From PE >> Startup >> Back to PE

Black Jack's picture
Rank: King Kong | 1,737

Wanted to get some thoughts from people on the forum about prospects of moving back to an investing role after leaving for a startup. Currently working as a 1st year VP at a large (upper MM) fund, where I've spent the past 3.5 years. I have an opportunity to move to an early stage startup (1.5 years old) in a senior strategy role. Startup is fairly well funded, and while obviously the guaranteed/fixed comp is less (albeit competitive), the upside is significant.

Would be helpful to understand how easy or difficult it is to move back to an investing role at my level, should this go belly up, as I look to weigh the pros/cons of the opportunity.

@APAE
@Eddie Braverman
@DickFuld

Comments (12)

Most Helpful
May 24, 2018

It is going to be a function of two things:

  • how strong a performer you have been so far in PE
  • how the startup performs
  • how well you proactively manage your relationships over whatever duration you're at the startup

Let's unpack that.

One:

If you are a rockstar, you're always going to be able to move back to PE, it's only a question of what size shop and how many months it takes for someone to make space for a seat for you.

You may be welcome back at the same fund. This is tougher at the VP level, which is why most people thinking about this type of move do it as an Associate as their third job after undergrad.

The logic is that it's easy to (i) get back into the same shop that paid a headhunter to find you, (ii) use b-school as a pivot point (and recruit for PE just like everyone with two years of banking and two years of PE is going to), or (iii) if you hate the idea of school, run an experienced hire process for a Senior Associate role at a fund that doesn't require an MBA.

You probably know a handful of people from your PE associate class who have gone on to b-school or lateraled to other funds. You definitely know a lot of people from your banking analyst class who have gone all over the street. If you are known as a solid guy, all of those contacts are people who you can easily get in touch with if the startup hasn't worked out in 12-24 months to talk about opportunities at their shop.

Two:

If the startup absolutely crashes and burns, it's going to reflect negatively on your judgment that you chose to join it. That will hinder your ability to move back into an investing role; it looks like you made the ultimate investment (yourself) into a bad thing.

If it plateaus (successfully raises one or two more rounds but not at great valuations and is just sort of chugging along slowly), it becomes conversation fodder ... a talking point where you can wax lyrically about how you felt operating experience would be really valuable to your perspective as an investor and felt it was 'now or never' to get it before your career really solidified irrevocably.

If it takes off, you're obviously not leaving until you fully vest, so the whole question is moot. You aren't moving back to PE, or if you are, it's to open your own shop or join somewhere as a partner with material liquidity to contribute as a GP commit.

Three:

You can hedge for either the bear or base scenario from my previous section by staying on top of all the people from your school, analyst, and associate classes. It isn't hard, you can do it easily in a spreadsheet or any of the myriad software options that exist.

Write down every single relevant person from your network, try to find a real reason to email them at least every three months. do coffee, juice, breakfast or lunch, or a workout every six months. (You'll be doing a ton of that in your startup role anyway; everyone meets everyone all the time just to get advice or insight on x-operational thing or y-challenge they're facing.)

Active relationship management is something everyone should be doing all the time anyway. In this case, you're trying to proactively get in front of people to tell them where you went, why you thought it was an interesting opportunity, and provide updates on how it's going and what you're learning.

That last step (the progress and your takeaways) is critical. It shows people the caliber of your thought, and that will be a thing that makes people receptive to helping you if you decide you need to change roles back to PE.

One word of advice though: don't be one of those preachy, evangelistic "this is the best startup ever and we're all going to make so much money and I can't believe anyone would stay in their corporate role oh my God" people.

It's highly unlikely you are, given the career success you've had so far (which would indicate a level of maturity, rationality, and decorum), but I've given this type of advice before about staying on top of your finance network while experimenting in venture, and more than once I've seen people nuke a valuable rolodex with idiotic behavior that turned a lot of people off.

Whatever you decide, good luck, and congrats on the success so far.

    • 20
May 24, 2018

how do people that make it this far nuke their valuable rolodex? yeesh.

May 24, 2018
APAE:

Two:

If the startup absolutely crashes and burns, it's going to reflect negatively on your judgment that you chose to join it. That will hinder your ability to move back into an investing role; it looks like you made the ultimate investment (yourself) into a bad thing.

I'm not sure I agree with this part. Startups crash for a lot of different reasons, and it doesn't mean that the startup's teams had bad judgement or even executed poorly. Market timing, availability of capital, regulatory changes and a wide range of other reasons could lead to a company's failure. That doesn't necessarily reflect on this person's judgement.

