Starting own PE fund as a student

I am a finance student aiming to establish myself in the PE industry. I am considering starting my own "Mini" PE fund with about $5,000 in AUM, investing in local companies. My plan involves acquiring new customers, negotiating existing contracts, improving business efficiency and then selling my shares before repeating the process to grow my fund. Background is in viral social media strategy, where i build some pages and generated millions of views. After building a track record with the first 1-2 deals, I plan to raise a small amount of money (around $25,000) and repeat the cycle.

My ultimate goal is to secure a position at a top firm like KKR, Blackstone, or Apollo. Do you think this is a good strategy or will the small amounts involved make it not taken seriously? Will the recruiters just laugh about me? Would pursuing this be more advantageous than an internship?
Thank you!




 
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Assuming you wrote this post in a serious manner - starting your own fund as a student, will unfortunately not lead you to gaining a private equity role at a top fund. Firstly, you cannot set up your own "mini PE fund" - unless you start an investment firm, become incorporated, and registered with the relevant financial regulatory body where you plan to operate/make investments in, set-up an actual fund and prepare legal documentation and marketing materials. Secondly, let's say you achieve the above and find relevant businesses to invest into - why would said business want your investment and your expertise, you are a finance student in college with little-to-no relevant real world experience. PE firms have advisors, expert calls, lawyers, consultants, and other relevant teams that work alongside them in implementing business strategies - what makes you think you can easily grow a small company's revenue and negotiate contracts? Lastly, who would you sell the stakes to? Another investor or the owner? And perhaps the most important aspect, who you entrust you with 25K easily - if parents then that's fine but if you use outside investors, you've just opened yourself up to a lot of liability unless you have a contract/legal documentation.

Best advice, focus on preparing technicals, pursuing different extra curricular activities (doesn't have to be finance-orientated), and if you really want to invest, maybe become an angel investor to a start-up or small local business who needs additional capital.

 

Thank you for your detailed comment!

  1. The legal pathway is certainly the biggest hurdle. I plan to consult with a lawyer to ensure everything is set up correctly.

  2. In this particular case, I have developed a specific social media strategy aimed at acquiring new customers. I have experience building my own pages in the past and have a solid track record in this area. I hope that the company will be convinced of the value I bring and allow me to invest for a very small percentage of ownership.

  3. I prefer to sell back to the owner. This deal isn't about making as much money as possible but about building a reputation. The goal is to sell my shares after contributing significantly to the company’s growth and customer base.

  4. If I raise $25,000, it will hopefully be with legal support.

  5. Why not take the "usual" path? My current profile isn’t strong enough to secure positions at top firms directly—I’m not from a target school, my internships aren’t the best for the top three firms and I lack strong "connections" / network. So, being realistic, I do not see a path on getting the position. 

 

I admire your entrepreneurial spirit but being realistic here, it'll be extremely difficult to set up a legit small fund, most funds legally need to have a set amount of capital (often times in the 100s) to operate and without an actual track record - it'll be difficult to convince outside investors to invest with you and for small businesses to take your advice/insight. You also open yourself up a lot of legal liability - even the most reputable and best funds still receive lawsuits from investors or investors wanting to pull capital. Even if your current profile isn't the strongest, I recommend sending time on improving your skills and perhaps gaining experience from a boutique bank or smaller fund - plenty of people move up to larger and bigger funds like you had mentioned over time. If you come across well-prepared and knowledgable, these smaller funds or banks may give you a chance, which will allow you to gain legitimate experience. It's a marathon and not a race.

 

192342PE:

Thank you for your detailed comment!




  1. The legal pathway is certainly the biggest hurdle. I plan to consult with a lawyer to ensure everything is set up correctly.




  2. In this particular case, I have developed a specific social media strategy aimed at acquiring new customers. I have experience building my own pages in the past and have a solid track record in this area. I hope that the company will be convinced of the value I bring and allow me to invest for a very small percentage of ownership.




  3. I prefer to sell back to the owner. This deal isn't about making as much money as possible but about building a reputation. The goal is to sell my shares after contributing significantly to the company’s growth and customer base.




  4. If I raise $25,000, it will hopefully be with legal support.




  5. Why not take the "usual" path? My current profile isn’t strong enough to secure positions at top firms directly—I’m not from a target school, my internships aren’t the best for the top three firms and I lack strong "connections" / network. So, being realistic, I do not see a path on getting the position. 




Then just give up on those 3 firms. Seriously. You know exactly what they’re looking for, you say that you have none of those things, and you expect them to even give you a look (let alone take you seriously)?

Sure, you don’t go to a target school. Then focus on building relationships with people there. You weren’t gonna get shoed in without relationships even if you went to a target school.

Some tough love here: stop the coping and focus on what matters. If you’re serious about those firms, do what you know will work for them. If you’re serious about your own mini fund, focus on that. Don’t expect to stumble into them without 100% dedication.

 

Do not listen to this person trying to kill your dreams. If it’s what you want to do then you should do it. You have nothing to lose and everything to gain.

