What are some pros and cons of each and why? And as the self-deprecating PE associates I know we all are, I’m hoping this thread stays away from siding vehemently on the side of the latter, or acting like starting a company is obviously a much better option. Because let’s be real, it involves a lot of heartbreak and (potentially total) failure. Would appreciate some thoughts.
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Fund economics require significant AUM especially for a first time fund / strategy regardless of strategy. Therefore, without a track record or significant connections on the LP side, starting a fund is incredibly difficult. Most people who launch funds do so as part of an established firm using their seed capital and brand name to help fundraising. Businesses can be started and successful without any track record or network (wouldn't hurt though) although the upside is less likely to materialise.
The way I see it is if you have the proper prerequisites to launch a fund already, this is better risk adjusted way to earn material upside. Otherwise, starting a business and being entrepreneurial is a better option.
The founders I know in the fund field had an exit from their previous startup, a liquidity event. They needed this capital to start the fund, otherwise you'd need capital from someone else. Which is tricky.
The biggest pro for a company is time/barriers to launch. As a PE Associate, you'll likely be considered a "top bucket" founder. Had a friend leave a MM PE firm to start a company in one of the verticals he covered, and he raised $5M in seed funding from good VCs without breaking a sweat whatsoever (caveat that this was back in 2022, so certainly easier days).
To raise a fund you at least need to get to Principal level, but the most successful first-time funds (in fundraising at least) had a founder with multiple successful exits of deals they led as a Partner... so that puts you in age 40+ territory, and you need years of being good at your job to get there.
After the startup phase, you probably side with the fund entrepreneurs. A lot more funded companies fail than funds that successfully raise a Fund I do (although that certainly still happens). The tradeoff is the company side is almost certainly higher-upside, unless you're the next Henry Kravis.
Operational drag kills most funds before they even trade. You’re a financial institution on day one - compliance, LPs, and onboarding will stall you for months. We wasted weeks on simple corporate paperwork and regulatory checks, even getting stuck on basics like the mandatory LEI code, which we eventually just fast-tracked through LEI Register to bypass the usual bureaucratic slow-walk.
If you love asset management and fundraising, build a fund. If you want a tangible product, build a company. Both will ruin your sleep schedule.
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