Hi All,
After some advice around joining a newly formed private equity firm. They have just completed their first investment, and have committed capital to see them through several more investments.
The founders both have a successful track record, hence the ability to raise funds and are looking to take on their first few employees.
Would you have any big concerns about joining such an environment. It's essentially polar opposite from where i am now (large M&A house, structured development and learning, wide deal exposure, strong brand name etc)
Any advice or thoughts appreciated.
Hey Somersethorn, what a lonely thread. I'm here since nobody responded ...so maybe one of these discussions will help:
Hope that helps.
You’ll get the best experience in your career learning from these guys first hand.
You’ll be apart of every aspect of the deal and running the portcos. Take it.
It will be a huge learning experience for you, and a great way to get in on the ground floor. If the firm does well and lasts, you will likely be able to move up the ranks. If the firm dies, it will still be a great learning experience. Are you young? I say go for it.
If you require micromanagement, are risk adverse and need structure to thrive then I don't think you should do it.
If you are the opposite of the above then go for it. It's a huge opportunity to make real money.
Opportunities like this don't come around often. I wouldn't hesitate but my risk tolerance is a lot higher than most.
Worst case: Fund goes belly up. You gain experience and can find another gig. Best case: Funds a smashing success. You gain experience, build a track record, and get compensated handsomely.
Nothing but upside in my opinion.
I joined a start-up fund and there are pros and cons, especially at a junior level which I think you're joining at. I would advise against it but some thoughts:
Cons:
There is generally a ton of uncompensated for risk in joining fund 1 as a junior employee, the people who benefit are at the least VPs but generally more senior and are waiting for upside from the second fund (highly unlikely fund 1 has a significant amount of AUM).
If you want to exit, even if you work for highly pedigreed people, business school won't care and you'll have to do a better job of marketing yourself if you want to lateral vs. joining a well established firm.
People who talk about owning deals end-to-end also varies, likely at a smaller firm everyone is running their own deals. I was the only associate at my firm and didn't close a deal the two years I was there (two VPs did 3 deals in that time). Also as a consequence, I got pulled into a ton of dog shit deals by VPs that needed heavily lifting on analytics (e.g. numbers were all fucked up I had to figure out why, clean them, rebuild company model and contemplate suicide on a daily basis for a month). I did get a lot of ownership on the projects but don't think that really varies from a Fund 1 to a more established fund, more a consequence of the people you work for.
Pros: Better economics at a senior level and ability to get promoted without business school etc. If there is a good fit, once you hit VP this could be a really great gig for you with lots of autonomy and built up goodwill.
Imo the hot move is to join a growing fund 2 team. The firm has been derisked, you don't really gain much of anything by being around for fund 1 vs fund 2. Above was stream of consciousness sorry if it isn't the clearest.
Also joined a small fund towards the beginning. I think a lot of what plskystks said was true, but a couple of thoughts I'd add.
Who are the LPs in the fund and how did the fund come together? Are the partners ex MF/UMM fund guys with a strong track record such that they are able to command money from good LPs? Or is it a weaker mix of allocators, HNW individuals, etc. This gives some insight into how well networked they are in the PE scene.
Where are the partners from? What type of shops. At a small firm, the culture will be dominated by the partners. If they're from sweatshops, it's likely your firm will be the same.
How do they plan on sourcing deals? Will you have to find things? Are they doing all banker processes? What are the partner's backgrounds in terms of finding deals. Will be important to
How do they envision your responsibilites? All execution focused? Working with Portcos at all? I've heard stories of people going into young funds thinking that they're going to be doing nothing but deals and then end up sourcing or working with a struggling portco. All are good experiences, but I'd figure out what you're getting into before signing on.
Overall, it's probably worth taking the risk. If they just raised a first fund, the worst thing that could happen is you make a bunch of bad investments and the fund goes under in 8-10 years. It takes time to reveal if things are going badly, so worst case you've done a bunch of deals, learned what not to do and then you can take the strong brand you have from your first shop and either lateral or apply to business school and reset.
I'm biased, but I think you get the best E2E deal experiences at a small shop. It's worth the shot.
My general opinion is that junior employees are not fairly compensated for the risk of joining a startup fund.
In what ways are juniors not fairly compensated? What could make them fairly compensated? Being given some carry?
Cash comp is usually very low given that there's no mgmt fees yet from existing funds. Carry would definitely help but again if the funds not even fully raised yet the carry could be worth nothing.
I'm surprised no one has mentioned the fact this first fund will be raising money 10 years into the recovery. The investment window will be at a time when multiples are elevated and when a recession may hit (depending on who you ask). Essentially, there is a risk they could be deploying capital at a market peak/elevated multiples.
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