Would you sacrifice $200k+ to join a boutique growth equity shop?

I have two opportunities on the table, stick in the Corporate Strategy team with my F500 industrial company and make a decent to great living OR join a boutique growth equity / private equity fund as an Investment Associate and make less in the near term with the potential for significant wealth in the future.

The PE job has put a huge cut in my base, and although the bonus is better it still falls short of my current annual comp. I've run the numbers and if I take the PE job it looks like I'd lose out on ~$200k over 3 years, and ~$300k over 5 years... but there's of course the potential to make millions in the outer years should the team be successful.

Additional info on PE shop: Boutique based in Canada (I'm in the US), ~$500M fund, WSO community: Which option would you take? What questions should I hone in on to better understand the total comp potential in the outer years? If I jump to boutique PE in a relatively niche sector and it doesn't work out, what are the lateral/exit opportunities?

 
Best Response

This is such a binary outcome and so idiosyncratic the best advice is probably not to take advice.

Think about if you are a risk-taker and if you can handle the downside of the fund failing and missing out on all of that comp over the years. think about the upside of carry. Weigh the probability, discuss with family and trusted friends.

This is really difficult, but you have to make an educated decision and never look back or doubt yourself.

 

Most important, and most serious question-- one which requires careful and sober analysis: Are you feeling lucky?

Look, if you want the sober, rational, and likely wrong answer, this boils down to a utility of wealth analysis. We can assume CARA utility and assign certain probabilities of different states of the world and your wealth at each point, and then plug that into a utility function and make the utility maximizing choice (as well as portfolio allocation.)

But this analysis is all brains and no heart. A career switch can't be boiled down to a rational decision.

Think about who you'll be working with, and whether you like them more than the people you currently work with.

Think about whether you're feeling lucky.

And trust your gut.

 

Others have already given their thoughts, which I mostly agree with. Just comes down to what you want out of your career. Personally I wouldn't put much weight into the fact that you "can" earn millions on the buyside because it's so far off and there's so many incremental steps for you to get there (you need to perform well enough to make partner, then you need a lot of carry in the next fund raised after you've made partner, then you need that fund to do well, which is like at least 15 and more like 20 years off before you start reaping the rewards, since it'll take you about a decade to make partner and then carry on that new fund 10 years down the road is more or less backweighted).

One other question: Can you give the basic structure of comp for both jobs? 200k over 3 years is about a 65k difference per year, but the less you earn, the more that difference is magnified as a % of your comp. Choosing between two jobs where the pay is $265k vs. $200k is not the same as two jobs where the pay is $165k vs. $100k, for example.

 

Thanks for the input @Aggmonkey" and IlliniProgrammer. Agreed this decision is more than the numbers, and I appreciate the reminder to trust your gut and never doubt yourself.

CHItizen - at this point the comp difference is more the later, $165k vs. $100K, so the delta makes up about 30%-40% of total comp.

Three follow-up questions for the thread:

  • Are there any questions that I can diplomatically tee up for the fund to better gauge future performance (e.g. ballpark IRRs, list of LPs, fundraising trends, etc.)?

  • Is this my only chance to make the jump to the world of PE?

  • If I make the jump and it doesn't work out, what are my chances of being able to lateral to another fund and/or bounce back to the world of Corp Dev/Strategy?

 

If total comp is getting hit 35%, and the PE shop pays a better bonus, you are getting kicked in the dick from a based comp perspective. Is your base being cut in half? Your lifestyle would be materially impacted, would it not?

Ask for $20k more in base comp. It's tax deductible for them and absolutely nothing compared to the fund size. If they wont work with you now, they are setting a terrible precedent for your future there.

 

How many funds have they raised and what have their returns looked like?

How much capital is left in the current fund and was is the fair value of the portfolio?

0.5-1.0% is probably market for a senior associate level, maybe a bit below. How many partners are there currently and who else is on the partner track?

Is the firm's strategy to raise larger and larger funds and move up market? Or to raise similar sized funds and stick to the niche sector?

As noted above, carry is variable comp that can take a while to materialize or never at all. If you join and the fund has just started investing, you are probably still 6-8 years away from seeing back end distributions on that fund and depending on your funds policy you may have to make capital calls out of your own money in the meantime.

