There used to be a 'gold thread' option where you could limit replies to only Certified Users. I can't find that option, so I assume it got nixed the last time the forum was updated.
If you're comfortable, please reply as your username so I can message you privately with follow-up questions if it makes more sense than public comments.
I had an absurd liquidity event this year. One thing I'm doing with some of the proceeds is backing a younger guy I know in forming a GP.
He has a lot of the right ingredients for marketability (elite banking, megafund logo, diverse, a couple interesting independent sponsor deals). His thinking is sharp and uncommon. His deal flow relationships are surprising.
The one thing lacking is any experience managing other people in a private equity investment firm. He left early, so he doesn't even have much experience being managed in a private equity investment firm.
I'm providing meaningful GP capital to fund initial operations and the early team build-out, a sizable enough LP commitment where a first close is already guaranteed, and introductions to other people such that this thing wraps up before the end of the year.
I want to make sure he performs well on the people dimension too. He won't be hiring directly from banking, which helps minimize some of the training aspect.
The biggest things are all going to relate to transitioning from a do-it-all-yourself independent sponsor to a team where tasks are delegated, communicated about, and reviewed.
I'm able to share with him from my own experience, and I can introduce him to other guys in the industry for advice, but by natural function of my own life, most of those introductions are people my age or older. We're all stale to some extent. We also haven't lived through the same shit (work-from-home in small apartments, and so on), we don't have the same lens.
If you were joining a new firm today with a first fund larger than $500m, all the ingredients above, and things were a blank slate ... what would you wish existed?
Please share what you like and dislike about your current or any former private equity roles. What's an example of good management? What grinds your gears and is one of the factors making you think about leaving your current firm?
Really interesting post. following
Had a great experience as an intern where the firm (junior AND senior guys) would workout together during 1-2 lunch breaks per week. Great to get people out of the office and build camaraderie across all levels. Also, getting people to exercise keeps stress levels lower haha
Nothing constructive to add but toasting your big liquidity event. Good stuff.
As someone who is ~mid-level (so beginning to really confront a lot of the partner politics) in a middle market firm that's rapidly growing and changing - I care most about transparency and communication (as cliche as that sounds), so it's really what you noted as being concerned about in his transition. If I joined a new firm to begin investing its first fund, I'm joining for the following reasons, in descending order of priority: (i) greater degree of autonomy, (ii) better compensation math, and (iii) people. More specifically:
(I) I've been lucky enough to have largely worked at relatively flat organizations for most of my career (irrespective of firm size; I've been at relatively mature firms who really push having as flat as possible of a culture). However, I've also had to work with several partner/principal-level individuals who are used having their opinions/whims being obeyed as law and who are not great at receiving feedback from someone junior; these are always the personalities who wear down the team and push folks to leave. I've also had my fair share of interviews with more nascent PE funds and decided to not pursue that opportunity because of running into personalities like these. So if I were doing my diligence on an opportunity like this, the first questions I would ask and care most about are: is there some sort of IC decision making structure or are you the end-all-be-all voice for pursuing deals? How will you ensure some degree of accountability and transparency in this process as people join? If its a sector/thematic focused fund, are there verticals that you've "claimed" and will be territorial about others building a book of business in? Will you be generous about sharing your business contacts to help get a deal I'm leading done or fix a problem at my portco., and conversely, how open/collaborative will you be to my input on your processes or portco management decisions? Lastly, will you be okay with not knowing every single aspect of my processes/portco. (i.e. function more as a guardrail) or will you be a micro-manager/have difficulty relinquishing control?
(II) Be transparent and direct with compensation. I appreciate there's more math behind this, especially for a first time fund, but I have friends who joined relatively younger funds in part for greater visibility and involvement with the investor/LP base but ended up being blocked out again due to insecurities/issues with control by the founder (specifically having unfounded worries that the newer employees would poach/manipulate an investor relationship without their oversight). Moreover, especially for the first few hires, there needs to be some degree of transparency about compensation structure - again have friends who bailed out on opportunities because they perceived the firm as having hires who were personally friendly with the founder (and thus getting better comp) and hires who were functionally needed (getting the shorter end of the stick). This also goes towards my questions on culture, but really the types of people who'd want to come onboard are really doing it for the upside - clouding this aspect really can weaken a team's interpersonal dynamic. Obviously people will negotiate, but it goes a long way to being transparent with the first round of hires about equitable comp (even more respect for those who will true-up others if someone comes along and negotiates for an aspect of comp that hasn't previously been considered).
