies in your portfolio making it big (i.e., 50-100x returns). It is boom or bust, which can be very exciting.

Associates focus on using unique sourcing methods to find high-potential companies at very early stages when they have small digital footprints. They do a lot of market research and form theses around certain areas or companies, and may also be a little involved in the portfolio.

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Hedge Funds, Credit Funds, Funds of Funds, and Sovereign Wealth Funds

Because I am not as experienced with these firms, I won’t go into detail here. This is just to show that there are even more options out there for you, including various hedge funds, sovereign wealth funds, and specialized institutional investors. Utilize Google and Wall Street Oasis to learn more if you’re interested.

Investment bankers often work with hedge funds, credit funds, and other buy-side firms to facilitate complex financial transactions and provide advisory services in the capital markets.

Pension Funds

Pension funds are a cornerstone of the buy-side landscape. These large institutional investors invest money on behalf of retirees, ensuring that there are sufficient assets to meet future pension payments. Typically, pension funds maintain a diversified portfolio that includes stocks, bonds, mutual funds, and other securities. The goal is to generate stable and sustainable returns over the long term.

Managed by professional investment managers, pension funds must balance the need for growth with the necessity of preserving capital. This makes them a vital player in the financial system, providing stability and long-term investment opportunities in both public and private capital markets.

Family Offices

Family offices represent another unique segment of the buy-side. These private wealth management firms cater to high-net-worth individuals and families, managing their investments across a broad spectrum of assets. From stocks and bonds to mutual funds, real estate, and private equity, family offices are tasked with preserving and growing the wealth of their clients.

Managed by seasoned professionals, these firms offer personalized strategies tailored to specific goals. While not as large as pension funds or brokerage firms, family offices play a crucial role in the ecosystem and often co-invest with larger institutional investors or hedge funds in niche opportunities.

Other Notes

A few dynamics that span across all of the options I’ve listed above are the size of the firm (both in assets under management and headcount), its reputation, and the type of background that will be the best fit.

Sell-side jobs, such as those in the investment banking industry and equity research, often serve as stepping stones for professionals looking to transition to buy-side roles, whether in hedge funds, mutual funds, or private equity.

The size of the firm can have a major impact on your experience. A “megafund” with $50B of capital will feel a lot different than a $5B mid-market buyout firm. Similarly, a multi-stage VC firm with $15B to deploy will feel different than an $800M VC growth firm.

As a general rule of thumb, the more capital or the higher the headcount, the longer hours you’ll work and the more structured your role will be, but you’ll also be earning more in total compensation.

The reputation of the firm might not make too big a difference in your experience in the role, but it will impact your prospects afterward. In my personal opinion, I would focus more on the reputation of the partners, especially the one with whom you’d be working the closest, even if the firm is young and still making a name for itself.

As for the background that will be the best fit, I’ll say that the later stage you are (i.e., buyout and traditional growth equity), the more important a background in investment banking will be. Financial modeling is a major part of this role, and banking seems to give you that skill set a bit better than consulting does.

On the flip side, the earlier you go (VC growth and early VC), the more relevant a background in consulting will be. You’ll be analyzing markets and trends more than building financial models, and consulting will set you up well for this.

Early-stage VC firms also like to see people coming from operational roles within startups.

Across all of these options—whether you’re looking at hedge funds, mutual funds, pension funds, or brokerage firms—it is possible, though difficult, to break in right out of school. The earlier you go (i.e., the closer to early VC you aim), the easier it is to break in directly.

Buy-Side Careers

Buy-side careers offer a rewarding path for those passionate about investing and managing money. Working for firms that invest in securities, such as private equity funds, pension funds, and investment managers, these roles provide the opportunity to directly influence investment decisions and strategies. The buy-side vs sell-side distinction is important here, as buy-side professionals are the ones making the investment decisions, while sell-side firms provide the necessary market insights and transaction facilitation.

