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May 31, 2024
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Bump - also curious
I'm not sure if there is a choice but if your firm raises equity on a deal-by-deal basis (sometimes this happens because you don't have a fund, you are low on a fund or the equity check is too big for your fund check sizes), then you can get carry on each deal. The benefit is that it isn't aggregated like a fund so if you hit 5x on one deal, you get carry paid out when you exit, regardless of if the next deal is 0. With that said, raising equity for each deal takes a ton of effort on top of the "regular" deal work. If you have a group of 5-10 LP's that love your strategy and will always give you equity, there can frankly be an advantage to doing it this way.
I know a group that specializes in, basically, “concentrated micro funds” - they raise like $100M, do like 3 deals, then rinse and repeat every couple years. Far better for the GPs because of limited cross-collateralization of carry (though constant fundraising is a pain). Takes a certain level of trust / type of LP to sign up for it
It's probably difficult/impossible on a European style distribution waterfall so it would only apply for funds with carry calculated deal by deal in the first place in addition to single asset vehicles. I have heard of deal by deal being applied to venture partner type of arrangements where individuals get economics in only the deal that they bring to the investor.
Deal by deal arrangements can be nice especially when you have an opportunity to vest/unlock carry pool a lot sooner.
So there are a few things happening here:
1. The partners want their carry to be more of a sure bet so it is spread out across all deals - no surprise.
2. Each deal is probably structured through a holding company, which the main fund then owns. This permits segregation of the carry pools so more junior staff can have exposure just to their holdco. More risk on the table for junior staff cause if they source or execute a crummy deal then they've got all their eggs in that basket, but I imagine their carry % is pretty decent compared to just a % of everything.
More commonly, I have seen funds provide VPs and Principals with carry and syndication fees if they create side-car co-investment vehicles. Isn't really much skin off the partners back as the more junior staffs carry is in a separate structure.
On the employee level, say VP, would it be common to be offered this type of carry vs. fund-level? It's the first time I'm hearing of this concept for an established fund, so I would imagine fund-level comp is more market. Feels less partnership-oriented and hopefully the %s get you to the same dollars at work, or better since it's more concentrated risk exposure.
From what I've seen in VC this is very common. Though for most LBO funds I've usually heard of just a % allocation of the total fund.
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