 

The friction cost / transaction cost is way too high to make any money even if you’d manage to raise some money and get your legals done. I’d highly recommend you just start with stock picks and document your portfolio and performance

 

The investment aspect of this doesn’t make any sense. You should do your strategy and set up agreements where you get paid in cash and/or shares of the company if you hit KPIs, eg 200% increase in e commerce traffic or something.

I also would be surprised if someone with a small local business will take the time to change their cap table and get lawyers involved for $5-25K. Your legal fees will eat your AUM after one deal.

Starting your own business doing this would be enough of a resume booster, and could even be a nice business itself. Once you get actual scale you could re-visit the fund aspect.

 

Honestly if you can do this and it works, you won’t need to work for a MF shop because you’ll have a great small business. Maybe that turns into a digital marketing agency or you consult with LMM PE firms doing roll ups or maybe you build enough of a track record and roll up the businesses yourself, but it’s hard to tell without trying, iterating and adapting your product to your clients’ needs. I hate the mindset of if I do X how will it help me get Y. Do X and maybe Y isn’t attractive anymore. If you’re really set on MFPE, there’s plenty of info on here on how to get into one of those seats, unfortunately it’s hard, well trodden and rigid.

But if you’re interested in entrepreneurship, I’d suggest doing things (starting a company, being an engineer or sorts, doing sales/bizdev, etc). There’s only so much you can learn in a model or building decks. If you’re unsure, I’d read Zero to One, it’ll make you hate the consultants, bankers and PE folk in your life forever - from a self loathing growth investor.

 

I am not very experienced, so definitely listen to the old heads in here, but I think something non-typical like this actually makes you stand out from all the other kids with good GPA's and clubs/ extracurriculars (but you should aim to achieve these as well). 

However, due to the difficulties of setting up a "mini" PE fund that have been pointed out, I would instead offer your SOME growth strategy as service to these businesses, and just take a fee (preferably something tied directly to the growth). Assuming you are successful in this, you can boast on your CV with some decent earnings, X% average increase in SOME traction, etc.. This shows you have a decent sense for business sense, that you are entrepreneurial, and can offer something of value to firms. In an interview setting, this should be easy to spin towards a role at a PE firm. Good luck!

EDIT: I think this can probably generate more money than investing for such small amounts as well (again, assuming you are decent at it and target businesses correctly)

 

My advice to any students being "entrepreneurially driven" but also want to get a top IB/ PE job. Do the usual: good grades, good ECs, network, and secure the offer.

For ECs, you don't need to go as hard as your peers. Just do enough. This is a mistake I made.

You need to realize that you also have an incredible amount of time on your hands. Rather than try to build a small PE firm and maybe try to 2x your money on like 5k, you'd gain so much more value, experience wise and perhaps financially, trying to start some sort of business.

Learn to sell something, build something and then sell it, etc. You'll probably have more fun with college friends doing this than you would trying to invest.

Oh, and it makes for a much better experience on your CV if you actually were able to sell something and generate say 25k+ in revenue, rather than say you started a fund (this gets laughed at most of the time unless you're Ken Griffin).

 

Think this is pretty simple. If your long term objective is to end up at a MF, there are less-brain-damage-inducing ways to stand out than a mini fund. Only pursue something like that if you have an overwhelming desire to start something of your own. It’s simply too hard if you’re not 110% committed to making it work.

Brain dump incoming.

That being said, if you do decide to go with the mini fund, would recommend choosing a niche then going out to speak to as many of these operators as possible. Some examples include rezi services (i.e., HVAC, plumbing, roofing, windows, power washing, driveway paving, electricians) or retail shops (i.e., would really only look at cafes or trend-worthy food shops honestly). It’ll become pretty evident early on where these businesses could use some help.

Over the course of a few dozen meetings youll come up with some way you can add value. Maybe it’s implementing Salesforce and setting up automated email campaigns to customers, maybe it’s active outreach into communities via automated digital marketing, maybe it’s setting up AI call bots to take inbound and make outbound calls, maybe it’s renegotiating supplier contracts and doing research to find new suppliers who would offer lower rates. This could be anything just make it niche.

Once you have an informed point of view and relationships to stand by your views, it’ll be about finding a good partner in a local shop owner. This will be the hardest part and is most likely where you’ll give up if you’re not 100% committed. This is the equivalent of doing diligence during a PE process and it will be exhausting. However, once you’ve found a partner and set clear objectives over a 1-to-2-year time frame only focusing on 3-to-5 ways you can add value. After this period, either try to sell your stake back to the owner if you are a minority shareholder, take dividends in perpetuity, or partner with the owner to sell the entire pie.

In essence, this is the PE deal but on the micro level. Good experience for a MF if you can make it work, but should not be doing this lightly.

 

It sounds like you’re just doing what Nathan For You did, except with extra steps. Based on your critical thinking skills and view of the world, you’re better off going to VC imho.

 

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