VP at UMM PE fund considering a jump to a fundless sponsor
I’m a VP at a UMM PE fund. The platform is solid but my carry / total comp situation is under market and limited. Two well-connected operators (HNWIs) I know well are building out a deal-by-deal investment vehicle. They’ve already begun deploying capital and want to bring me on to own all deal sourcing and execution going forward. The economics are still in negotiation but would be heavily equity-weighted- above what you’d typically see at my level in institutional PE. For future deals, they would essentially be a fundless sponsor but able to use their own capital as well, with some discussion of eventually formalizing into a proper fund structure down the road. I wouldn’t make any moves until their initial deals have closed - I want to see them execute before committing.
- Is this a smart career move at the VP level, or too early/risky to leave an institutional platform?
- How do I think about the value of an equity package in a structure this early-stage versus the certainty of staying put?
- Anyone made a similar jump from institutional PE to a fundless sponsor? How did it go?
I'd try to formalize some dollar amount that they're committing to the strategy and parameters for what they're willing to invest in. My worry, as you already identified, would be that you're wasting your time as they get cold feet on good deals.
Additional Thoughts:
1. How much are they looking to deploy in total and how big of deals are they looking at (in broad terms)?
2. My mind initially went to asking for something along the lines of 5% of the PI in each deal, but if they're looking for a hold strategy, you'll have to think through rights to the distributable cash flow as well.
3. Who is going to operate these businesses? If they're too small, you may quickly buy a mess that you don't have the resources to fix.
4. Will you have any resources to help you navigate this, or is this a one-man shop. May be good to negotiate that they pay for you to have an associate type.
Currently at a similar platform that has "worked out". Made the switch earlier in my career when I was an associate to a different shop and it was a complete disaster. Ended up in career limbo and joined my current fundless group which has gone much better.
It's a pretty big career risk and you are taking a bet solely on the owners. The benefit of joining on the ground floor as the early or first non-principal operator is you get a meaningful opportunity to "punch above your weight" and get a lot more responsibility than you would otherwise. The downside is you are exposed to (1) deals not going well or not closing any deals, and (2) the owners being stingy with economics. If you get a situation where there's a strong thesis, they can close deals and execute well, and they will reward your contribution in what is effectively a startup shop, there is a significant amount of upside.
Given you're already a VP the career risk is likely less since you have a few reps under your belt, since you can still for a time chalk a failed stint as doing something entrepreneurial. Deal-by-deal carry is by far the best structure since your home runs pay out independently of losses.
Only you will be able to determine your evaluation of the two operators. If it works out there's definitely upside but it is a massive risk. I would make sure your equity comp you negotiate aligns with the risk you are taking as you don't want to end up in the same spot you are currently in with capped upside once things go well. Joining at the beginning is when there is the most risk and you should make sure you get compensated as such.
They offered me 10% carry. How does that compare to your situation?
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