Startups are inherently risky, and as long as the person joining has a solid thesis for why they took the opportunity, I don't see why they'd hurt their future career chances for having bad judgement. PE guys may look at it somewhat differently, but there are tons of people in VC that had failed startups.

75% of VC backed companies fail to return investors' capital so you are in the rare minority if you actually succeed at your first startup. It's a very hard thing do to.

https://www.wsj.com/articles/SB1000087239639044372...

May 24, 2018

I see your point but VCs approach is exactly investing in high-risk high-return companies because the few that return 10x have to cover for the rest of the failing investments (let me just add on this topic that the journalist that considers this 'the secret' is hilarious).

If you leave your (PE) job for a startup, you'll look silly telling to another PE interviewer 'you know, 3 out of 4 startups fail'. Of course things can go south but as professional you can't ignore that this could impact your chances of future PE jobs.

Developing slightly further on this matter, my experience with startups and growth companies is that most of the time simply the business doesn't take off as expected and you risk to be stuck with a company that goes nowhere (meaning no unicorn, no failure). This (rather likely) scenario can be leveraged to come back into a fund with the story of 'a bet that taught me a lot but for X, Y and Z things didn't stick to plan so I am leaving/left it'.

    • 4
May 24, 2018

It's good to see you, your posts were always some of the most informative when I got active on this site almost a decade ago.

You call out the major point poking a hole in your own argument yourself.

TechBanking:

PE guys may look at it somewhat differently, but there are tons of people in VC that had failed startups.

Venture people look at this very differently than buyout dudes. You (as a former banker, now founder) are able to be articulate enough to correctly identify a number of valid reasons besides poor founder performance that lead to startup death:

:

Market timing, availability of capital, regulatory changes and a wide range of other reasons could lead to a company's failure.

Buyout guys tend to deal overwhelmingly with mature companies (and have since their banking days) with cash flow, so the focus is often more myopic and not in the groove of 'what did you learn in that experience?' the way VC guys are.

If @Black Jack had asked about "From VC >> Startup >> Back to VC" instead, my advice would've been different.

In short, a banker or buyout investor is (much) more likely than not to look unfavorably on business failure. A smart, nuanced thinker is going to dig deeper to ask meaningful questions. Unfortunately, the world isn't full of smart, nuanced thinkers. Such people are the exception rather than the norm.

    • 6
May 29, 2018

Thanks a lot, this is incredibly helpful. I guess I could have worded it more broadly and said how difficult will it be to move back into an investing role, as it sounds like moving to an early stage / VC fund post a startup would be easier than moving to a traditional, later stage / LBO shop.

May 29, 2018

Yes, this is one of the most common paths into VC to begin with. Funds don't really recruit out of undergrad. There aren't many that have analyst positions. Those that do are not running campus processes, they're simply announcing the position through a post on Medium, LinkedIn, or Twitter and letting the kids who are most connected in the early-stage ecosystem find a way to get a couple warm intros to someone at the firm before offering an interview.

It works the same way for associate positions. (Some firms [the bigger ones] may use a headhunter, like Sequoia or Accel.) In the early stage, some associates are people in their first job, but most have been in a couple tech roles already.

The classic way to get into venture is to work at a company backed by good investors, then talk to those investors (or similar ones who you found out looked hard at the company) informally about what you're learning and seeing / what they're learning and seeing, developing a good dialogue over a year or more, and then asking if they're thinking about expanding the team.

It isn't like PE recruiting at all. The "venture" funds that you see run formal processes for new hires are growth equity funds. That means mid-stage, not early-stage. (For more on the two ways people use the same term "growth equity", read another comment I made.)

In short, it's not only easier, it's the well-trodden path (for early-stage).

    • 4
May 24, 2018

As someone who's day job is PE but invest/advise VC/startups on the side, I'm a pretty firm believer that once you leave PE you are out for good. I would be VERY surprised if your current shop will let you return unless your value add is truly above and beyond of a "normal" VP.

edit: just to clarify, i'm not implying you are not a rock star VP but I think it is really, really difficult to distinguish yourself at the VP level.

    • 3
May 24, 2018

Disagree. Maybe different if you left as a VP but I went to a startup post-associate and am about to return to PE as a VP - have one offer, couple other final rounds. Have gotten plenty of looks for mid level roles, particularly given how restrictive my search criteria has been, and only been dinged on one process so far. Smallest fund I've interviewed with has been around $1B, largest is one of the big MFs. This is not to toot my own horn but to make the point that these things are not absolute. Can you articulate why you've made the career decisions that you have? Can you point to what you've learned from the experience? Do you have people who will attest to your ability? If you answer yes to the above, the door is absolutely not closed.

May 29, 2018
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