Opportunity to join startup hedge fund


I've been offered the opportunity to join a startup hedge fund (<$300M AUM) as an early employee quant analyst (4th hire). The partners and manager have a very impressive reputation, academic pedigree, and track record. I am optimistic that the fund will be successful and will scale up to $1–2B after a few years.

On the other hand, I do not have any quant experience. I'm a fresh engineering PhD (top 5 school) who's research topic happen to coincide a little with the fund's area of interest. I've worked with the manager (alumni) on several research projects throughout my PhD. I'm currently in the process of interviewing for roles as a quantitative researcher. I think I should be able to secure an offer from a mid-sized fund, or with some luck a large HF.

I was wondering if those with more experience can comment on:

  1. Should I take this opportunity or try to secure an offer from a more well-established fund if my goal is to become a portfolio manager in the future?
  2. If the startup doesn't work out, how will the experience be viewed by other HFs?
  3. What kind of compensation package should I expect in terms of base, bonus, equity/carry? (east coast)


Comments (14)

  • Analyst 3+ in HF - EquityHedge
Feb 20, 2021 - 4:19am

Hard to negotiate here without other offers. Can you continue to recruit with the offer in hand? Also, pedigree is hard to judge. Profits are all that matters. If it does, n't work it won't be a good mark, but as you are not the PM it won't be a strong negative either. More importantly if you don't learn any transferable skills or portable alpha you may become too expensive to hire. I'd think about what strategy bucket they lie in risk premia, stat arb, option vol, high freq. etc

Feb 20, 2021 - 4:56pm

When joining a start up, if they're going to give you equity, it will be when you join. If you join and there are 'promises' to eventually get equity, chances are you won't get any. If there's any chance for someone to get 'screwed' over in this industry, chances are it will happen.  

For you to take a startup risk from a top PhD program, you should get equity upfront. If not, I suggest you try to join a larger more established firm. You can always go the startup route from a bigger firm later on with more bargaining power. 

You will only be a fresh PhD once, try to land at the biggest most reputable fund you can. 

Good luck! 

  • Investment Manager in HF - Other
Feb 20, 2021 - 5:06pm

Completely agree with this, if the fund does well the chances you get equity after the fact are small. If it is a small team, and you are in an alpha generating seat I would suggest asking for a share of the performance. 

I would mostly say you want to be invested and share in the upside, a reasonable reference point is to have your % of performance fees equal to what your expected bonus would be (just as a reference for the type of thing to ask) but keep in mind there are MANY variables to consider (ability to scale, costs, target return and volatility). But that's how I would approach is (AUM * target return * performance fee then multiple that by a % to figure out what a reasonable number is, basically what your expected bonus would be). 

  • Quant in HF - Other
Feb 28, 2021 - 6:38am

Was in a situation similar to yourself a few years back. Had offers from both a startup (under 100M, first 5 hires) and larger funds, had the same dilemmas as you do now, took the startup offer and never looked back.

The biggest benefit in joining a startup is that you'll get opportunities that you never will at a more established fund, like setting up processes from the ground-up or starting new desks entirely, meaning you'll probably have a chance to make a large impact earlier on. Additionally, you'll likely get exposure to a lot of the systems pre-siloing, so you'll get a much more complete view of how things work, as opposed to at a bigger fund where you only see your tiny slice of the world. On the flip side, you'll be required to be a lot more independent and people are unlikely to have the time to give you a lot of attention, so the learning curve would also be much steeper.

Regarding hiring after that, I've never faced any problems when I tried scoping out the market. People generally care about the track record and about what you've done, not about the name of the fund. If anything, it helped once the fund scaled since being the first few employees, they assumed that I knew what made things tick.

If the startup is more like a collaborative quant SM than a MM pod I wouldn't really expect or ask for any sort of equity or direct pnl linkage - they simply don't work like that. Barely anyone, even senior personnel, holds equity or gets any form of explicit pnl linkage in those sorts of firms. Additionally, the more reputable the manager (especially if they spun out from elsewhere), the less your experience is likely to bring much to the table; you're just another junior hire to them, though in a slightly different context. It's fair to request and expect the standard "market" package for your role though.

As a piece of advice, I would recommend talking at length to the partners about what you would be doing from the onset, the responsibility you will get, and to get a really firm grasp on the culture of the firm, the personalities of the partners, and also to really validate your assumptions on how successful you think it would really be. Every fund, especially smaller funds, would be aware of the risk you're potentially taking, and if they're serious about hiring and developing you, would be happy to spend an hour or two talking you through their processes and your questions.

Feb 28, 2021 - 1:15pm

Thank you for the comments. They are really helpful. Would you mind sharing some pointers on what you wished you had known when negotiating your contract with the startup? For example, what should I try to get in writing in the contract to avoid losing out later? I would love to continue the discussion offline if you could PM me (the post is anonymous so I can't PM you).

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