Friends from PE and ER launching a fund.
I have 2 friends one with SS ER experience (~4 years - software) at a MM shop and one with 4 years of experience in a top PE fund focused on software buyouts. They are planning on launching a fund focused on the broader AI opp. And enterprise software given the large opportunity they see over the next few years on both the long and short side of things. Will run like a SM style. Planning to raise 100m and have meetings with several billionaires or close to it. They are offering me a seat with a small equity stake. Do I take it?
Push for a “meaningful” equity stake. You’re there early enough to go for it.
This is really good if you still have an MBA reset option in the bag or long enough experience in IB to pivot back if it goes bust.
My concern is that none of them have actual buy side exp in public markets
Sounds pretty terrible.
Plz elaborate
How are they going to raise 100mm
They both have access to several very high net worth individuals. I don’t think they should have a problem leveraging their expertise specifically in the software and AI verticals. Again, they aren’t pitching to ppl at citadel and mlp who will have all this shit to throw. Keep that in mind
Fact that they can fundraise doesn't mean they'll be successful. Investors can bolt just as easy as they sign on.
As others said, no HF experience and the sector they know is arguably among the most obvious victims of AI. Not a great set-up.
You can make the case that I can be a great set up given that not all software will be displaced thus creating a large opportunity for those more keyed in to the industry.
The main question for me is do I go for this? Or ride it out for a platform opportunity in the future.
Do they have a license to operate? Do you know how long it takes a fund manager to get licensed to manage third party investors' money? If they don't have a license, how do they expect to structure it compliance wise?
My estimate it will take >1 year to get licensed and fund raise before you can eventually deploy. If they cannot even get $100m in the initial fund size I think it will be difficult for this fund to survive. If you are very interested in this, I would recommend you don't quit yet because it will take them a long time to get things going, if things even do get going. A lot of times people are overly optimistic on the investors who will give them money.
Give this basically 0.00 shot of ever succeeding. They have 0.00 edge in public markets just based on their backgrounds alone. If these unsophisticated billionaires bolt then fund will be dead before they even get started.
I’m curious to hear why you think this has no chance of succeeding. There are plenty of examples where founders started small and rolled into much larger funds. I don’t think they are aiming to become MLP or P72. But if they can do well over a a few years picking winners and losers I personally can see how they can raise much more given the deep pockets from their investors… I don’t plan on leaving today but if they do raise the cash that is where the rubber meets the road
I do cap intro & private placements. Unless they have close relationship with these billionaires, its very difficult to raise $. It is somewhat mind-blowing to me that smart PE / HF PMs dramatically overestimate their ability to raise money. Highly pedigreed spinouts have struggled.
"Planning to raise 100m and have meetings with several billionaires or close to it." The qualifying language at the end makes me very skeptical.
To top it off, you seem relatively young. Have no experience building out infrastructure to manage capital. I know age isn't a requisite for public markets but certainly a meaningful impression for an LP that is entrepreneurial but also needs surehandedness in execution. Don't leave your current gig until the money is hard circled is my advice.
Also in cap intro. You are 100% spot on
Couple of questions:
first rule of fundraising. take a 90% haircut to your initial estimate, so that $100m is more likely to be $10m. People who worked at TCI and started their own fund, had only $10m to start with. once you hvae a track record you can scale up significantly if endowments/HNW are willing to back you.
all to say, wait until they have the money as otherwise i dont see how a sub-10$m can really afford one analyst esp if you are insourcing all cfo, compliance, trading functions
Heavy risk tbh. Raising money is much harder than people think, and even then doing something after 4 years experience, it could be slippery slope if things go south (which they will at some point, all funds are tested) without the know how on how to bounce back
Thank you everyone for the responses. Let’s be clear: if they do manage to raise the money, would you leave your banking seat for this opportunity? I know there are risks.
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