PE: MF vs start up

Hi, I don't want to get ahead of myself as I could end up getting rejected by both, but I was curious to hear everyone's thoughts on this scenario.

I'm an IBD analyst interviewing for a PE associate role at one of the mega funds and also for a newly formed PE fund. Both roles sound great and ofc the mega fund is the initial no brainer.. but the start up fund sounds super exciting, without giving exact specifics:

3-5 people, raised $200-400m in 2019 (year of the fund launch) and deployed approx $50-100m by the end of 2019.

Friendly seniors with a good / trust worthy track record, really interesting investment strategy. Culture wise said how they will truly value me as an associate and also value my personal life I.e they will adopt a strict no weekend work policy where on Friday 6pm I'll be kicked out the office to go home with no weekend work unless it's an emergency. On top of this they said they understand the risk of joining a newly formed fund and so to counter this risk they will offer a comp package that would beat any other fund i could think of - approx $200k base plus a cash bonus guide of 75-100% plus a 5bps carry.. that's $350-400k cash as an associate 1 with no weekend work..

Would appreciate everyone's thoughts, I guess something else to consider is the learning opportunities from the mega fund, the clearer career path/promotion structure, the stability net especially during the covid-19 pandemic and economic implications, the brand name, and what if the start up performs badly and in a few years and I have an unknown name on my CV whilst looking for jobs, it's not like my CV will say 'received offer from -insert mega fund name- but I rejected it for this start up fund that failed'

Thank you

Comments (8)

May 12, 2020 - 5:40pm
Wawiag, what's your opinion? Comment below:

Seems like a personal risk tolerance question to me. I would be pretty interested in the startup, though, if my endgame was to do PE long term or to eventually start a company.

At some point, I think you just gotta do what sounds awesome to you and rely on your own experience and intuition. It is great to become more credentialed and add brand value to yourself (like from a MF), but at some point you gotta deploy that brand capital from your college/bank/PE/whatever and do something awesome.

Maybe now is the time? Like I said, I think it just comes down to your risk tolerance.

Most Helpful
  • Analyst 1 in IB - Cov
May 12, 2020 - 5:46pm

Carry as associate 1? Insane, especially if the fund generates good returns, but this means you'll have to stay at the fund for a while to start seeing your carry materalize. Can you envision yourself staying at the fund for 5-10 years? This is an easier decision when you're married with kids, but if you're in your twenties and still moving around the thinking might be different.

Obviously it's high risk, high reward. If you dream big and the fund does well you could make a senior role at an incredibly young age. Look at the track record of the seniors - I mean truly dig deep at their investment track record and see if they're truly good. Look at the investments that the capital have been deployed in and evaluate them. Also, if it's a start up fund and they're hungry to grow, I don't buy that the work-life balance is going to be there. Maybe when structural factors (COVID) are in play you might work less, but any fund that's looking to make a name of itself is going to want to work hard.

On the other hand, an MF is low risk, high reward, but a different reward. You'll have a ton of optionality if you don't want to stay in PE and major branding. You'll have access to many career paths - including PE - even if you're not getting carry. So yes, like the above poster said, think about your risk tolerance, but also look long term and think what you want to be doing or having the ability to do down the linle.

  • Business School in PE - LBOs
May 12, 2020 - 5:50pm

5 bps of carry is meaningless are you sure that's not a typo? Even 50bps is meaningless for a fund this size. If you mean 5% then we're talking and in that case it's just too attractive to pass up (make sure carry stays vested if you leave and join a competitor as long as you stay x years). Separately, the cash comp is a strong signal they are serious and viewing you as a long-term hire. I personally would go the MF route (unless it's 5% carry) bc of my risk tolerance but a strong case can be made for this small fund.

Edit to illustrate: 300m fund, 2x moic, 60m carry pool; 5bps is 30k for 7 years of work 50bps is 300k.

  • 2
  • VP in PE - LBOs
May 12, 2020 - 5:53pm

Not that it materially changes your answer but a fund this size is almost definitely targeting 3-4x+ gross MOIC

  • Analyst 3+ in IB - Cov
May 12, 2020 - 6:11pm

Thanks for the reply. Can confirm it was 5bps (not a typo), you make a good point, it is very small and not very meaningful however it first sounded good to me given how good the cash component was and also being a 1st year associate, I guessed carry is not normally offered to associates so this 5bps was more like a cherry on the top if that makes sense?

I'll add this into the edit, but they did mention that if the fund performs well over the years, for their 2nd fund I'll be given up to a 1% carry (I'm guessing I'll be an associate 3/4 by then)

  • Intern in IB - Cov
May 12, 2020 - 6:03pm

Both opportunities sound great. Comp will likely be higher than MF and you'll be working less hours too!

If the following hold true, then I would personally pick startup PE: 1. You don't care about deal size 2. You are looking to stay in PE long term (no plans for MBA business schools">M7 b-school) 3. You will be on the partner track at the startup PE firm (no 2 years and out) 4. You like the culture at the firm and think you can stay there long-term.

Also, if you have a brand name undergrad and bank, then it shouldn't be as risk in the event that the fund just fails. If you are a non-target alum at an unknown boutique, then MF may be more advantageous and may hedge more risks.

I'm interested to know how you were able to find the start up role. Is this through HH or networking? Sounds like a dream exit to me personally.

  • Analyst 3+ in IB - Cov
May 12, 2020 - 6:25pm

Thanks for the thoughts, good points I think I would be ok with them although I would love to experience the b-school route but I would be perfectly fine without doing one at the same time

I found the role through a headhunter that initially recruited me for a large cap PE fund, I made it through to the final round but was ultimately rejected, HH called me up a couple weeks later with this start up fund

  • Intern in IB - Cov
May 12, 2020 - 6:50pm

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