Howdy squad. First - long time no post. I was recently reminded of my membership here via someone up-voting a 2012 comment and I was inspired.
I recently received an offer from a VC/PE esque fund (owned by a big PE shop) that promises me an X% "Profits Interest", and references a "your Profit's Interest Unit Award Agreement." This is a new venture for them and I was told they don't have the agreement drafted yet. So here I am evaluating this offer without seeing the document. I am being asked to commit and then receive the details.
Questions:
- Is this fishy / deceptive? Should I run?
- Do I demand to see the document prior to resigning my current role?
- Will this agreement apply to the other members of the fund and therefore will be written favorably e.g. nothing to worry about?
I love the team and the offer, just confused.
1) Not fishy on its face. Aligns incentives. Good for you if the fund is expecting to be cash flow positive early on
2) Absolutely yes. Not unreasonable to do so
3) relates to 2. Don’t want to get flushed out on the PIUs depending on other distribution rights
Thanks for your reply and very helpful! I'm reading your response as, No they are not being fishy, but it is still anticipated that I ask to see the agreement before resigning. They might be a little upset as this may delay my start date, but it will not be seen as offensive.
Furthermore, I have some follow-up asks on comp. Should I hold on to these until I receive the agreement and then ask, or request all these things at once?
Sounds like you can frame up the agreement questions within your overall comp questions. Can’t blame a default “everything in writing” approach.
Also I guess you are saying in the PI agreement I am looking to see if I will be "subordinated"?
You can expect to be subordinated to equity owners, but look for terms about the GP's power to do what they want with free cash flow that otherwise could be distributed to PIU holders.
I don't know how common it is for PI holders to receive distributions outside of a liquidity event - that's always been the case in my experience. Assuming that it's a private company, by their nature, a liquidity event that implies an equity value is required to determine how much/if the PIs are in the money.
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