 

If you PM me the firm name I can give you more thoughts. I know the Canadian space pretty well.

Trying to guess which firm it is based on the clues you've given but can't really tell. I can only think of one "niche" PE firm in Toronto that is well known on the street, but their niche is healthcare and you said you're at an industrial company.

Anyways, let me know if you'd like more thoughts. But fully appreciate your need to privacy too if you don't want to disclose any more info. What I would say though is that there is a decent number of "hack" PE firms and hedge funds in Toronto. So it's good to make sure you're going to a legit team.

 

Not sure why people are focusing on such a binary outcome. It's not as if you can't pivot back to a Corporate Strategy role in the future if the PE gig doesn't work out. If anything it will likely make you more valuable to a large company.

The way I see it is one path provides dual optionality while learning an entirely new skillset - 1) PE works out, 2) go back to CorpDev. The other is are more linear path. The older you get the harder it is to switch to the buyside until you get really senior.

I'd probably focus way less on comp but rather what you enjoy, skills you'll learn and career optionality. Seems like you're in a pretty good spot regardless so money is gonna find you eventually if you keep up the good work.

EDIT: I'd also add that if you eventually transition back to the corporate side and gradually move your way up the food chain - I'm sure Sponsors will like the idea of having someone in the organization that "thinks" like a buysider.

 

If you've never done buyside before then I say give the PE role a shot, but not necessarily to chase the small chance to make millions years later. Even if it doesn't work out long term it's valuable to have had that experience, for both the skills and the perspective. As others have said the corporate strategy role will still be available for you later on, but the buyside role may likely not be. And people always regret the things they didn't do more than the things they did

Though a lot of this also depends on your life situation. Dependents, lifestyle, etc. And your feelings about living in Canada

 

I made a similar switch to you, somewhat non traditional background to a Small PE Shop. My comp change was roughly the same, maybe a slight reduction as I have a lot of extra perks at the company I was at before which factored into overall comp(401k, RSUs, etc). Some of what I'm going to say has been highlighted above, but I'll give you the things that stand out to me.

  1. I wouldn't look at this as too much of a certain chance to really become wealthy. Yes, that's the best case scenario, but as others have mentioned there is a ton standing in the way of you getting carry/getting onto partner track. Carry can also take a long time to materialize depending on how the carry is structured. Think about the high level carry math on deals. The fund is 400M so let's say thats roughly 10 or so $40M deals, probably even slightly bigger if you add some leverage. If you're only getting something like 25-50bps after three years in, that's not a huge carry check. Sure it's definitely not a bad payout, but its not like you're making millions.Seems like the firm is also fairly top heavy which might work against you. I'd think about the comp more on a pure base + bonus scenario. I'd also ask about co-invest opportunities as those can be a good way to subtly bump up total compensation.

  2. With that being said, if I were you I'd take the job and think of it as a learning experience. You'll always be able to make your way back into corporate finance, probably at an even higher level. You also open yourself up for better gigs like Corp Dev. PE, even at the lower MM level, is in my opinion one of the more interesting finance jobs one can have. You'll get a good understanding of how businesses run and grow and you'll get to learn about a bunch of different types of companies. PE is so tough to get into from anything other than a banking background so if you want to try it out this seems like a good opportunity to me.

 

Three questions: 1. Do you have enough savings to be able to maintain a standard of living reasonably close to what you have now for the next 3 years if you take this job (obviously your earnings from new job would hopefully make a decent dent on expenses and rest would come from savings)? 2. If answer to #1 above is yes, skip # 2 but if answer is no to #1 above, would you be ok living below your current standard and just relying on your new comp for 3-5 years? 3. Do you have family i.e. are you flexible enough to make this move and then move back if it doesn't workout?

If it was me and the answer to #1 & #3 or #2 & #3 was yes, I would go for it. These opportunities to get in on the ground floor do not come by very often (to get significant carry at large funds you have to be like a fucking wunderkind and bring in millions) and have the potential to bring in some serious "fuck you" money. if it doesn't work out then you could always get back to your old track no harm no foul. good luck.

"I'm talking about liquid. Rich enough to have your own jet. Rich enough not to waste time. Fifty, a hundred million dollars, buddy. A player. Or nothing. " -GG
 

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