Need advise on economics/carry
Work for an 1bn AUM growth equity shop. I joined around 6 months ago as a principal (not partner, the firm has one partner, a couple principals, few VPs, associates etc.). All in all around 15 people.
I brought in via a relationship of mine a completely proprietary deal - no agent, nothing. It's an off market opportunity with a 50mm cheque. Our fund is going to do 20mm and we are going to set up an SPV to bring in co-investors. The SPV will have super thin carry and no mgmt fees.
2.5% carry subject to a net 1.5x, step up to
5% carry subject to a net 2x, step up to
7.5% carry subject to a net 2.5x. full catch up along the way.
Low case net returns are 2.4x and 30% IRR, base case is 3x and 50% IRR, and high case is 5x and 90% IRR.
It is realistic that this deal does a 3x net and LPs get their capital back and full return within 2 years.
In terms of economics I proposed to my boss that we do a 3 years vest: 20% end of year 1, 30% end of year 2, 50% end of year 3. We will share the carry across the firm, so people that did nothing will still get some.
I have sourced, structured, done full DD, and sourced every co-investor for all 30mm and I am proposing to my boss to take half the carry (seems reasonable right?). He told me today he agrees with the vest but only wants to give me 28% of the carry...seems absurdly low as I could have just done the deal as an independent sponsor and got a warehouse to take part of the deal...
Curious if other people think my ask if 50% is fair. One principal is getting 8% even though he literally did nothing, didn't even know of the deal.
Hi Partner in PE - Growth, any of these threads helpful:
More suggestions...
Hope that helps.
It seems like you did a great job, especially at an early tenure with a new firm. Don’t underestimate the value of a fund and the team (even if they did “nothing”). Seen plenty of deal by deal folks struggle to close deal in the pipeline.
What is your share of fund carried? At my firm co-invest carried is equal to fund carried. As a principal it is your job to bring deals in, so I do understand your partner's position that you are 'underpaid' compared to the economics of the deal itself. Should however have positive impact on your fund carried over time.
Around 2%
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