Much has been written about the value of an MBA. I have one, I know many people with them, but should you spend two years and up to $125,000 in tuition alone to get one? It’s a tough question.

The MBA degree, in all of its varieties (two-year, one-year, EMBA, etc.), is mature at best and arguably in decline, according to a Graduate Management Admission Council report from 2011. The decision to seek the degree is harder than ever, as the cost of an MBA has significantly outpaced inflation. Salaries of analysts and associates in venture capital and private equity have increased substantially and there is a greater willingness of employers to advance those without it.

So consider: Is the MBA worth it? According to Forbes, it takes about four years for MBA graduates to get a return on their MBA investment. Forbes ranks business schools based upon the aggregate amount of money gained after five years of employment following the MBA, then calculates the number of years of payback. Payback tends to be about four years. The key assumption, based on surveys of pre- and post-MBAs, is that post-MBA pay is 50 percent higher than pre-MBA pay. So, if you earned $50,000 upon entering an MBA program, you would, on average, earn $75,000 after completion. This assumes a full-time MBA; part-time MBAs are less compelling.

While this methodology seems entirely logical, I believe it to be flawed. The notion that a post-MBA earns 50 percent more than the non-MBA counterpart, ad infinitum, is illogical. I do not believe averages apply here, but rather that it is a bifurcated decision set in which certain candidates seek MBAs. Others, meanwhile, are just not going to be materially better off with the additional degree.

How to Decide

Here are the criteria the finance-oriented analyst or associate should consider:

• Motivation: What is driving you to consider an MBA? Is it career change? The need for new knowledge, skills and abilities (“KSAs”)?
• Non-MBA career path: If you do not wish to switch careers, what is your likely career path in your present industry without an MBA? Is it a requisite for the job you seek (investment banking, for example)?
• Reputation of school: This is the preeminent driver of which school candidates choose. There is undoubtedly a correlation of exit salary with school selectivity. The better the school—or the better the school’s reputation—the higher the salary of its graduates.

These criteria can be used to “score” whether or not an MBA makes sense. I’ll use myself as an example. I was an engineer who wanted to get into finance, venture capital in particular. I had a couple years of experience at Intel as an engineer, then a start-up that went well. However, I had no finance training whatsoever. Therefore, for me at the time, the considered criteria made the decision an easy one:

• Motivation: Both career change and KSAs.
• Non-MBA career path: Likely difficult to get into VC without the MBA.
• Reputation of school: Accepted at Columbia Business School.

Was it worth it?

In my case, going for the MBA was the right choice. In addition to the criteria above, there are intangibles that many successful MBAs credit their time in business school for. People often talk about the benefits of the “network” of relationships garnered during and after business school and the exposure to different industries and business leaders. I have been the beneficiary of both of these, and they have been invaluable.

Here again, I think it is critically important that one chooses the right business school program for them. What do I mean by that? While it is obviously fantastic if you have been admitted to a school with a national or international reputation, it could be equally as valuable to pick a strong regional school if your intention is to live and work within that region after graduation. Similarly, if you know you intend to graduate into a specific industry, then it makes good sense to attend a school with a strong reputation in that industry.

While it was clear-cut and an easy choice for me, this is not the case for many MBA candidates and the decision is becoming increasingly difficult. There are a few factors causing the MBA to be less popular. First, universities are their own worst enemies in that the cost of attendance continues to rise faster than inflation. This increases the payback period. Second, analyst and associate pay has also risen faster than inflation, therefore making the opportunity cost greater—consider your two years out of the workforce at minimum, lost wages, missed promotions, etc. Finally, I believe it is more widely accepted within private equity and venture capital to advance without an MBA. This is not universal; however, there are those who believe (as we at Catalyst do) that our business is an apprenticeship learned over time.

Getting an MBA involves many personal and professional sacrifices, but also yields great potential. An MBA candidate’s decision can be made easier with these criteria as a guide.

Brian Rich is managing partner and a co-founder of Catalyst Investors, a growth equity firm. He started his career as an industrial engineer at Intel before attending Columbia Business School. Rich also founded and managed TD Capital (USA). 

Article courtesy Reauters

Highlights

Highest To Lowest Paying Jobs For Columbia’s Class of 2013

Detailed Columbia Business School Class of 2013 employment report

The 2014 PE+VC conference promises to be the B-school’s largest Private Equity and Venture Capital Conference to date. February 28, 2014, marks the event’s 20th anniversary and the first time it will be held off campus (at the Sheraton New York) – the change in venue means the student-run gathering can welcome up to 1,000 attendees, up from 800 last year, and attract an even more impressive roster of speakers and panelists.

The headlining guests include Alan Patricof of Greycroft Partners, Leon Black of Apollo Global Management, David Blitzer of Blackstone, Eric Young of Canaan Partners, New Enterprise Associate’s Peter Barris, and Columbia Business School alum Mark Dzialga of General Atlantic.

The business school selected the theme ‘Driving Entrepreneurial Thinking in the World of Investing’, to highlight New York City’s tech boom and the accompanying startup surge. A school representative explained the thinking behind the theme, “Usually these conferences are about the road to recovery or investing in unclear territory; we wanted to put a positive spin on it but also tie it back to entrepreneurship in New York.” Under this premise, the conference planners hope to tackle a trifecta of topics, including: investing in entrepreneurs, understanding how to create value like an entrepreneur, and exploring the role of general partners as entrepreneurs.

The school says the emphasis on the investor as an entrepreneur sets Columbia’s 2014 conference apart from similar gatherings held at U Penn’s Wharton School and Harvard Business School (both institutions are also celebrating their 20th private equity and venture capital conferences this year).

How can you participate? Tickets for the conference are on sale at this link though they aren’t cheap. Students can expect to shell out $250 for a ticket, while professionals pay $475. The steep rate reflects the caliber of the speakers and the larger, swankier venue, according to Patrick Chang who is co-president of Columbia Business School’s Private Equity and Venture Capital Club. So far, they’ve sold some 700 tickets, and Chang is confident it will be a sell-out crowd. “We’re really excited, it’s one of the best lineups in the history of the conference,” he says. Rather than simply a school event, his goal is to make it as professional and instructive as the mega-conferences hosted by SuperReturn International and Dow Jones.

Chang says the 2014 theme also captures a more systemic shift on Columbia’s campus. “So much has changed with Columbia Business School lately; we launched a new branding campaign, ‘At the Very Center of Business,’ and it reflects that Columbia is in a prime location for business,” he says. “We’ve seen the development of the tech industry coincide with that of great universities before. Stanford benefited as Silicon Valley took off in the late 70s and early 80s and exploded in the late 90s. Harvard and MIT were much the same with the enterprise software and biotech movements in Boston in the 80s. Now its Columbia’s turn. The rise of Silicon Alley is real, and we plan to take advantage of that.”

Chang says the conference is a great opportunity for students to mingle with representatives from top PE and VC firms. Speaking of his own situation, Chang shares that while he’s keen to carve out a career in venture capital after graduation, he is aware that it’s a tough field to break into. However, he hopes that by putting on events such as Columbia’s Private Equity and Venture Capital Conference he can help MBAs like himself get their foot in the door.