Lateraling to a first-time fund with a specific sub-sector focus. Small $500-750m fund let's call it, small team (6 or so on the initial team), allotted carry as a junior and MM-level cash comp.
Can anyone provide any experiences going to a first-time fund? Good experiences and bad? Coming from a very traditional, run of the mill shop, so expect it to be wildly different.
Cheers
I spent some time at a first time fund then moved to a larger fund. I recommend my friends against it unless they're already a mid-level trying to push beyond that. If you're a junior you kind of don't get much upside and have the same downside as everyone if it goes to shit.
Isn't this different based on the first-time fund in question? For example, 26North seems like an elite spot to be for a longer term career in PE even if an associate given runway for growth progression wise mixed with $6bn fund size despite it being a first time fund.
I mean it’s all about risk-reward. You can start as an associate at an established platform, get good training, and still become a mid-level at a fund like 26north or whatever first time fund. You just get the benefit of more institutional knowledge, infrastructure, and track record to inform your decision.
Gotcha. But in this case the juniors are getting upside immediately and a real path upward. Especially if you get promoted + carry in second fund as a junior (optimistic ik), that becomes real pretty quick don't you think? Hard to comp that at a normal shop, especially MF
How did you come across this opportunity? I'm mid-level and willing to take more risk (agree with above). Recruiters don't really show me opps for first-time funds
Regular HH names. Obviously stood out so jumped quick
Out of the 6 people on the initial team, what level is each member?
Basically one of each minus 2 founders
Can I pm you? I’m interviewing for similar opportunities right now and had a few questions on things I’m thinking through
Have known quite a few people that joined first-time funds over the years. TBH, their experiences were all over the place which obviously reflects what someone else has outlined above, joining a first time first has a much higher risk / reward profile than joining an established platform.
Joining a first time fund can allow for not just an open path to a partner role, but an accelerated path as well. But, you have to join a fund with the right people and the right strategy at the right time. You can diligence the hell out of the founders, but from my experience, strategy & timing (ie. being at the right place at the right time) is much more of a success factor. Fund performance will ultimately be the biggest driver of whether the risk was worth the reward and as we all know, it takes years before performance can be adequately assessed. First time funds tend to be more entrepreneurial environments though which can be a huge plus or downside depending on your desire to get out of your comfort zone and get a more diverse experience.
I also know of quite a few people who ended up taking pay cuts (huge for some) and working crazy hours in exchange for promises that were utterly broken. In addition to working super hard and being under comped, these folks tended to get limited deal and poor overall experiences that ended up making it harder to "get back on track". I know quite a few that are super salty about the overall experience.
So at the end of the day, whether it's worth it to join a first-time fund depends on your personality, long-term career goals and perspectives on high risk / reward experience, I don't think there's a standard answer that works for everyone.
I joined a first time fund as an associate and have been here for ~8 years now. There is a lot of variability in these situations which I would say depends primarily on two factors (there are others, but I've found that these are the biggest needle movers): the founders and how they want to do things and the firm's performance. On the former, I've seen founders of first time funds either be super stingy and try to keep the whole pot in an attempt to finally make their nut now that they have 90%+ of the economics (these are typically partners from bigger funds that maybe were pushed out or left before seeing real realizations) which means misleading offers to sway candidates or hunting for candidates who are just trying to break into PE, and have also seen founders who really want to compete for great talent which means needing to objectively offer something in exchange for higher structural fund-level risk and lower cash compensation. On the latter, this is pretty self explanatory - there are a lot of first time funds who raise capital based on preexisting relationships, then struggle to raise a second or third fund because of some duds in the portfolio from Fund I. Compared to a more established fund, you simply have less room for missteps particularly in the current fundraising environment, which means more risk for you as a junior / non-founding member. On the other hand, if the fund crushes it, deploys quickly, and raises more capital, there will inevitably be more room at the middle / top in which case strong associates are likely going to have a much clearer promo path to the top than at a lot of other funds where teams have been fully fleshed out across all levels.
In my specific experience, I would say that the benefits have been: (i) good WLB with the ability as I've gotten more senior to create my own work experience (i.e., running the way we take things to committee, how we do business diligence / what we don't need to do, etc.) - there is very little politics involved; and (ii) more upward mobility in that I have never really duked it out with a horde of associates to make VP, and then a horde of VPs to make principal, and now as a principal feel as though there is very clear visibility to partner in the next couple of years. There has really been only one con, which is that I don't feel as though I really got the true economic upside that compensated me for the risk I took and I also don't make as much cash as I would at a more established fund either. In retrospect, I think associates are always viewed as somewhat replaceable no matter how much you're liked, and so you just don't have the negotiating power or leverage to argue for outsized economics even if the fund is new (there are obviously exceptions to this - I'm speaking on average from what I've seen). I'm not underpaid, but I feel at par with market to any other run-of-the-mill fund of our size whereas it would be nice to feel as though I got a sweet carry package just given the fact that there was significantly more risk that our fund could have imploded at any point in the last 8 years of being here.
If I could do it all over again, I'd probably have continued on at a larger, more established firm as an associate, then made the move to a new fund at the mid-level + negotiate hard upon entry to set a strong baseline of economics to then be promoted / grow upon assuming the firm did well.
Helpful context. Thank you. Do you feel like you were allotted more carry than market given how long you've been there?
To what extent, if any, do you think there is survivorship bias in this take? Both from the perspective of your fund continuing onwards and the being able to get promoted up the ranks? Know at my large established for example, the pathway towards Principal is pretty much non existent.
I'd say market-level carry. Again, for me, the benefit in retrospect was having a much higher probability of promotion from associate to partner throughout. I wish my economics were above market which would have rewarded me for the fact that the fund has actually performed which was not guaranteed, but that unfortunately isn't the case.
There's certainly survivorship bias. My experience is really only meant to be one data point - there's a ton of variability for funds of this size.
Generally, at FTFs, you are compensated for risk relative to seniority. The rationale, from my view as a founding GP, is that Associate's have much more optionality from a lateral perspective. Given greater optionality, they are also are more likely to move in shorter time horizons. This is the underwriting math for the GP, so unfortunately, the upside is tougher to promise, but you can negotiate as you move up. Most new GPs will pay Associates close to market for fund size, whereas the VP/Principal hire will most likely take lower cash comp and more upside, to show GP alignment.
I think younger people don't realize how rare it is to have a real path to partner. The grass is always greener, but a true shot is tough to find. Would recommend to move to a FTF later in your career (late VP years), once you have enough experience, become pretty jaded with the industry and see lack of upward mobility. When you move into a FTF, you'll have enough experience to know what you want, what you believe works, and make a career bet on that perspective.
Pm'd
Yup agree 100%
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