Co-investing in deals with low-interest employer loan

Subscribe

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.  

 

 

 

 

Comments (11)

 
Aug 24, 2020 - 11:36am

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

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

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.

 

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

Popular Content See all

Received my PWP rejection email!
+91IBby Prospective Monkey in Investment Banking - Mergers and Acquisitions">Prospect in IB-M&A
Is Evercore the next Bulge Bracket bank?
+24IBby Intern in Investment Banking - Mergers and Acquisitions">Intern in IB-M&A
Is Liontree the next bulge bracket bank?
+17IBby 1st Year Analyst in Sales & Trading - Equities">Analyst 1 in S&T - Equities
I got a top IB SA offer thanks to WSO
+17IBby Prospective Monkey in Investment Banking - Mergers and Acquisitions">Prospect in IB-M&A
Biggest Regret in Undergrad
+16IBby Prospective Monkey in Investment Banking - Mergers and Acquisitions">Prospect in IB-M&A
Virtual Summer Interns - which banks sent you WFH gear?
+15IBby Intern in Investment Banking - Industry/Coverage">Intern in IB - Ind

Total Avg Compensation

October 2020 Investment Banking

  • Director/MD (17) $704
  • Vice President (49) $326
  • Associates (264) $228
  • 3rd+ Year Analyst (36) $168
  • 2nd Year Analyst (147) $159
  • Intern/Summer Associate (136) $141
  • 1st Year Analyst (579) $130
  • Intern/Summer Analyst (555) $82

Leaderboard See all

1
LonLonMilk's picture
LonLonMilk
98.4
2
Jamoldo's picture
Jamoldo
98.3
3
Secyh62's picture
Secyh62
98.2
4
CompBanker's picture
CompBanker
97.8
5
redever's picture
redever
97.7
6
Addinator's picture
Addinator
97.6
7
Edifice's picture
Edifice
97.6
8
NuckFuts's picture
NuckFuts
97.5
9
frgna's picture
frgna
97.5
10
bolo up's picture
bolo up
97.5