Abandoning Private equity

I have now spent 3-4 years at a top BB followed by 2 years at a upper MM private equity fund. Making about $500k all-on cash comp and just starting to get carry. Likely going to give that up to do business school (interview with HBS and waiting to hear back from GSB). After business school I want to do something more entrepreneurial (either founding a start-up or some form of financial roll-up / search-up). There is just so much capital out there right now and feels relatively easy to secure funding.

Am I crazy for giving up my position that I worked so hard to get to? I just don't want to grind it out to PE partner but rather do something for myself. In short I feel like a 5% chance of making it big outweighs the 60% chance of successfully grinding it out to PE partner (and being very well of but not crazy well-off).

Anyone in a similar position?

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Comments (26)

  • Associate 2 in PE - LBOs
Oct 19, 2021 - 3:26pm

I just don't want to grind it out to PE partner but rather do something for myself

I think you answered your own question man, you don't need permission from anyone, just go do it

FWIW same boat here 

  • Associate 1 in PE - LBOs
Oct 20, 2021 - 3:21pm

Sounds like a classic case of sunk cost fallacy. If you don't see yourself becoming a PE partner, and would find more satisfaction doing something entrepreneurial, then no you are not "crazy" to give up your position. Besides, all of those years are not wasted - I'm sure you have quite the rolodex and toolkit.  

IMO it sounds like the real question is how risk adverse you are. If you don't have the balls to pull the trigger then there's no point debating - sorry for being blunt.   

Oct 20, 2021 - 5:35pm

It is indeed sunk cost fallacy! While I felt like have learnt a lot I still feel like a lot of my skills would go to waste, as well as a pretty cushy fixed salary/bonus. I am quite risk taking I would say so I am leaning towards just going for it (have savings + backing from friends/family as needed)

  • Intern in IB - Gen
Oct 20, 2021 - 3:33pm

Currently an incoming analyst at a top BB in TMT and am already thinking about some of the same questions that you are in now. I am very entrepreneurial by nature and know that I want to start something around the MBA level. I wanted to ask, do you feel like PE experience helps in terms of entrepreneurship and/or operations/strategy?

I have received advice that if I know I want to do entrepreneurship, I should look at operations/strategy roles at startups after my analyst stint in IB. Or at least GE. Any advice?

Oct 20, 2021 - 5:20pm

I personally have found PE very helpful to develop a broad skillset both operationally, financially and from a general leadership experience by interacting directly with successful management teams. If I could do it all over again I would consider growth equity as it is typically not as sweaty as large cap buyout and you get to work with companies that are earlier in the development stage (hence closer to what you are likely to start if you pursue entrepreneurship)

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Oct 21, 2021 - 2:25pm

Can you highlight some of the operational skills that you learned in PE?  I might be potentially trying to help a friend get a small business off the ground and would love any insight.  

Oct 20, 2021 - 5:45pm

"There is just so much capital out there right now and feels relatively easy to secure funding."

So? This is not specific enough. How will you benefit? Do you have a plan or business idea that you know will work? Also, realize the macro-level business environment will have changed with 99% certainty in 2+ years from now when you will be leaving business school. I'm not saying entrepreneurship is a bad idea or it's something that you shouldn't pursue. What I'm saying is "there is so much capital" is not a well-thought-out enough plan. Just to level-set expectations, more likely than not, you will not be making 500K all-in for many years if you go this route. 

Oct 20, 2021 - 7:19pm

Fair comments. I do have a couple of ideas that have a reasonable chance of success. I agree with your point on earnings, but that is the entire point of this thread. It comes down to the fact that I would rather have a tiny chance of making it big and doing something meaningful with my life rather than wasting it in financial services

Oct 20, 2021 - 6:05pm

What is business school for if you're just going to do entrepreneurship after? Why not use that tuition $ on the business instead and start now (plus 2 years sooner in good capital market, who knows where we'll be in 2+ years).

Oct 20, 2021 - 7:21pm

My thinking is that I can broaden my network, have time to develop my ideas, and get a bit of a break from an intense job with something that still looks good on my resume (assuming I get into H/S)

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  • Principal in PE - LBOs
Oct 20, 2021 - 7:38pm

What a lot of people don't ask themselves is why doesn't my boss or boss's boss at said MF launch their own fund? The answer is that because the nature of that seat is that you can personally put BILLIONS of dollars to work… that spins off a ton of wealth creation. Run the monkey math on how many search fund investments you'll need to do, returns outcomes, and how much capital you'll need to be able to raise, how much of an organization you'll need to scale about around it (and resulting dilution of economics) in order to generate the same wealth creation. Don't forget investor meetings increasingly taking up your time instead of actually assessing/making investments.

The reason to set out on your own instead of cashing in on the golden ticket that is MF PE is one or more of the following: (1) you don't believe in the long-term durability of the strategy AND think/know you have a better approach; (2) you want to have the entrepreneurial experience (cuts both ways, someone needs to order furniture, and manage payroll, and capital calls, etc).

