Pros/Cons for joining a small, new VC

arthuring's picture
Rank: Monkey | banana points 41

Hi,

Does anyone have any insight about whether it's a smart idea to join a small, new VC (~50m AUM) backed by a celebrity, as an investment associate (2 years out of college)? I currently work in asset management at a BB, but have always been interested in VC. The only issue is that the pay is low, ~30-40k and the team is 2 partners and 1 junior (would be me). I was told the pay/bonus would hike up tremendously once I "prove myself" and that long hours were expected.

Anything to help clarify this decision would be tremendously helpful, thanks in advance!

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Comments (8)

Mar 31, 2018

No, 30-40k for long hours + no brand name is not a good way to set yourself up

Mar 31, 2018

I can already tell the structure is weird, usually its 2 junior/partner screening and doing the DD/modeling before presenting startups to partners. So I guess you would do the job of 4 associate for such a low salary. The bonus wont be 200% of your salary, which makes it very low. You could ask for a part of the carry + promotion to Principal if they recruit more associate.
Again 50m can be small for growth but great if its a seed fund. Feel free to PM with any questions you might have, but I would recommend asking for more infos about their plan and vision of the fund in the future.

Best Response
Mar 31, 2018

Couple of things.

  1. 30-40k is way too low, even for a 50M AUM fund, unless you're in an extremely low COL city. They could at least base you at 60-70 at the low end. Given a 2/20 structure they should have $1M a year to pay overhead, after rent and other misc costs they should at least have 750k to go around. Partners should be taking a "minimum" salary and their real payout should be in the carry they earn. I'd push them hard on why salary is so low.

Even if they promise a big bonus, they've never had an associate before, so even if they claim you OTE would be 100+k after sorucing deals, who knows if that would be true.

I'd push them for 60-70k at a minimum with a 50-100+% bonus that is based on some clearly defined goals(you source x deals, firm invests in x companies). Next thing is carry

  1. If the salary is going to be low, you should have significant carry in the fund, a few hundred basis points at least.

But don't let them promise you carry in lieu of salary. Carry is a long long term benefit. If the fund is just starting you'll have to invest in a business, let it mature, hope for a good exit, hit the hurdle rate, and then you'll get carry dollars and that carry might even have some vesting structure around it as well. Point being, don't expect to see money from carry for at least 3-5 years, maybe longer. If you're going to be a lifer at this firm thats one thing, but considering you could easily do 2 years and move to another fund, that carry might be worthless.

  1. In general, there are tons of startup VC funds that flame out. VC is a tough game and its tough if you're going to compete in the Seed/Series A space, which has become extremely over crowded. I'd make sure you have a lot of trust in the partners that they're extremely well networked and have good chops on both the financial and operating side of things.

I'd really probe them as to what makes them different from every other early stage venture fund out there. It's pretty easy to write a check, its extremely hard to consistently produce good returns and continue to raise funds. Maybe that won't matter if the celebrity backer of the fund is willing to continuously give you new capital, but while we're on the topic. I'd also try and learn more about the funding sources for the firm. If they raised $50M from some brand name LPs that would be much more impressive than raising from a single rich guy.

With all the being said, if venture is your long term plan and the partners have great track records in the Venture/PE world, I'd go for it. Venture is a networking and apprenticeship game and the earlier you get into it the better. Be sure to do your diligence though and I would be hesitant to take so little money.

    • 5
Apr 2, 2018

Thanks everyone for the responses, honestly it helped me alot in framing the conversation. So I spoke with a partner and I was mistaken, the salary is 85k and the bonus is discretionary. Also, the VC is not in traditional tech but I am interested in the space (it's in auxiliary cannabis lol). Seems like the team is strong and well connected. Also, it's in LA and I live in NY, so just trying to wrap my head around if this is really worth the risks.

What do you guys think?

Mar 31, 2018

Pretty sure I know the fund you're talking about. Anyways that sounds like a decent offer, I'd still do diligence per my questions above.

One other thing to consider, the cannabis industry still has a little bit of a stigma and its a very niche market. It's going to be harder to move into traditional VC from a fund that is extremely industry focused.

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Apr 2, 2018

Cons - no pay

Apr 2, 2018

Thanks for the responses. Do you guys have any thoughts on how hard it would be to lateral back into traditional finance if this venture doesn't work out? Given the stigma attached to the industry and the not-exactly transferrable skill-set? That is probably the biggest risk that is keeping me from pulling the trigger

Mar 12, 2019