[Compensation discussion] Is there much benefit to joining a first time fund at the Associate level?
I have an offer to join a first time fund at the Associate level. It is a big launch and so my cash comp would be similar to what my 1st year Associate comp was at my current fund. The carry allocation is low (<1%) but still juicy and could increase comp materially, potentially ~50% +/-.
My question is: when thinking about this comp package and early fund opportunity, is this the type of compensation that makes you say: I don't care what the job is, I'll drop what I'm doing right now to go do this? I wonder if (1) I could transition to a Tiger Cub and still make comparable compensation (and more interesting work), or (2) hang tight a year or two and get an even better package at an established PE firm (unsure on this).
When I use these alternatives as a foil to joining a potential fund launch, I wonder:
- Are there really material benefits to joining a new fund at the Associate level?
- Won't they just hire above me as they expand and therefore the benefit is diminished anyway?
It actually seems like VPs at more established funds will get ~$mm in carry compensation which anyway doesn't make this package look that attractive given the option of just waiting a bit and getting an even bigger bite of the apple in a couple years.
I am excited about the role, and comparison is the thief of joy, but you only get to exit from a brand name once, and so I want to make sure I'm taking full advantage of that.
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What specifics would help evaluate ? One of the points I'm worried about is that it would be a pyramid structure org from day 1 (w/r/t # of Associates > VPs > Directors) so my worry is that it would be clogged from the get go (and therefore the carry economics would be crowded by the time I get to VP). They've also outlined a structure where it could take me 4-5 years to get to VP there whereas if I keep cranking at my current firm another ~2y I can exit to VP somewhere else and potentially get a meatier amount, so that, adjusted on a ~10y horizon I'm actually getting better comp with less risk.
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My sense is that your range of outcomes working for a first time fund is likely to be more barbell shaped. On one hand, provided the founders have a strong Ng track record in the strategy they are implementing then first time funds on average tend to perform well. The flip side is that an underperforming first time fund is unlikely to raise fund 2.
So if you have options at a more traditional shop then you could certainly argue for more carry as you are taking greater risk. However, they would probably argue that your career path and responsibilities will be accelerated.
IMO getting in at fund 1 is how you make real money. You just ride that wave to the top. With each fund you get more economics and you have more invested in the fund which makes you much harder to get rid of. Assuming the fund does well means they raise more money and they need more people to scale. As a result home grown talent is going to get the first look at promotions. Eventually you wake up one day as a Principal or MD with maybe 2% - 3% carry, but you have millions of your carry from the previous fund invested. That's a tough person to push out the door.
Now the fund could be a total disaster and they never raise another fund, but you're entering at the associate level and would learn a lot. Think you would be well off regardless.
I joined a first-time fund at the junior level, and while you can hit it big I really don’t think it’s worth the risk until you’re at least a VP. It’s like joining a startup as a non-founder - you might make real money, but on a risk-adjusted basis you’re better off either being the founder or sticking to a tried-and-true path.
First, the good. The opportunity to wear a lot of hats is fantastic, and I was attending (and speaking in) board meetings, leading management meetings and onsite diligence, putting together thematic theses, managing PortCo CEOs, etc. all as an associate - model monkeys be damned, I really felt like I was part of the investment process (of course, I still did plenty of excel work and slide formatting as well... nature of the beast). We also had a path forward for me - as the fund grew, they offered me promotions and the opportunity to take on additional leadership with no MBA.
Next, the bad. I was severely underpaid and worked to the bone. Despite doing work like a VP, I was making half of what I would in cash comp at a larger fund. When joining I told myself the opportunity to grow, receive carry, etc was worth it, but the dollars of carry as an associate in the first fund were so small and far off that it really wasn’t worth much. Lateral looks were hard - I had a good background, but when I told headhunters where I worked the response was always “where?”... didn’t get many calls back. Setting up processes at the new fund with minimal resources was kind of interesting but a pain in the ass and typically very administrative. My path forward was contingent on raising a new fund, and once the new fund was raised they didn’t want to materially increase my carry % - it was time for the senior personnel to build their wealth, and now it would be easier to hire mid-levels if I left because we had a track record.
If your founders want to reward you for loyalty, wonderful, but in my experience (even though I had a great cultural fit with the team and we liked working together) people only give up as much economics as they have to - don’t expect altruism. I had a great experience helping to build a fund, but if you want to get paid for it, you need to negotiate that upfront, which is really hard to do as an associate with no track record - junior talent’s a dime a dozen. I value what I learned and am a better professional for it, but for the average associate I think you’re better off on a risk-adjusted basis going established and then startup rather than starting at the startup
does same apply for a Fund II or III?
Definitely not fund 3. There’s a little bit of hangover on Fund 2 (probably haven’t had any material returns yet, so still somewhat early stage) but for the most part once you can raise successive funds I think there’s a lot more staying power, and the systems, comp philosophy, etc. should all be more fleshed out
following
OP here. I will come back to this thread to update with my decision. I ended up declining the offer.
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