Co-investing in deals with low-interest employer loan

I am starting at a new shop in a week. Will be working on real estate acquisitions, real estate development and small venture capital opportunities. My new employer is offering me a low-interest line of credit to co-invest in deals, to be used at my discretion. The line tops out at $25k/year, which for reference is about a third of the base comp. The interest and principal on the line get paid out as the deals perform. I am not very familiar with the various co-investment structures out there so I am wondering if anyone has any experience with this type of structure and what some of the advantages/disadvantages are. How does this vary from a typical carried interest structure? In general I am wondering how I should be thinking about this as part of my comp structure.  

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Comments (11)

Aug 24, 2020 - 11:36am
Ozymandia, what's your opinion? Comment below:

What is it securitized with?  If everything goes to shit, is your employer coming after you for a capital call?  If not, it's a really nice perk.  If not, you should be extremely concerned about the long term prospects at this shop (though I am guessing it's the former).

Aug 24, 2020 - 2:53pm
Ozymandia, what's your opinion? Comment below:
dipndunk

You mean secured. Typically it's your equity in the deal.

Yes, secured, misspoke.  But it isn't OP's equity in the deal, it's a line of credit.  If the deal in which he invests defaults or needs a capital infusion, what is OP on the hook for?  Not hard to see a shitty fly-by-night operator underpaying it's employees by offering this kind of "perk," under-capitalizing a deal, and then trying to go back to the employee for a capital call.  That's a lot less attractive then being given a couple hundred bps of arbitrage through the line of credit.

  • Associate 1 in RE - Res
Aug 24, 2020 - 2:55pm

The offer is silent on how the line gets secured. To my knowledge, no one else in the company has this type of arrangement so I may have the chance to kind of write my own destiny within this structure.

What is typical for repayment of the line? Right now we have worked out that it will be repaid as the deal performs but it is not decided whether that means at a capital event or if it amortizes as pref payments are distributed.  

Aug 24, 2020 - 3:04pm
Gumball3000, what's your opinion? Comment below:

Ozymandia raised a good point, what happens when one/most of the investments fail?

Also, what happens when the target company wants to raise follow-on rounds (Series A, B, x) - do you just get diluted or come up with larger chunks of money? What is the agreement here?

So we have an internal agreement that we directors are allowed to co-invest in our target companies. But the employer has nothing to do with it and the directors even have to secure external council for this.

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Aug 25, 2020 - 10:50am
maineiac42, what's your opinion? Comment below:

Pretty Common. So long as the loan is non recourse I would take it. 

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  • Associate 1 in RE - Res
Aug 28, 2020 - 11:00am

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