(III) Lastly, the smaller the firm is, the more I'm going to care about the working relationships I'd have with the team. This translates to having an upfront view of how big of a role I would play in making hiring decisions, and how well I would work with the founder. I know this thread stems from this investor not having experience in people management, but I'd ask if he has a clear and defined idea of what kind of a manager he wants to be. Having this sort of "mission statement" goes a long way in setting the tone for a new firm culturally and signaling an openness for others to push back when things are going a bit off the tracks.
Great topic as always (and always appreciated being able to look to your insights on WSO @APAE as I develop my career) - hopefully there's something helpful in the ramblings above
Thank you for sharing. I have sent him this thread.
Thanks also for the kind words.
Would largely agree with the points on transparency/communication per the above.
One thing I'd add is a culture of "apprenticeship" - VPs trying to develop skillsets for associates to make the next jump and principals/partners doing the same for the VPs. Very easy for deal team members to only focus on getting the deal done without actually pushing those below them to play up and giving them opportunities to do so. It's something that is surprisingly rare in my experience and can lead to stagnation and turnover.
Thanks for sharing.
@APAE - feel free to message me privately. Happy to send some thoughts directly.
As a midlevel PE professional that has worked at funds in the ~500M range, happy to share thoughts as well if you want to PM.
I made the decision to leave PE last year but would've been right at the level this guy is hiring for had I chosen to stay in the industry. I had a horrific experience at my last firm and because of that would prioritize culture and people as my #1 consideration, assuming the guy isn't going to be paying people like shit and has an actual track record he can point to / is willing to share. Can't emphasize enough how shitty people (really 1 guy in particular, but he wasn't the only dbag) made me hate the firm, my job, and my life in general. Transparency and communication is a big part of that - not just on investment decisions, but career progression, team changes, strategic direction of the fund, fundraising progress, etc.
Then of course there's not micromanaging. In my current role I love the autonomy and the trust that the team has in me to actually lead things and knowing that they genuinely value my insight. This may be obvious but some people treat those below them as commodities and doing so creates a stifling work environment that doesn't encourage people to do anything beyond what they're told. Allowing people to take on greater roles beyond their explicit job description / title is huge, whether that be having somebody help with fundraising, taking greater roles in DD processes, allowing them to source deals within reason, etc. If this guy was a rockstar who was used to doing everything himself, I could see him feeling like he needs to be involved in every single part of the deal process as a potential risk and would need comfort that he won't want to hand hold ever single move you make.
As it pertains to comp, would definitely need carry as well. All cash or anything that's basically zero like 0.5% would be a complete non starter. Then next logical step is ensuring I'm ok w/ how comp would scale over time.
Ultimately my view is similar to nightowl's and my main considerations would also be people, more autonomy, and better comp, just in a different order.
Thanks for sharing.
I've been in both roles - managing and being managed. I appreciate the contributions of everyone above, and notice there are some definite themes around transparency and autonomy. There's a reason that comes up over and over again, and it's at the heart of what makes managing challenging.
Independent, aligned decision-making in a team setting is a force multiplier. People talk about it in a lot of different ways - "clicking with a manager," "being on the same page," "pulling the oars," whatever. The concept is that for missions both large and small, the goal (desired outcome), the strategy (the plan for achieving the desired outcome), and the tactics (the discrete tasks that make up the plan), are well-defined and communicated and understood well enough by everyone in the firm that everyone can independently make decisions that are not in conflict.
It supports everything - sourcing strategies, investing decisions, constructing IC materials, hiring, comp plans, building a model, fundraising, promotion tracks. The smaller the firm, the easier it is for all of these to be implied or understood without specifying. As the firm grows, it gets exponentially more challenging to avoid those communication gaps.
