First Time Funds That Didn’t Work Out
Anyone have any examples of reputable (founder came from an established firm) first time buyout funds that didn’t work out?
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Based on the most helpful WSO content, there isn't a direct example of specific first-time buyout funds that failed, but there are insights into why some first-time funds might not succeed. For instance:
Emerging Manager Challenges: While new managers from brand-name shops often have strong initial deal flow (shadowing deals from their previous firms), their subsequent funds tend to underperform as they raise more capital without improving deal quality. This can lead to struggles in maintaining performance and investor confidence.
Fundraising Difficulties: LPs often prefer blue-chip funds and are cautious about first-time funds unless there’s a clear "secret sauce" or proven track record. Without strong backing or standout deals, first-time funds can face significant hurdles.
Market Timing and Strategy: Poor market timing, lack of a consistent strategy, or overreliance on relationships without a robust pipeline can lead to underperformance or failure.
If you're looking for specific examples, it might be worth exploring threads or discussions on WSO where users share anecdotes about failed funds or challenges faced by first-time managers.
Sources: Troubled fundraising processes, From PE >> Startup >> Back to PE, https://www.wallstreetoasis.com/forum/venture-capital/vc-is-a-laughable-shitshow-change-my-mind?customgpt=1, I've raised money for PE and HFs. Q&A, Leave banking to start a PE fund?
If you raise fund I, you will also raise fund II. It’s just a question of showing deployment of existing strategy and easy to mark-up book values. Clearly if you make two donuts and it visible, it’s a different stort, but then you should not manage money.
Fund III is harder to raise as you need to show actual DPI and value add.
Any examples? I’m looking to see if a fund busts, what people do after
Palamon Partners is an example. iirc their first fund was decent, second much more meh and they needed to raise just after the bust in 2010-2011. Had a founder who was still quite controlling in many ways / weird incentive structure that spooked many LPs.
Novalpina did not work out both due to portfolio and some wild personnel issues. There was a fund that the Head of KKR North America tried to raise but he passed away before the fund could officially launch - a very blue chip team that had already been assembled had to find other jobs. As I understand it, Siris is more or less done but they had raised a few funds. JC Flowers was left for dead after the GFC but have managed a slight comeback. Lion Capital that does consumer investments only raised two funds I think. Can't remember the names now but a bunch of firms that had raised a fund or two before the GFC could not raise after that.
Any additional insights on Siris? Saw they closed their West Coast office a while back.
Couple that come to mind are Diamond Castle and West Hook. Plenty of others out there I'm sure but hard to track because they never announce anything (unlike a fund launch), they kind of just peter out as assets are sold off.
How bad would it be to sign on to help a fund wind down (manage and sell) for a years before pivoting to another fund? I left a 2 yr program a few months ago and need to find a job and have an offer at an independent sponsor to wind down
Ehhh I'd avoid unless you're incredibly desperate. The experience won't be very relevant to helping you find your new gig (assuming you want to continue focusing on investing foremost). You'll have zero opportunities to deploy capital and rather, just help babysit existing portfolio companies (or worst case, troubleshoot failing investments which sounds thankless and stressful).
If it's your only offer, it doesn't seem like a bad move. You can clip a paycheck, get relevant experience (selling companies is still relevant PE exp), and interview for jobs. You just need to figure out how to position your move when you interview at other funds, but certainly can be done.
I basically did this. Was kind of betting still that a new fund could get raised but went in knowing it was a long shot. I would make sure that you just have your incentive/bonus comp aligned with babysitting or the dispositions in the remaining portfolio. Also, make sure you like the partners and think they are good people. Hopefully they will be able to help you move along when the time is right. They were after all well connected enough to at least raise one fund so likely have friends in industry
I think ParkerGale isn’t raising a new fund? But I am not sure. I believe their first fund was great, not sure what happened to the second where they didn’t raise another.
They did raise something in 2023 - but way below target.. https://www.formds.com/issuers/parkergale-capital-iii-lp
they should use less time on podcasts and more time on buying and developing companies!
Oh I missed this - interesting. Look, not bad guys, plus they've done a few that are now powerhouses in other people's portfolios such as ATS, Workwave. Good luck to them, hope they turn it around!
Novalpina and 8c.
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