HF Start-up salary expectation
Currently in a discussion with a start-up Long only biased HF in US. Need your advise for salary.
He offers: $200k-250k base. No bonus but profit share agreement (% TBD) once fundraising external capital is successful (probably 2-3years ahead). During that time he did not intend to pay out a bonus. Would come in as Partner Day1.
Background fund: ~$30m start-up HF (all personal capital from CIO/founder), 10-15y+ experience, very strong pedigree. Not NYC, SF based.
My background: MF PE and 2y public SM.
Question: is this set-up of no bonus in a start-up HF normal ie you only earn the base in the first years but when external capital comes in (if) then you get x% of share?
Thanks!
i forgot: all expenses (research, opex, salary) is self funded by founder
No experience w/ start up funds, but that seems like a bad arrangement to me. That base doesn't strike me as particularly competitive, and no share of upside for multiple years seems like poor incentive alignment.
Is the strong pedigree also from an LO style HF? How’s it doing, did it close, were there outflows, did this guy see a sinking SM ship and think well if I’m too old to change my strategy then next best thing is to raise a fund with my nest egg and punt it?
What other options do you have? Would you be able to sleep at night if this goes south in a few years’ time, knowing you signed up for a dying strategy that no one wants to allocate to and now need to relearn L/S to jump ship?
Launching a fund with a respectable insider amount of $30M but reluctance to pay much to the other founding “partner” to compensate for the very large upfront risk is incongruent to say the least. Does it reflect lack of confidence or frugality or something else, who knows. The usual way very early startup funds work is that you get market comp + guaranteed equity with room to grow over time.
I would try to talk to smaller allocators to see what their current views are on SM LO HFs. My understanding is nobody is interested in these anymore unless you have auditable prior track. Reaching out to $2B university endowments (outside of top 20 nationally) would be a good place to start but I’m just theorizing.
thanks for the responses.
i agree with both of you that i am not getting rewarded for the additional career risk in between. generally, i dont mind the start up risks as long as both parties have the correct alignment structure - which is not the case in this proposal.
"market comp + guaranteed equity " - what kind of % are you thinking of here? what is normal.
he is coming from one of the best SM in the US with good track record, so not worried about it. i recently had conversations with endowments teams of Stanford and i disagree that the SM LO product is not attractive anymore; i think the tide is turning now. in fact i do hear many allocators saying: "we want more TCI like products".
Notice I said “unless you have an auditable track record.” That would not make it “not worried about it” level btw. It just puts it into “less likely to be a raging unmitigated shitshow” bucket. If you choose this path, you should ALWAYS be worried about your fund raising and holding onto raised money, from today until the day you retire or die. Raising money as an emerging manager is a top 5 difficult task in the finance world, maybe even top 3. I really can’t think of many things that are harder. Ask me how I know
I suggested speaking to the smaller endowments bc it’s my understanding (I could be wrong) that they are the ones most likely to invest in emerging managers. Emerging allocators are a very small world, I know this from first hand experience. Great track or not, a new fund is a new fund. Many LPs and endowments at Stanford’s size would not touch them unless through an EM type program. They have check size minimums and few want to be a large anchor LP, regardless of what they tell you. Btw the key question to ask isn’t “what do you think of this product,” but rather “when was the last time you actually allocated to this type of product.” Allocators can be huge don’t put money where their mouth is type people. Speaking in theory is a waste of time imo
Benson - thanks for your reply but this is not the question I asked. My question was regarding salary. It is off topic what you are referring to, but nevertheless, what you say is maybe true to those $1m to 3$m startups that have almost no HF background, little to show. This is here not the case as I wrote previously.
I'm having the same experience. There is a huge gulf between showing interest in allocating versus having the money actually show up, and going from the former to the latter can take years. It's ultimately easier to just not accept outside money at all and keep it a prop fund, especially for certain types of strategies.
It seems track records aren't even that important, what matters is having an investment story to sell. It's similar to raising from VCs. Most people don't have a track record that is independent of their firm and would be disclosed by the firm.
Best of luck. Also feel free to DM me, I heard of a launch that sounds pretty similar to yours and may have some intel.
First question I have: why are you being offered a profit share instead of an equity stake / penny warrants? (excludes founder‘s AUM as won‘t be fee paying regardless)
-are you only hire/clear #2? or 1 of a few founding analysts coming in?
