Startup Fund Out of Undergrad - Next Steps
Looking for advice on my situation/possible next steps.
Background: Currently a second year analyst at a very small, startup growth equity shop. The firm officially opened up ~24 months ago and I was the first (and so far only) analyst hire with a VP of Ops and two partners above me. I interned for the two partners at a previous firm during undergrad with the knowledge that they would be opening up their own shop, and so once they did I decided to take a chance on them and forgo the traditional IB path out of undergrad in hopes that I’d be gaining some pretty differentiated experience with potentially great upside if everything works out.
Fast forward to now, and things haven’t really gone as planned. Up until a few months ago, we had essentially been operating as a fundless sponsor, raising capital on a deal-by-deal basis targeting significant minority/majority stakes in distressed, unprofitable venture-backed tech companies. Given the fast-paced nature of the deals we’re looking at (ie these companies need money now), having to raise $$ for every deal meant we were losing out to funds that have capital ready to deploy immediately. We’re now in the process of raising a small fund (<$100mm), but fundraising hasn’t been looking great – less than two months out from first close and we’re only at ~20% in what I would consider pretty soft commitments from family offices in the partners’ network. We have also yet to close a single deal this year, largely due to the timing issues mentioned above (closed three deals last year, sold one asset where we effectively took on the role of sell-side bankers for ~5 months). Note that deal flow has not been an issue.
Comp is also very low - $70k base (less worried about this, sort of just comes with being at a startup), no bonus last year, no insight into bonus this year, and minimal insight into what carry will look like on the fund we’re currently raising (though I know I will be getting something and think at this point I have enough leverage to negotiate a good deal for myself).
I plan on sticking it out in the near term to see how fundraising ends up playing out, but if that doesn’t work out I’ll find myself 2.5 years out of undergrad in a completely stagnated buyside position with far below average comp and zero brand recognition.
I guess I have a couple questions: 1) What would you do in my position, and 2) Do I have any chance whatsoever at moving to a reputable growth shop (or similar) given my lack of IB experience? Assume my technical skills are roughly on par with your average second year IB analyst.
Thanks in advance.
I would instead find a nice stable paying analyst job in corpdev paying 90k a year
Lol description sounds like the fund I used to work for, really depressing place.
Echoing the above, if you work in corp dev, you can make 150k after 8-10 years when you become manager
You can probably tell that story and move to other LMM PE shops, you do seem the have some deal reps.
Personally speaking - I really like finance and especially LMM PE which I see as the wild west where you have the most control over your future success/failure. Everyone is different so Corp dev is also another good option, but I would end myself if I ever become that cog# 289 in Corp Dev or some large banking 2.0 UMM/MF PE firm.
Also, I understand but I won’t make hasty decisions due to 70k, even in worst case if you think about long term (5-10 years) you’ll end up doing fine in most buy-side roles.
It's always tough in the beginning. If you believe in the group and see real long term potential, stick with it. I know an early-stage growth team that started with just four people. The youngest partner and principal began as analysts but quickly climbed the ranks. Over the years, the team made some outstanding investments. Now, they have a team of over 20 people and have raised $2 billion in the past decade. Those who stayed from the beginning are now earning millions with minimal effort. It may not always work out this way, but some groups have potential.
If not, you've got a compelling and interesting story to sell, and you can explore opportunities with other investment groups. Avoid corporate development.
Why avoid Corp Dev?
There are some very good CorpDev opportunities out there, and the top roles pay better than most realize. Imagine being on the Corp Dev team for a Berkshire subsidiary, a BMW / VW type company, or a for a SpaceX kind of venture. These acquisitions are 100x more interesting than your average consumer focused MM PE fund. The modeling is likely pretty nuanced and unique as well.
My company has a history of multi-billion dollar take privates. Surely that's more interesting than being a PE Associate at a LMM shop where valuations are handled based on EBITDA multiples and a few comps being spread? Which investor skillset do you think is better? Which requires more insight and indicates a more complex deal?
If you want to talk comp, yes the ceiling of MF PE is unparalleled. However, given that 80+% of those in PE don't work at MF PE, I would argue more people should consider Corp Dev. I'm not saying Corp Dev = PE, but there is a huge misconception about what Corp Dev is, pays, and entails on this site.
Plenty of Associate bankers make more in TC than PE Associates, and most PE Associates never make it to the carry stage. Therefore if you are focused entirely on comp and taking the average, one should say "Don't do Corp Dev / PE, stay in IB"
Nice write up, but the post and response was centered around early stage growth equity, not MF PE. Context was for an analyst. Wouldn't be so quick to switch from growth equity to corpdev at that level given it's a very long and difficult climb from there to a senior corpdev role. If you are one of the few people to get a rare and cool seat at Berkshire or something similar and have a senior position, then of course that's a great role. But in earlier years, wouldn't recommend for many of the same reasons you mention.
Really appreciate the responses so far.
Quasi iure voluptatum aut architecto. Dolorum doloribus doloremque similique rerum quia necessitatibus dolorem. Est est et adipisci nesciunt. Expedita quo aut reiciendis eos ipsam. Est et nulla quis eaque in. Deserunt eos ut dicta sed illo sint.
Et ipsa numquam voluptatem fugit voluptas sed quos. Sint maxime dicta est officia nihil placeat maxime. Soluta qui quisquam dolorem natus ipsam ut sit.
Magnam rem enim voluptas quo. Aperiam est est cum quisquam minima.
Cum et a sit corrupti. Sapiente rerum officia distinctio minima aspernatur est. Illo et molestias odio similique id omnis hic. Dignissimos voluptas suscipit et. Excepturi cumque quo qui ipsam eos qui quia quisquam.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...