Funny one here ;
24 Y/O , worked in PE for a year long internship during undergrad , worked in the same shop after that for 1 year. This was a small shop & closer to an FO set up by the time I got there. 2 founders were worth comfortably $100MM + each and were now deploying their own capital mostly and raising off some friends. Deal sizes were very much so on the LMM side. Despite this, got some unbelievable transaction experience. There was pretty much me , one other junior and 4 guys aged 45-55 who were running the deals (2 of whom were the founders). Did distressed acquisitions , bolt ons , growth equities & buyouts in my 2 years there (7 deals). Got by on pure likeability and knew absolutely F all going into it but feel I got lucky.
Got offered a BB IB seat (did a summer internship during Uni too) , however rejected this. Felt silly at the time turning down $80K + Bonus for $45K plus small bonus & no carry. You might think this was retarded but when you go from being front and centre of a transaction and getting unbelievable hands on exposure from guys richer than 90% of IB MD's to having to deal with assholes screaming at you and being at the bottom of a massive hierarchy. The people on my IB team were genuinely horrible and I think I just got a bad desk unfortunately. All my friends called me retarded for going back to the small PE but I didnt care. Knew that if I kept close to things, that I might eventually make it back to where I wanted to be in terms of wealth. About a year in , the two guys were kind of semi retired and had scaled back to 3 days per week. Didnt think this was great for my own experience plus was getting pissed off at pay at this stage so decided to have a look around.
Got a call from my old manager who had left 8 months previously and he told me he was setting up an alternative investment management co. where he would be running the PE division with his two partners running PC (cash flow lending) & RE Finance. Gave me a great pitch on what they were going to do and said they were looking for associates. 3 young guys (35-45) , all had young kids, smart & good backrounds. Offer was $80K + Bonus up to 100% + Carry . No airs and graces about themselves and really pushing that it was a start up and they were under pressure. Honestly seemed fun so I was just like f it I'll chance it.
Had to give up my CFA (which was my safety net) because I couldnt get time off for study plus the hours have been intense so far. Anyone here in this age bracket having to go through similar start up risk and if so is there anything that could be done to mitigate? It is literally just me and that guy hunting for deals in the LMM space , raising deal by deal (this, thankfully is okay thanks to great access to HNW/UHNW which I know is rare). Two of us have found two nice deals which we have an angle on and looking to raise $25MM . All has been rosy so far but again , neither of us really have a proper clue on how to run a PE firm this early doors, I was literally assembling furniture during the first few weeks for our new office as the sole associate. I feel like I am risking a lot myself and that if it doesnt work out , I have no name recognition , no qualifiactions and no concrete training under my belt that you would get from a structured graduate scheme. If it does work out however, not many people my age would get this close to deals and my carry cheques could come in in 4/5 years before I am 30 (they are not major carry cheques since a small fund but again , only 5 people in the whole company so they cant be too bad). Am I risking everything too early and should I go for a safer gig or just double down?
Had sorta similar experience so i'll add my .02. Can you model out what you're carry looks like assuming base return expectation? Make sure carry vesting schedule is agreed upon in contract otherwise they will try pull it if you leave early.
Honestly, yes, you are assuming start up risk but right now you do not have much to lose. You are young, have no dependents. Try to negotiate equity in mgmt co sooner rather than later but be graceful in approach bc at the end of the day, you're an associate and expendable.
I'd lean further in and see it through. If you stay loyal and its a success, then you'll be wunderkind MD by 28. It might be frustrating in 2-3yrs when you cash comp is lower than some of your peers. If you don't scale the fund to a point where economics are enough to go around, then the independent sponsor, cowboy model is a novel lifestyle to some. (i.e., no fund but 4 platform companies where you are majority owner). I have immense respect for those who don't need to attach to a brand name to generate revenue on their own. The important part is getting enough deal reps. Downside case is some LMM PE will hire you in a few years and you forewent the BB opportunity to then leverage for brand name PE which is a safer risk adjusted route. Don't focus on making moves for CV branding, focus on accruing deal experience to be able to eventual execute transactions on your own. Gradually court your funding sources (UHNW) as they can bring capital to a deal you have in the future.
You're friends in IB will write you off as working for a 'no-name' sponsor. But measure up net worth again when you are 30. Have seen plenty of people from lesser schools end up being incredibly successful.
CFA doesn't matter - sourcing, underwriting, closing deals, then 2.5x it does. So focus on whats important. Because you don't receive the same structured training you would in IB, you need to invest in yourself to so that you're deal skillset is bullet proof and naturally you'll be less "polished" than IB counterparts so develop softer skills.
So helpful mate - thank you so much.
Agreed with the above.
Having worked at MF out of uni, I absolutely do not "look down" on those at lower name shops. What matters is earning potential. I'm in this for the money, I don't care if that comes from working at Blackstone or a no name shop.
Personally have seen the best earning potential to be in LMM shops with low cash and high carry. Simple maths, you downside is your cash, your upside is your carry, if you do a weighted average on probability of making some carry, the cash comp becomes much less meaningful.
What’s your other option if you don’t go with the startup guys?
Take the risk man that sounds awesome. Learn on the fly, assemble that furniture and kick ass. My goal is to do something similar. DirtyMikeAndTheBoys LOL
If you can get 1-3 deals done in the next few years that you led and become unhappy with comp / trajectory, you give yourself a great case to come in as a LMM VP who has a head start sourcing and being deal lead. Or even head of Business Development.
The only issue here is if you do end up looking around to more institutional places, they do typically have a process they need to follow with ICs, etc, that you’ll not have had as much experience with, so that’ll be a learning curve.
Echo the above that if you're confident in ability to both find deals and get them funded, definitely think the juice is worth the squeeze. Will have the ability to raise a fund a bit down the line if you guys are successful (and economics make sense).
Work at a placement agent with a particular focus on emerging managers and increasingly doing raises for independent sponsors. Happy to answer any specific questions you may have.
I had a similar aspiration. Ended up buying a company several years ago. Just ended up running this, not going to try to raise a PE fund. Making decent money and I'm happy.
There's a lot of dry powder in the space and many people are chasing the same deals. Not every PE fund is successful FYI.
Entrepreneurship is tough. I would have made less money staying at an established LMM Fund, but also would have had way less stress.
What industry? And how did you raise the equity capital to buy it?
Can I pm? Thinking about pursuing eta post associate stint
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