ADVICE - Opportunity to Start a PE Fund

FlashyKaptain's picture
Rank: Chimp | 6


Long-time reader and first-time poster. Before I start, I wanted to say that I am super thankful to all of you for the tremendous content that has been shared within this community over the years. It's had a meaningful impact on all phases of my career, from when I first found WSO as a young pup during my undergrad studies, to my first gig in IB and the subsequent lateral move to my current shop. Thanks all for thoughtful posts and the good laughs along the way.

I have been presented with what I think could be a tremendous opportunity to be part of the founding team of a single-family private equity fund in my hometown. The project is super early stages (i.e. the family has expressed interest in setting up a private equity investment vehicle, but nothing more concrete at this stage) and I am in similarly early stages in my thinking. I will provide more detail on my background and the potential opportunity below, but in short, I am trying to:

1. Rationally Evaluate the Opportunity. I have always been interested in private equity and getting involved with something more entrepreneurial. As such, the idea of setting up a fund is highly appealing to me. However, I want to make sure I work through this with a clear mind and not over-sell it to myself, fall victim to "the grass is always greener" thinking, etc.

2. Keep the Ball Rolling: If this continues to be an attractive opportunity, I want to ensure I do everything in my power to move these preliminary discussions into something concrete.

3. Hit the Ground Running. Again, if and when this continues to move in a positive direction, I'd like us to hit the ground running on day one of the fund being established.

For those who are still with me, I'll get into the details below.

I am in my late twenties. I went to a non-target liberal arts school and networked my way into an internship at a bulge bracket investment bank in a major city after my third year of undergrad. Got the return offer after the summer and was lucky enough to be placed into one of our bank's highest performing industry groups upon graduation. I spent a bit over two years at this firm and gained a ton of good experience working on a range of deals with super talented people. Our clients were mostly large cap publicly traded companies.

Coming from a smaller city, my goal had always been to move back closer to home after my banking stint. There are limited corporate finance roles where I am from, so when an opportunity came up at my current firm, I took a flight down to interview, meshed well with the team and was fortunate enough to land the offer. We work on middle market M&A and financing transactions and are industry agnostic. It's been a neat transition and I am enjoying working with business founders and owners (vs. boards and executive teams at public cos). The technical aspects of finance are perhaps less challenging in the private middle market than they were at the BB IB, but we are able to get a lot more involved on business strategy, understanding the true value drivers of the business, advise on different challenges the client is faced with (capital allocation, basic hygiene of company's books and records, M&A opportunities, expansion opportunities, underperforming product lines, HR, etc) and, in my mind at least, be a bit closer to the action. This has been a great learning experience. We are a small team (5 people) and run a relatively "flat" team, so it's also given me the chance to assume more responsibilities on deals. It's not unusual for a deal to be staffed only with my MD and myself.

So here's where it gets interesting. My MD is ~60 y.o. and is an old-school dealsman who's had a lot of success as an M&A / corporate finance advisor, but also had a previous life as an entrepreneur and CEO of a high growth publicly-traded company. Great network and is well-respected in the business community. He is a fair guy and we are able to have honest conversations about work / careers, and I've previously shared with him that I am interested in eventually moving to private equity. He's made a few passing comments in the last 6 - 8 months about having some high net worth friends who want to get into the space as investors, how much fun it might be to start a fund, etc. My response has always been that I'd have a strong interest in participating in the setup of a shop, in whatever capacity I could help. Somewhat of a delicate balance as he is still my boss and drives my comp at my current job, so I didn't want to appear overly eager / not committed to our current firm.

This past week, my MD told me explicitly that "Friend X" wanted to seriously start looking at setting up a shop in the next 12 - 24 months. Friend X is 60 y.o. and owns a highly successful second generation business in the construction / real estate space. My MD thinks he may have up to ~$50m to put to work. His assets are highly concentrated in real estate and he does not have private equity exposure at this point. He could invest in established PE funds, but I think the thought of launching his "own" fund is appealing to him..

The idea as described to me (again, highly preliminary) would be for my MD to assume an "Executive Chairman" role (senior guy at the table, responsible for majority of the deal sourcing, strategic advice, higher level negotiations of transactions, etc.) and for me to do the rest. Note that my MD is retiring from our current firm in a few years but wants to stay involved in business afterwards. He's one of those guys who will never truly retire. Friend X would be highly involved on investment approval, strategy for the fund and would likely contribute on the deal sourcing front given his network, but would not be involved in day-to-day operations.

Here I am. I've been sitting on this for a week or so and as previously noted, am trying to go at this in a rational way. Would really appreciate any thoughts / input / experiences. Feel free to rain on my parade. Actually, please do. Much easier to get excited about this than the opposite, so a dose of harsh reality would be welcome.

