Small Private Equity Fun (USD 100m AUM) - Thoughts on life in small PE?

All,

I would like to hear opinions or experiences regarding life in really small PE shops. How is the pay generally, opportunities going forward, chances of transferring into a larger PE shop?

I am currently a first year at a BB/EB, and am looking for a way out as soon as possible. I have an interest in small cap PE, and have received an offer at a shop with approx. USD 100m AUM (their first fund).

Would be interested in hearing views.

Thanks!

 
Best Response

The accurate yet unhelpful answer, as usual, is "it depends."

I've probably made this comment before, but what you're getting when you go to a smaller, less well-known shop (whether it's banking, consulting, or PE/VC) is variability. If you go to be a pre-MBA associate at a well-known MMPE firm, everyone around the industry has a pretty good idea of what that means--what you've learned to do and what your exposure to deals has been.

But if you go to a much smaller shop, it's not a well-worn path that others in the industry can instantly understand. Your experience may be better, or it may be worse; it may be broader, or more narrow. Said differently, an associate at a recognizable name does "associate things," but an associate at No-Name Partners might do "associate things," or they might do analyst, associate, sr. associate, and some VP things. Either way you'll have to spend more time communicating what that specific experience has been to whomever is listening (adcoms, lateral targets, headhunters, etc.).

You can read between the lines on the partners/founders to try to get a sense of what the experience at a particular firm is going to be like. Have they worked together before? Have they successfully invested before-- do they have a track record? Are they career operators who know the industry but have never actually run a deal? Are they 60-year-old BSDs who come from a well-built company infrastructure and won't realize / don't care that their team is now 20% as big as they're used to managing? Are they 38-year-olds who were partner-track at larger firms and decided the economics were better to go off on their own? Is it a couple of morons straight out of b-school doing the search fund thing?

Same thing applies on the fund and strategy. Is $100m a target fundraise for a reason (want to hold ~8-10 portcos and write $5-15M checks in the LMM) or because that's however much money they could raise? Even more important, is the money actually raised? Is there a strategic edge in an industry or sub-industry, or do they look for "strong cashflow-generating, asset-light scalable services businesses resistant to economic downturns with recurring revenue" like everyone else on the planet? Do they have a sourcing model that isn't sitting in their chairs until a banker sends them a teaser?

If this is a chance to join a group with a strong strategy and good experience that look like rising stars, and this is the first of what could be many funds, then you can get some great experience and lots of optionality (shoot, you may not want to lateral). If they're a bunch of yahoos running around pointing their dicks at targets without any rhyme or reason, then proceed with caution.

As for pay, it's case-by-case. Smaller funds mean fewer dollars in management fees, but depending on how many mouths there are to feed, that may or may not impact junior-level guys. Some small funds pay junior guys like crap, and others pay >street after cost-of-living adjustments.

"Son, life is hard. But it's harder if you're stupid." - my dad
 

I think this is an awesome opportunity because not only you can have a deep hands on mm deals but you will also be in charge of some of the business development that can only help in your career or if you want to start your own firm. I can see a challenge in working with multiple partners on deals but it is a matter of clear communication and setting right expectations. I'm not saying take it w/o thinking, but I am saying there is definitely more to the job than a regular associate at PE.

 

Slightly surprising to see a PE shop with no associates, usually that is more common among VCs. I'd be curious as to who is doing all the grunt work and how they're finding deals. It would also be a valid question to ask about why they don't have any Associates.

With that being said you should definitely consider it and learn more, it'll probably be a great opportunity to learn a lot.

 

Some firms do not list Jr employees on their websites (VP, Associates, Analysts). Look up previous/current Associates on LinkedIn and ask to talk to them about their experience. It might be a bit concerning if they're an established firm without any younger analytical employees...it could signal that they do deals on feel, which may or may not be a good thing, up to you to decide...this is more likely in a niche / industry specific firm.

 

Thank you very much for your input!

I have tried to find analysts/associates on LindkedIn, but they really do not have any analysts/associates right now. They used to have one associate like one year ago, but he left for another PE shop.

Concerning niche/industry specif firm - they seem to focus on carve outs and restructurings (that's probably why they have some operational guys).

I'll have the first interview in 3 weeks and I will keep you updated.

Regards, Lundhill

 

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