Assume you're stumbling around LinkedIn one day, reading all the wonderful posts by interns and boomers. Then you stumble across a VP level job posting for a new PE fund. You're bored, so you click. The fund has a solid history as an independent sponsor and just raised a committed fund of ~$125mm. Founders under 30 and putting up above avg gp commit + aiming to scale the PE firm quickly
What concerns would you have about joining a small fund?
What do you think compensation would have to look like assuming you're currently at an LMM/MM fund?
What would make you take a cut in fixed pay? Generous upside? If so, what would upside need to look like? Assume the fund is offering ~$300k between base+bonus for example.
Would ~70 hours a week be considered good work life balance for applicants? This would flex up from time to time but I think avg would be 70.
Agnostic to geo provided you live in the US. So LCOL would be an option.
For context, received a similar base/bonus offer for a fund 3x larger (LCOL area however) so think it would be competitive assuming carry is attractive. 70hrs/week feels somewhat high for that comp/fund size from my limited sample however (unless there is nearish term vision for rapidly scaling fund size and comp/carry potential).
What would attractive carry look like to you? Goal would be to scale the firm very quickly.
The geo agnostic thing would be a huge selling point for me (assuming you mean the option to WFH permanently).
Yes. My hope would be someone in a low/medium cost of living area so we don't need to pay as much since net works out to be ~same...then we use the surplus $$$s to fly them out quarterly for on-sites, etc. I believe in on-site work but not really for the investing end.
Ideal.
I don't have any VP data points exactly but I've been talking to a firm with a smaller inaugural fund (~$90mm) and the cash comp for associate was ~$200k in a HCOL area (Boston). I asked about trajectory and it sounded like VP pay would get to ~$350k but again that's in a HCOL area. No clue what carry would be but knew it was zero for associate.
I've been at funds sized 750M - 2.5B and am strongly considering looking for a shop like this (perhaps had a bit bigger in mind, but something similar), so I'll share my thoughts. However, I decided to do my MBA first and therefore I haven't chatted with recruiters / funds like yours yet, so I don't know what is market whatsoever. This is purely what I would want to make a move like this.
In terms of concerns, a few of the things I'd want to know:
On comp, $300K cash and work from anywhere seems reasonable. I'd probably push for a bit higher, but wouldn't be a no-go. Are you saying 70 hours avg. outside of live deal times and above that when live? That would not be considered good work life balance. I think that's probably pretty solidly below average for the LMM in terms of WLB, but I could be wrong (I'll have a whole bunch more data points once I start vetting opportunities). If you're saying 70 overall average, that might be closer to the norm. Just spitballing, but maybe 55 or so when not live, 80+ when live, we're chasing a lot of live deals to scale the firm quickly and maybe you get to an average of 65 or so. The big piece is carry. I think a fund of this size could very well tell a VP that the first fund is small, help us scale and you'll get bigger equity on the next one. I wouldn't jump for that. I could probably go back to my MM fund post-MBA. If you want me bought in to scale this firm you need to comp me now to show me we're really partners here. I'd be targeting $3M+ assuming a 2x return with a reasonable vesting schedule (something like 5 years straight line and I keep my vested carry if I'm shipped out / leave before it's paid).
I rambled a bit here to quickly get this out, but can talk in more detail about anything if interested.
Good luck with the new fund.
Wow! SB’d. Would you mind elaborating a bit more on third bullet? What do you mean by channel checks and vetting founders? How would you go about doing that? Thanks again
Thanks for the detailed reply.
Loads of thoughts here because I did something very similar myself (joined a similar sized fund as a VP out of business school and took a cash pay cut to my pre-MBA job). I’d say the following:
- Cash compensation can be in the $250k - $300k range, or even a touch lower at $225k depending on how much carry you offer.
- For carry, I think something in the 8-10% range would be appropriate in order to incentivize this individual, assuming they are a fresh VP and not lateraling as a VP at another firm. The term I’ve heard used a lot is “founder economics” .. which basically means the person is getting outsized equity economics on the basis that they are taking part in the risk associated with a new firm — and yes the risks are substantial.
- For a fund that size and with the pay, an expectation of 70 hours a week for a VP is too high. I think 60 on average is reasonable, with flex depending on how busy the firm is. Associates can work 70+ but even that might be a stretch because you’ll be paying them significantly below what they can obtain in banking / other PE firms. Associates also won’t value the carry as highly because it won’t start paying out until they are likely principals+, although i do think you should still give the associates a small amount of carry.
- From a cash flow standpoint, assuming you get an 80/20 fee sharing split with your LPs or something more attractive, you’re likely going to be tight on cash until you make a few investments and have the benefit of cash flow from closing fees and monitoring fees. Recognizing this, you may want to offer higher pay after the fund is 50% deployed or agree that you will scale up the team once you start deploying capital. You’re going to be a on shoestring budget until you raise the second fund or at least have enough investments.
- If I were the VP hire, I would expect an accelerated promotion timeline versus what could be achieved at a typical PE firm. If the firm scales quickly by growing AUM, you should anticipate promoting the VP to Principal and eventually Partner in 5-7 years, assuming they do a good job. They are taking on a major risk, including working for young founders, and the last thing they want is to be blocked on promotions because the founders prefer to hire in partners from the outside or because the founders don’t want to give up economics once the firm is established. Elaborating on the point above — don’t give away your ownership in the management company, but be generous on the promotions and the carry allocation.
So many other considerations .. could write half a book on all the things you need to think about as your forming / growing the firm. Have you hired an advisor who is familiar with the inner workings of running a PE firm? I find that most successful, young PE professionals who venture out on their own are exceptional at deal sourcing / deal execution / portfolio growth but are unaware of the complexities of fundraising and fund dynamics. Something to think about.
Makes sense. Based on feedback you and the other poster provided, I may lean into an associate level hire instead of VP. I'm ok with granting healthy amounts of carry + strong upside, but in return would expect ~70+ hours a week. Need hungry people to build quickly. Goal would be to replicate the culture we have successfully built at multiple companies we scaled previously.
On promoting from within, I've found this works best; hire two people on level junior from what you need -> promote the winner. However, sometimes you are growing fast and need someone senior to come in. Can happen when the people you hired simply aren't capable of growing fast enough. Therefore, I wouldn't be comfortable making any promises.
RE: advisory, planning on doing so a little later on.
I’m curious why you’re focused on the hours instead of the amount of experience and type of work? Clearly you’ve thought this through a lot but there is a huge distinction between a VP and an Associate in terms of work expectations (type not quantity), as opposed to a VP or Principal which largely do the same tasks. I’m sure you know this just as well as I do, but I’d encourage you to make sure you know exactly what you want out of this person before you hire them. Replacing someone (either because you chose to do so or because they quit) when you have a tiny team is absolutely brutal in terms of both costs and the time required. It is super important you get this right!
Are you raising a fund?
Yes. We're currently an independent sponsor with a few successful deals. Looking to move up market and do what we do now, but chunkier. :)
How relevant has your track record been versus network contacts in the raising of your initial capital? I am aiming to raise a fund before 30 - thus without an extensive track record - and as such am interested in the impacts this has tangibly on the fundraising process.
LMM VP market is 175k base and 170k bonus
Where could one find this LinkedIn job posting if interested in the role? m_1
Wont be for at least 8 - 12 months.
Understood, thanks.
What amount of carry would you feel comfortable granting an associate who checks all your boxes, but still needs time to grow into a full fledged VP? And how would you expect to renegotiate that amount of carry upon promotion to VP? I'm in a similar situation as that would-be associate for a REPE fund, and would like to "ground" my carry expectations.
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