IB or $200M PE Fund out of UG?

I'm in an interesting situation and I was hoping that some of you WSO members could lend me a hand.

In Summer 2017 I interned at a small PE fund (three employees, $100M fund at the time) after sophomore year. I really enjoyed my time, but due to the fact that I wasn't graduating for two years I re-recruited and landed an SA gig at in IB in SF. I enjoyed my time there and ultimately signed a return offer before returning to school for senior year.

However, just last week my boss from the small PE fund called me and asked me to come work for him after I graduate. He said that he is in the process of raising $200M and that I will be his right hand man throughout the process. I would be building investment theses, sourcing deals, and conducting diligence. He said that I will have the chance to invest alongside the fund and get carry. Additionally, he mentioned that promotion opportunities are available.

I'm really not sure what to do about this situation. It feels like IB is the safer path as I could re-recruit for PE after two years, but working at this PE fund could allow me to get in on the ground floor of a firm with great growth opportunities and autonomy. Additionally, the chance to get some skin in the game early through investments with the fund and carry is very appealing.

Additionally, what questions should I ask my old boss as I make this decision? It's a huge turning point in my life and I want to make sure I am fully informed before making a final choice.

Am I crazy for even considering this? Please let me know. Thank you.

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Comments (10)

Dec 8, 2018 - 3:26pm

I would take it. This is the probably the apex of your career in terms of risk-reward, where even a significant loss on a risk taken will still not set you back that far. Worst case scenario, the fund raises its AUM --> does shitty performance --> doesn't raise another fund, you still gained a tremendous amount of experience and could easily jump to another MM PE fund or go to B-School.

It also seems like you know what the right answer is, given your summaryy of the situation. I would say take it man, and don't look back. This fund could do very well and your bank account will be comped for it. And hey, maybe in less than a decade, you could be a Partner at a $1B+ fund,

Dec 8, 2018 - 5:10pm

What bank for ib? Boutique, MM, BB size? If anything reputable I'd lean towards the bank and use that as a launching point to a bigger fund or back to the small PE after a 1 yr stint.

26 Broadway where's your sense of humor?
Dec 8, 2018 - 5:39pm

What is the Managing Partners background? How did the first fund perform? Where is he in the process of raising the 2nd? If he already has the money secured then going to the PE wouldn't be a bad bet. The potential issue is if you join, he fails to raise another fund, and you spend a year getting no experience.

IB will be safer and if this Partner liked you enough he'd probably take you back after another year.

If the fund hasn't been raised yet, I'd tell him you have to do a year of banking and you'll quit after your first bonus or when the fund has been raised.

If he's done with the process of raising, then you have a trickier issue because there's less risk. With $200M in the bank you'll at least have the opportunity to made a few investments and the fund will have at least a few more years to run.

Dec 8, 2018 - 6:25pm

His background is multiple years at a well established MM PE, making it to the VP/Principal level. First fund was raised in 2011 is fully deployed and went 3.0x MoM with a mix of majority and minority investments, so the track record is there.

As for funds raised, he mentioned on the phone that there is $125MM raised from reputable institutional investors, with $75MM still to be raised from previous LPs. I have little doubt that the remaining funds will be raised, and I plan on asking for the offering memorandum or whatever it's called before making any decisions.

Other mentors I have spoken to have also mentioned joining the firm after a year of banking, which I think is a reasonable ask.

At this point I think the decision comes down to long-term commitment. If there will be a Fund III, IV, and V with consistent increases in AUM then it's obviously smart to get in now, but if not then there is more risk.

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Dec 8, 2018 - 8:57pm

Minimum downside to doing it really. You'll learn a lot too as the business scales.

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Dec 8, 2018 - 8:59pm

I commend you for thinking about this so maturely as a 21/22 year old. You've outlined all the major pros and cons. I think banking for a year gives you some option value - a "big" name on the resume and a wider network - all benefits wherever your path goes in the future. That said, all my connections who are doing the best in PE now got in early at funds that grew rapidly. I'd personally do the 1 year at the bank as well. But I'd grab lunch or swing by the old boss' office and make clear your interest in joining after a year. You could frame it as the BB providing free training, more able to hit the ground running after a year in banking, etc etc.

If you join and the fund flames out, you are completely okay assuming they had capital and were doing a bunch of deals. You would be way too junior to have bad deals stain your track record. But you'd have a ton of "what not to do" deal experience which any PE fund would value for a mid level hire.

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Dec 9, 2018 - 4:49pm

He will certainly not appreciate the fact you're coming back once it's derisked for you. Expect way less opportunity to be thrown your way if you do this. I've had people do this to us and it doesn't count in their favor.

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