Job Decision
How should I think about this role: I have a great strategy and corp fin background and can move to Private equity as a VP at a 800M fund. The catch is the fund is struggling. Their previous lead investor will 100% not be around anymore for the next fund and their are no plans for a raise. I would be primarily renegotiating debt agreements, and helping with strategy and operational improvements/ business development. The firm has a fund level credit so they only call capital when acquisitions are made. 80% of the fund is called at this point. I am trying to think through if this is worth it. It would be a 50%+ raise in base on my current job. I mostly care about evaluating this based on if the fund fails. Would other PE funds care about small fund experience? Could I spin this leadership position into something else outside PE
It is not out of the question for you to get a more detailed update on fundraising, if a fund will ever be raised, what milestones need to be hit in order to go to market etc. It takes 12-18 months to raise a fund with a strong track-record. However, they probably have a shit returns the key LP is pulling out...not a good signal to other LPs who are notorious followers. It's very strange to be 80% deployed without an active fundraising effort, so best bet is that a fund won't be raised under the same name.
Look into employee turnover as well. Contact a former VP/Associate who left the firm to get the scoop on the firm's prospects. You should probably demand a higher total salary since carry is obviously worthless, or negotiate for deal-by-deal economics for deals in your control.
If you are interested in purely portfolio/operational work, it might actually be an interesting gig. You can get 3-5 years of solid operational experience. Not a bad gig if you like the work.
You mentioned "if the fund fails" - its sounds like this firm is already a walking dead GP. At 80% called, are you they even looking for new deals? Or just follow-ons etc. How much longer until the management fee for the fund steps down (you can generally tell by the vintage)? When it does, there's obviously less money to go around.
That being said, if you want to do PE, go for it. The job could be viewed as a stepping stone, although I caveat that with the fact that'd you'd be looking at new deals. Would be tough to lateral without having made an investment, unless you just want to be an operations guy.
The firm could go deal-by-deal after the fund runs out of money, which could be interesting.
Sounds like a terrible situation in general, but for you, it could be a great stepping stone into PE. I would take the gig, get some solid experience as a VP at a PE fund and try to lateral and move to a more successful firm 12-24 months down the road.
Completely agree with this. Lateraling is never easy, but much easier to lateral from a struggling shop to a stellar shop than going from corp dev to a stellar shop.
Thanks for the responses. The managing director himself told me they are not even thinking about another fund right now and have no plans in the future and will not use any remaining funds to do acquisitions. I also know the remaining VPs are looking for work outside the fund as well so my big concern is that they may leave quickly and there would be no one to teach me anything. It is tough for me because I want my next role to be interesting and have good comp (regardless of if its in PE or not) and this seems very close to fitting but also appears very unstable.
Hmm, I wouldn't say its unstable. You know they aren't going to raise another fund, so that wouldn't be a shock. You'd still get to work on the companies and try to turn them around - the investments aren't going anywhere (unfortunately in these situations the GP has no incentive to sell the companies, since they then lose the mgmt fee and are out of a job).
If the experience turns out to be 70% 13 week cashflows and negotiating with/ finding new banks and 30% trying to turn the company around. Do you think that is meaningful experience to land another job in PE or strategy at an f500? Assume there is no acquisition work done.
As you indicated, you're focused on your downside, so let's walk through that: you're still getting 50% higher comp (plus carry in the current fund, which you absolutely can/should negotiate, particularly if there's uncertainty around the next fund). If the firm ends up going nowhere and you're out on the street in 2 years, you can always claim it wasn't performance-related, which shouldn't hurt you. AND, you tell me, but if this doesn't work out, I'd think you can get back into your current role fairly easily.
If the choice is between two PE firms, by all means take the one with better long-term prospects, but if you're trying to break into PE, there's actually not much downside for you here.
Thanks HireUp. I think this really puts it in perspective. I feel that I could certainly get an Corp Fin role anywhere in the USA with my background and experience. If I exited the firm I would certainly try my hand at PE again, but would be just as happy with an internal corporate strategy role. I am a little worried about the small fund PE VP experience closing the door on F100 corp strat, but feel I could hopefully position the role as taking on a challenge, solving really complex problems, and taking a big risk, which I hope internal strategy firms would like.
I wanted to write a quick update to put this one in better context with some hypothetical figures.
If hypothetically they have about a 5M shortfall to reach the end of the year between cashflow to the fund and debt payments needed to prop up a few duds in the portfolio . They also have a concentration of LPs that makes firing the GP very easy. They do have value in the portfolio, but have major liquidity issues. I guess my question is this. What happens if a fund needs to wind down through receivership or the GP gets fired? Do fund staff immediately lose their jobs or what? I am ok with risk, but not ok with not being able get a paycheck for less than 12 months.
What type of debt payments are you talking about, is the fund levered? And are you talking about cashflow to the fund from management fees?
If there is value left in the portfolio the LPs aren't going to just drive a sale of the assets at fire sale prices.
Sounds like fund restructuring is in order. This could involve the current GP, but depends on the relationship between LP/GPs. It also depends on the quality of the remaining portfolio.
Short answer, its impossible to tell what will happen to staff.
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