Roles and Responsibilities

Buy-side careers encompass a variety of roles, each with its own set of responsibilities:

• Investment Analyst - Responsible for analyzing securities and making investment recommendations. This role requires strong analytical skills and a deep understanding of financial markets and investment strategies.
• Portfolio Manager - Manages a portfolio of securities, making investment decisions to achieve the desired returns. This role involves a mix of strategic planning and day-to-day management of investments.
• Investment Manager - Oversees a team of investment professionals, guiding the overall investment strategy and making high-level investment decisions. This role requires leadership skills and extensive investment knowledge.
• Risk Manager - Focuses on managing risk and ensuring that investments align with the firm’s risk tolerance. This role is crucial for maintaining the stability and integrity of the investment portfolio.

Tying it Together

Looking back at my experience now, I can see why VC growth was such a good fit for me. It really comes down to this litmus test:

Are you more passionate about finance and financial engineering or technology and markets?

The more you lean toward finance and financial engineering, the better a fit buyout and traditional growth equity firms will be. The more you lean toward technology and markets, the more suited you will be for VC growth and early VC firms.

The stock market serves as the primary arena where buy-side and sell-side firms operate, with buy-side analysts seeking undervalued securities and sell-side analysts facilitating transactions.

Realizing my passion for technology from a young age, I now know why VC growth was the best fit for me. I was and still am inspired by technology companies breaking boundaries and creating new markets. Though there isn’t as much data to go off of as late-stage buyout targets, there is still enough data to help you be reasonably confident in your investments, and I liked that. I can see now that being a model junkie at a big buyout firm would have never been good for me. But, to each their own!

Another litmus test to help you narrow in on the right firm is:

How much do you enjoy structure?

The more you prefer structure and guidance, the better a fit a larger or more well-established firm will be. However, keep in mind that this also means the partner track is a harder ladder to climb.

The more you enjoy flexibility and the ability to be creative, the more you’ll likely enjoy a smaller or newer firm. When choosing where to go post-banking, size was not a major factor in my decision. But, I really came to enjoy the flexibility that I had at a younger firm that was still making a name for itself.

Of course, there are a lot more variables to play with than these, but hopefully, this gives you a good base on which you can start building your transition.

Final Note

Reach out to me on Leland if you want further guidance on navigating the available options, deciding which are the best for you, or interviewing at your preferred firms. I’d love to help you figure out your next steps. Book a free intro call on my profile to get started.

Read next:

• What is Private Equity and How Does It Work?
• Private Equity Roles: The Different Career Paths
• 10 Finance Internships for Freshmen in College
• How to Land a Private Equity Internship During College
• The 10 Best Private Equity Career Coaches for Interview Prep & Training

FAQs

What is the buy-side?

• The buy-side refers to firms that purchase securities (like stocks and bonds) on behalf of their clients or themselves to generate investment returns. Examples include private equity funds, pension funds, and investment managers.

What are the different types of buy-side firms?

• Buyout firms: Acquire majority stakes in mature, cash-flow generating companies, aiming to improve profitability and resell them for a profit.
• Traditional Growth Equity firms: Invest in mid-stage companies with growth potential, often using a mix of debt and equity.
• Venture Growth firms: Focus on high-growth technology companies, typically investing in later-stage rounds (Series B onwards).
• Early VC firms: Invest in very early-stage tech companies, often pre-product-market fit, with the goal of finding the next big success story.
• Other firms: Hedge funds, credit funds, fund of funds, sovereign wealth funds, pension funds, and family offices also operate on the buy-side.

How do I choose the right buy-side firm for me?

• Passion: Are you more passionate about finance and financial engineering (better suited for buyout and growth equity) or technology and markets (better suited for VC)?
• Structure: Do you prefer a structured environment with more guidance (larger firms) or flexibility and creativity (smaller firms)?

What kind of background is preferred for buy-side roles?

• Investment banking experience is often favored for buyout and growth equity roles, while consulting experience can be valuable for VC roles. Early-stage VC also values operational experience in startups.

Can I break into the buy-side straight out of school?

• It's possible, but generally more difficult. It's typically easier to break into early-stage VC directly from school compared to other buy-side areas.