When a VP can make a choice about what a partner will need to see at the next IC meeting to make an informed decision, when the meeting will be, and how that decision will happen, without explicitly asking, then he or she can make additional decisions about priorities, directing associates, additional process steps, and the like. That alignment saves time and energy for the partner, VP, and the rest of the staff by reducing the communication burden and insulating against lost time.
Micromanagement happens because the superior does not have faith in the connection between them and their direct report, and makes decisions for them. That can happen because the manager doesn't themselves know the ultimate context and direction of the work, or doesn't know how best to communicate it and set goals and timing, or it could be because the direct report is struggling to balance the manager's needs with their own desires or direction.
APAE, think of it this way - your rockstar has been a successful quarterback. With the football in his hands, he's been able to make decisions and achieve great outcomes. Can he do it as a coordinator? In other words, can he achieve those same outcomes without ever getting to touch the football? It's a different skill set. Some great athletes make for crummy coaches, and some mediocre athletes make for brilliant coaches.
Some more tactical suggestions for him in leading his charges: define, define, define. What's the fund's strategy? What are the attributes of deals that are an immediate "no"? What is expected of a midlevel deal professional, at every stage of the deal? What's their access and reporting cadence to the firm's leadership look like? Who's in the IC? What will their level of familiarity and control over a deal be? When is their approval necessary in a deal process, to what degree, and how often? What does a senior associate need to do to make VP? VP to Principal? Principal to Partner?
If the answer to any of them is "I don't know," then they won't know, either, and they won't be able to organize their efforts efficiently toward your preferred ends.
+1
this is very high quality
Just ran into this thread. Happy to provide some thoughts via PM if still interested.
Curious to hear what came of this. My goal is to do a similar thing at some point and I have a similar background (MFs from analyst -> VP, some level of proprietary relationships).
If you don't mind sharing, how did the genesis of this come about - and what about his background made you want to back him? You say he left early, so I'm guessing he performed some independent buyouts on his own that has turned out quite well?
I posted an update as its own comment, sorry, check below.
APAE
there is a reason I never left my firm. i'd be happy to connect privately
We were introduced by a capital partner who had been in one of my deals, met him, and wanted me to kinda vet him and maybe coach him a bit. We had a bit in common. He's first-gen kid of immigrants, rough childhood, made it through the grinder of a good school to a great bank to a superb fund. I think people conflate race for diversity too easily. I know Black people who had it cushy. This guy is ORM but had nothing handed to him. No chip on his shoulder, very clearly aware, you can see it all in his eyes. Sharp, sharp dude, brain always on go-mode. And willing to leave before his associate stint ended, I respect that level of conviction. So I sat with him for a couple years to answer as many questions as I could and help him avoid some of the idiotic mistakes I've made (not enough time to help him avoid all, I've made too many for that).
Yes, I've written about one of his in a really popular comment before. My idea backing him on the GP was to accelerate things for him by a decade. His first asset doesn't make sense to exit (it's mushrooming, the platform choice was great and there's no shortage of bolt-ons), his second is about to conclude its turnaround (it clearly worked, now just needs a few years post reorg to show financials that reflect its new state). So the normal and annoying path would be to wait 5-7 more years to exit both of them, hire a placement agent, and go do the dog and pony show. But this way he does more deals faster and everyone makes money.
During the second deal, he learned about an adjacent opportunity that isn't corporate buyout. I'm being intentionally vague here to keep it non-identifying. But imagine buying healthcare businesses and learning about real estate opportunities, or doing a shipping business and learning about marine finance.
So instead of raising a traditional buyout fund, he formalized (i) a legitimate GP entity (real back office, real investment staff) but kept the independent sponsor model, as well as (ii) an OpCo for that adjacent opportunity. My investment got split across them. The capital partners I introduced are on a first-look deal for the buyout opportunities and are also credit partners for the OpCo.
The senior associate, VP, principal candidate profile ended up looking a little different because of the dual exposure to buyout and second strategy. It's taken some time, he only has two so far out of what should probably be six. There are older Operating Partners in the OpCo who are hiring corpfin or corpstrat type of people with the relevant industry experience.
I will ask him to register and engage in this thread. He is a lifelong lurker.
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