1. Rationally Evaluate the Opportunity.
Here's my thinking to date:


  • This sound cliche but I truly believe I have a passion for business. I love the strategic aspects of it, I have fun getting in the weeds to understand the details and I enjoy the "people" side of business - dealing with the personalities, incentives, egos. I find it all to be a ton of fun and exciting.
  • I want to do something more entrepreneurial and do not want to be an advisor forever - this would provide a great avenue to make that switch.
  • I see myself working at a smaller firm much more than a large company. I'm ready to roll up my sleeves, wear more than one hat, do the grunt work that will inevitably be required, etc.
  • My MD has a solid track record of success basically everywhere he's been. Same for Friend X. If not for anything else, having my name associated with theirs would have significant long-term benefits for me personally (as long as this doesn't turn into a complete shit show!).
  • From a financial perspective, comp may be slightly lower at the beginning but I would expect that overtime (and perhaps through a form of ownership in our deals), could outpace the potential at my current firm. To be negotiated and addressed prior to launching anything.
  • There's a very limited pool of private equity funds / family offices in my region - hiring is choppy and exit opps are few and far between.
  • I would be lying if I said the allure of being on the other side of the table and starting something with two well-known business names in my region didn't appeal to me.


  • For one, this is simply an idea at this stage (more on going from idea to reality below). Significant work left to be done and milestones to hit before this becomes a viable option.
  • This would be a very small fund (at least to start). I would be responsible for effectively all the duties from admin assistant level to VP / Director. I'm well aware that most of those are not glorious and my workload would likely increase.
  • Based on preliminary conversations, this would be a single family fund (don't think we would raise any other capital - but not out of the question). I know this comes with its own unique set of challenges.
  • I have a great team now and strong camaraderie with my colleagues. The new fund would be a stark switch and likely quite lonely. This is not a deal breaker at all, but it is a consideration. Gotta have fun doing it.
  • I have never worked in PE before (!). I feel strongly that I could be at least decent at it, but there is so much I don't know. I'm very realistic about this. My MD led many acquisitions when he worked at the public co and did a number of private equity deals (with personal money) over the years. However, we of course don't have a long track record of experiences and success in PE. Goes without saying but maybe this doesn't work out, and I'm out of a job in 12 months.
  • What I heard about Friend X is that he is a control freak. This is a large chunk of change to give to someone, so how challenging will it be for him to stay out of the way? Will he be second-guessing everything we do? Will we have any autonomy to invest in and oversee businesses as we see fit? I think most of this can be hashed out prior to launching the fund but establishing a good professional relationship and clear expectations will be paramount.

2. Keep the Ball Rolling:
Assuming the pros outweigh the cons, I am trying to figure out how to make this progress. My MD is a great higher level thinker, salesman and relationship guy, but he won't be the one driving the bus to get this going.

I think I need to set a time and have a serious conversation with him about if and how he sees this evolving. Confirm everyone is on the same wavelength.

If that's positive, I am thinking a meeting with Friend X is the rational next step. Goes without saying but I will need to impress him. I think my MD is "in" with Friend X for all intents and purposes and will likely go to bat for me, but there's plenty of people who would jump on this opportunity and a reasonable pool of qualified candidates for the position I'd be taking on. For a first discussion, I am wondering how much of a "pitch" we should prepare. Perhaps it is just a casual conversation, but my gut feeling tells me we should have some well-formed thoughts on:

  • Strategy (return expectation, target size (more than likely lower mid market given $$), type of businesses, industry-specific, geography-specific, time horizon, others?)
  • Investment process (how we would source, evaluate, get investor approval for, execute and monitor investments)
  • Fund operations (what is the cadence and form of our reporting to Friend X, capital required for the fund itself and for ongoing operations, staff required (for the first little while just my MD and myself), compensation for my MD and myself, how involved does Friend X want to be in the investment process, etc)
  • Other?

I'll get input from my MD on this, as he knows the guy and I don't, but any tips / ideas on what could make a good first impression? A deck may be overkill and somewhat presumptuous, but I am not opposed to it.

3. Hit the Ground Running.
This one is for the distant future and as mentioned, loads of hurdles to get through before we even get here. But from those who have been involved in a situation like this (or even if you haven't and have some thoughts), is there anything you would do differently if you could go back, anything that's worked particularly well or particularly poorly? Even just in terms of finding an office space, setting up emails, websites, sourcing leads, legal matters, bank accounts... not looking for a play-by-play but any key items to be addressed sooner rather than later would be awesome.

Apologize for this being long-winded and I do appreciate any and all input you guys have.

How would you go about this if you were me?

Good luck out there.

Comments (1)

Mar 12, 2020