-what is the fundraising progress (just starting vs. have late stage traction with top seeder very different)
-auditable track? were they PM somewhere else with good returns or effectively sr analyst?
-are their old CIOs (esp if respected) investing?
-are you only hire/clear #2? or 1 of a few founding analysts coming in?
he was not fixed on a number, he said potentiatlt either 1-2 candidates.
-what is the fundraising progress (just starting vs. have late stage traction with top seeder very different)
just starting
-auditable track? were they PM somewhere else with good returns or effectively sr analyst?
senior analyst
-are their old CIOs (esp if respected) investing?
good q, need to ask.
- why are you being offered a profit share instead of an equity stake / penny warrants? (excludes founder‘s AUM as won‘t be fee paying regardless)
i dont know
guys, i am fully aware that the whole process is not structured with a lot of "if, when, etc" but the whole point of topic was to asked what is a common compensation scheme in those scenarios rather than dicussing fundraising chances etc.
Sorry. Yes. All those questions frame whether the risk you take is worth it vs the potential upside. Seems fairly unproven and would be more aggressive with negotiating % equity post fundraising economics to pay you for that risk
Absolutely not. Do not join this fund. You should know your points day 0. Playing game like that tells me already he’s a bad guy.
To join a fund as IP2 at this stage (no bonus for 2-3 years, uncertain fund-raising) you should demand a significant equity stake. And even then you should want on top of that an extremely clear idea of who he intends to raise from. And should be extremely confident in this person as the expected value of even a 20% equity stake in such a fund is ~0
To get from a personal capital only launch to legit external money even out of Lone Pine, Coatue etc. is an extremely hard job. And if he's at $30mln he has done very well for himself but obviously wasn't one of the top people at such a fund so likely doesn't have a track record LPs would value.
Yeah uh without an actual auditable prior track as a PM this effort will be a total zero. There are PMs out there with the pedigree and track who aren’t even getting looks. You sound like you are too young to appreciate just how difficult the endeavor is. You should get like 30% equity in the fund, not profit share, in order to come close to properly risk adjust. Just say no imo
"Long only biased"
What?
Differing take than the crowd and coming from someone with 10yrs experience at mega sm fund.
I think this is fairly standard arrangement. Not necessarily a good risk reward but that is hard to assess given convexity of outcome if it works. Cash comp is reasonable but I’d fight hard to get defined economics on the upside that are fair. Wouldn’t shock me if you can’t get that in a contract though. These are always hard bets to make but $300k cash isn’t bad as long as you can learn form the guy and are addicted to the market.
Apparently WSO thinks working at PE and only getting $700k a year plus $2mm carried interest is a raw deal (imho that is great financial risk reward but a brain dead job). So they are going to shit all over realistic hf comp too.
FWIW, that is a very big nest egg for a senior analyst. Either he has family money or it is pretty good track record on its own.
thanks for the response!
you know the answer (and people itt have told you)
you just dont want to hear it
if ur asking about the "standard salary expectations" for a situation like this i dunno what to tell you
This would be compensation structure to be expected from a start up fund and actually the structure you want. Essentially this is the same as a carve with % yield calculated from the start. You only need to make a decision based on what your confidence in the founder and your ability to produce P&L and where you think the fund raise size will be within 1-2 years. 200mm fund size and if you can produce HSD returns the fund should be sustainable for 2 people.
thank you
I appreciate all your comments, but again most of you do not reflect what I have asked.
I asked about $$$, yet most of you are talking about fundraising. I am fully aware that fundraising prospect are very minimal/tough/difficult, but again, this was not my question.
Issue being you need to fundraise to even pay your salary. Based on the question what is market value for a $30m HF with internal capital answer would be $0 as they cant afford to pay you. So youre founder is paying you out of their own pocket. You should require a serious equity stake (20%) to even consider this
Your comp package doesn’t matter. Your PM can screw you whenever and change the terms whenever.
You’re really just along for the ride and dependent on how generous he is and how much he values you. Keep in mind most PMs are cheap, while your expectations seem very high.
Unless your PM is related to a billionaire or is an extremely well known person in the industry, you’re going to have a very ry hard time raising money. On top of that, you’ll need a great ~5+ year track record
Unless the startup fund is launching with $1B, the rule of thumb is almost never join.
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