Private Equity interviews can be incredibly demanding, especially when it comes to the technical portion of the process. One of the most common exercises you’ll encounter is the Paper LBO (Leveraged Buyout) model, where you’re asked to build an LBO from scratch based on limited information. This test is designed to evaluate your ability to think critically, understand the mechanics of an LBO, and quickly perform financial calculations under pressure.

While preparing for these interviews, many candidates focus solely on mastering the LBO structure. However, even highly capable candidates often stumble on seemingly small yet significant aspects. In this article, we will explore the top five mistakes candidates make during Paper LBO interviews and how you can avoid them to stand out in your Private Equity applications.

Focusing Too Much on Detail Without Seeing the Bigger Picture

The Mistake :

One of the biggest mistakes candidates make is diving into the nitty-gritty details of their financial model without keeping in mind the overarching deal structure and strategy. They might spend too much time fine-tuning assumptions, like depreciation rates or tax effects, instead of focusing on the bigger picture: how the deal will generate returns for investors.

Why It’s an Issue :

Private Equity professionals are looking for candidates who understand not just the mechanics of the model, but also the key drivers of value in an LBO. If you get bogged down in minor details, it shows that you might miss what’s truly important in the investment thesis — and you could run out of time during the interview.

How to Avoid It :

When building your Paper LBO, focus on the three critical factors that drive returns in any LBO:

 

• • Leverage (how much debt is used)

• • Operational improvements (EBITDA growth)

• • Exit multiples (what price the company can be sold for)

Understanding these and their interplay will demonstrate to interviewers that you can think like a true Private Equity investor, even under time constraints.

Mismanaging Time During the Exercise

The Mistake :

A Paper LBO is usually a time-pressured exercise, with most interviewers allocating anywhere from 30 to 60 minutes. One common mistake is not allocating time properly, spending too long on one section (like calculating leverage ratios or building out depreciation schedules) and not leaving enough time to interpret or explain your results.

Why It’s an Issue :

This mistake shows a lack of time management and prioritization, both of which are crucial skills in high-pressure Private Equity roles. If you don’t finish the model or run out of time to analyze it, you might present incomplete or inaccurate conclusions, which can severely hurt your chances.

How to Avoid It :

 

• • Practice under timed conditions: Set a strict 30-minute timer and practice building a full Paper LBO several times before your interview. This will help you gauge how long each step takes and where you can streamline your process.

• • Prioritize: Focus first on the essential components — revenue growth, margin expansion, and leverage. If time allows, you can dive into secondary details like tax effects or depreciation.

Tip: It’s better to present a complete but simple model than a highly detailed but unfinished one. Interviewers often value clarity and precision over complexity.

Using Unrealistic Assumptions

The Mistake :

Candidates sometimes make the mistake of using overly optimistic or entirely unrealistic assumptions in their Paper LBO models. Whether it’s assuming aggressive EBITDA growth, overly high exit multiples, or excessive levels of leverage, this error can make your model seem disconnected from reality.

Why It’s an Issue :

Private Equity firms operate in the real world of risk and return. Unrealistic assumptions make it appear as though you don’t understand the real-world constraints of financing or the industry in question. Using assumptions that don’t align with current market conditions can be a red flag for interviewers.

How to Avoid It :

 

• • Research beforehand: Before your interview, understand typical leverage ratios, industry growth rates, and exit multiples in the sectors the PE firm targets. This will allow you to make more grounded assumptions.

• • Stay conservative: When in doubt, use conservative assumptions that show you understand risk. For example, if the industry average EBITDA growth is 5%, avoid assuming 10% growth unless you have a solid rationale.

Remember, interviewers are more interested in your ability to explain why you made certain assumptions rather than just plugging in numbers.

Not Explaining or Justifying Your Assumptions

The Mistake :

Even when candidates use reasonable assumptions, they often fail to justify or explain their choices during the interview. They present the model without walking the interviewer through their thought process, leaving gaps in their reasoning.

Why It’s an Issue :

A Private Equity interview isn’t just about getting the “right” answer. It’s about demonstrating how you think through problems, assess risk, and evaluate opportunities. Failing to explain your assumptions suggests that you may not fully understand their impact or are simply guessing.

How to Avoid It :

As you walk through your model, take the time to explain each assumption clearly:

 

• • Why did you choose a certain EBITDA growth rate?

• • How did you determine the level of debt?

• • Why did you pick that exit multiple?

By articulating your rationale, you’ll demonstrate critical thinking and make it easier for the interviewer to follow your logic. It also allows for a more interactive conversation, which can be a positive sign to interviewers.

Failing to Present a Clear Investment Thesis

The Mistake :

After building the financial model, some candidates present their results without tying them back to a clear investment thesis. They simply state the IRR (Internal Rate of Return) or cash-on-cash return without explaining why this would make a good investment.

Why It’s an Issue :

In Private Equity, the narrative behind the numbers is just as important as the numbers themselves. Failing to present an investment thesis shows a lack of strategic thinking and could suggest that you don’t fully understand what makes an investment attractive to a PE firm.

How to Avoid It :

Once your model is complete, take a step back and assess the overall viability of the deal:

 

• • What’s driving value? Is it operational improvements, multiple expansion, or deleveraging?

• • What are the key risks, and how could you mitigate them?

• • Does the deal align with the firm’s investment strategy?

By providing a clear investment thesis at the end of your Paper LBO, you’ll show that you not only understand the numbers but also how they relate to real-world investment decisions.

Acing a Paper LBO interview requires more than just knowing the formulas and calculations — it’s about demonstrating how you think like a Private Equity investor. By avoiding these five common mistakes and approaching the exercise strategically, you can set yourself apart from other candidates. Focus on the big picture, manage your time effectively, use realistic assumptions, justify your decisions, and always present a clear investment thesis. With practice and preparation, you’ll be well on your way to impressing your interviewers and securing a coveted role in Private Equity.