The fact of the matter is as a start-up you'll probably never scale to be able to personally deploy as much capital as you can out of a MF. Not only that, but if you're capable enough to MAYBE do that, you're probably also capable enough to be the next Joe Baratta or Matt Nord, instead of a run of the mill Sr Partner at MF PE.

UNLESS you believe that either your strengths or where the industry is going is oriented in a way where you're better off starting from scratch on your own.

Before you do anything, do the math on how much capital you can realistically raise today, what the return profile will realistically be, how much wealth that creates for you (AND your team)… then compare that to a successful MF career track.

Oct 21, 2021 - 12:05pm

Although not totally off, disagree for several reasons.

1. There's also the job satisfaction component that might be higher in trying yourself.

2. Going from 2 years into PE is very far from generating generating generational wealth in a partner seat. It means funds continuing to perform, climbing the political ladder, luck that the market is right when you're in a position that deals become "your" deals (there are many smart guys who were early 30s in 2006/2007 that are now out of the industry because of "their" poor track record). It might take 15 years to generate real wealth from these positions, since you're not in a "senior" seat until early-to-mid 30s, at which point you're granted real carry in the newest fund, and then another 8 years for it to be realized. And if you hit a downturn and returns are low...

3. You can generate real economics by finding a good idea and executing it on your own. There are a bunch of 30 year olds running around raising attractive HNW money today (20-50m range) with carry more like 40% rather than 20% due to the ability to create real value at a smaller scale. If you're buying mom and pop, real undervalued and looked over businesses and making 3x in 5 years on 25mm, that's 20mm of carry. Not saying it is easy, but I think you overestimate the ability to just ride out a PE seat to become a senior partner.

OP, I don't think you're wrong, but I would be more specific about the path, investment criteria, business plan, etc. before making a decision

  • Principal in PE - LBOs
Oct 23, 2021 - 12:23am

Oh, so all you have to do is raise $25m four year out of school? Convince your LPs to pay you 40% carry. Compete with established at-scale lower middle market PE firms to buy a heavily banked $50-75m TEV asset. Triple your money in 3 years… and do it all with a smart and capable team that came to work for a 26 year old without any expectation of meaningfully participating in the upside? Why am I just now hearing about this.

As I said above, sketch out a reasonable scenario with a healthy dose of prudent conservatism. If you can sketch out a pretty muted and conservative case and it looks very compelling, that's usually a good bet. If you need to have a 6-game parlay bet to go your way… you're doing typical WSO math.

My rough math back in the day was that if I could raise $5m (no easy feat unless you have real family money) and hit 2-3x returns… the first few funds are just to get a track record and get to critical mass. If those 2-3 funds (10-15 years) were consistently strong, then the 3rd or 4th fund would be where the real money kicks in. And it was about what you'd make as a partner in MF PE.

People are pretty smart and economic animals and the market is pretty efficient. If the wealth creation from launching your own fund was that much better than a MF path… you'd see more people doing it. A decent (but not a rockstar) MF partner can probably launch with $500m. That's real scale. And yet they don't… I guess they're just lazy and uninspired.

Oct 20, 2021 - 11:46pm

5. Prestige vs responsibility

A couple of years out of college I was talking to a close mentor who had finished his MBA a year before. He told me something that always stuck with me: "of the people I graduated with, a year later the happiest ones solved for responsibility at the expense of prestige, and the unhappiest did the exact opposite". I honestly didn't understand it but now I very much do. Rarely can you have both prestige and responsibility early in your career, in fact I've found them to be quite inversely correlated. It takes confidence to forgo prestige but it can be so worthwhile when you do.

Oct 22, 2021 - 10:34pm

Couldn't agree more. That's exactly where my career path led me, albeit more by fate than my own personal doing, but I wouldn't have it any other way. I'm not bringing in $500k a year like most on this forum, but I just broke into my thirties and I've been VP, Finance for two PE PCs now. PE sponsors had me take over for the Co-Founder/CFO in the first play and replaced a short-termed CFO on the current gig. So far both of the deals have been relatively small, Military -> Non-target Liberal Arts College (BBA Finance, BBA Accounting, MBA) Public Accounting -> Industry (Controller, O&G) -> VP, Finance for PC

Oct 23, 2021 - 5:18am

I'm in a similar boat except I'm a 2nd year IB analyst. I have an idea for a consumer tech company that I think i should quit & launch. I realize this sounds crazy, but I have a background in both coding & finance so I know the potential is there. A couple VCs have shown interest but I can't swing a fellowship + IB analyst workload at the same time.

  • Associate 1 in PE - LBOs
Oct 24, 2021 - 4:47pm

What fund (comparable names work as well) are you working at where you get $500k all-in after 2 years...?

Oct 25, 2021 - 6:31pm

He did 4 years in banking, so probably came in at a Senior Associate level.

Oct 24, 2021 - 9:47pm

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