Hi All -
I'm joining a first time fund in the next month or so - we're just negotiating now. I'm a Principal and I'll be joining two partners in a LMM PE shop. I come from a MMPE background.
They are currently raising around ~$400mm and expect to hire another VP/Principal and 1-2 juniors. They also have some EIRs as well that may get into the carry pool.
Question is what kind of CDAW / carry % can I expect at such a fund as a founding member? I'm thinking around 7.5-12.5% but wanted to hear from the peanut gallery.
Based on the most helpful WSO content, your expectations of 7.5-12.5% carry as a founding member at a first-time fund raising ~$400mm seem reasonable but could vary depending on several factors. Here's what you should consider:
Carry Allocation for Founding Members:
Founding members, especially at smaller or first-time funds, typically receive a larger share of the carry pool compared to later hires. The range you mentioned aligns with what might be expected for a Principal-level professional joining as a key early team member.
Team Size and Carry Pool Distribution:
With only two partners, another VP/Principal, and 1-2 juniors, the carry pool will likely be less diluted. However, the inclusion of EIRs in the carry pool could reduce your share slightly, depending on how much they are allocated.
Industry Benchmarks:
For a $400mm fund, carry percentages for senior professionals like Principals can range widely. While 7.5-12.5% is on the higher end, it’s not unreasonable given your role as a founding member and the risk associated with joining a first-time fund.
Negotiation Leverage:
As a Principal with MMPE experience, you bring valuable expertise to the table. This could justify pushing for the higher end of your range, especially if you’re expected to play a significant role in deal execution and fundraising.
Focus on Carry Dollars at Work (CDAW):
Instead of focusing solely on the percentage, consider the carry dollars at work. For example, if the fund achieves a 2.0x return and has a 20% carry pool, a 10% carry stake would translate to $8mm in carry dollars ($400mm * 2.0x = $800mm; $800mm - $400mm = $400mm profit; $400mm * 20% = $80mm carry pool; 10% of $80mm = $8mm).
Vesting and Terms:
Ensure you understand the vesting schedule and any forfeiture provisions. Some funds have tiered vesting (e.g., 20% per year over five years) or clawback provisions that could impact your realized carry.
In summary, your target range is reasonable, but the final percentage will depend on your negotiation, the fund's structure, and the allocation to other team members. Make sure to focus on both the percentage and the potential carry dollars at work to evaluate the true value of your compensation.
Sources: Carried interest for Associates / Senior Associates?, Data: Average Private Equity Compensation and Carry from Associate to Managing Partner, Data: Average Private Equity Compensation and Carry from Associate to Managing Partner
Probably depends on a number of factors including cash comp, YOE, partner background, etc. At first read, 7.5-12.5% seems high. Good for you though if they hit that ask, I would've expected something like 5-8% as the range.
Would enjoy discussing more if you'd like to PM.
Have you already left your current shop? Wouldn’t you want to have that negotiation done before you accepted the offer to join them (given you now have significantly less leverage)?
In terms of pushing the carry economics, what are you honestly bringing to the table that they couldn’t replace tomorrow? Are you bringing LPs? Will you get 3 platforms done over the next 12 months? Not meant to be critical, more just asking what’s your real value to them, which plays a big role in your negotiation.
No clue what your background is, but I’d think 5.0% - 7.5% as a base would probably be closer to the initial offer you receive. As you negotiate, it might be helpful to frame the CDAW you have or would’ve expected to receive at your current shop (if you were at 1.5% on a $2.5BN fund that’s the same CDAW as 9.4% on a $400M fund).
You could fight for more now, but that could also alienate them.
If you’re still negotiating:
(1) You might negotiate to clearly outline the milestones that will make you a Partner and what the carry economics and fee percentage will look like at that stage.
(2) If you can’t push on CDAW, you could push them on the vesting schedule to be more favorable to you in terms of years.
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