Start-up Real Estate Fund Opportunity - Figuring out Managing Member Economics
To all,
I have been lucky enough to be potentially seeded by a wealthy investor who wants to lock me up for 5 years on a new venture. He is going to give me an offer sheet this Friday (12/15/17) and I want to make sure that I get the best deal without appearing greedy. Initial base is $120K year 1 with escalations to $250K after meeting certain investment hurdles (AUM growth) which provide more CF to the bottom line. I'm going to get up to 25.0% of the platform including CFs but will vested over a 5-year period to ensure I stay the length of the commitment. I wrote the strategy and will split the LP sourcing 50/50 and my investor will bring the GP $/loan guarantee support. He's going to roll 100.0% of the acquisition fee into the GP equity portion, so no bonus...
Is this a fair wage for basically doing 75.0% of the work? I'm 30 with a decade worth of real estate experience and for the past 5 years have been running a small one-man PE shop and partnering with family offices (been apart of $500MM+ acquisitions/development). I spoke to a headhunter who said that I'm a SVP/MD level because of my experience and should be making at a minimum $300K all-in + points (non-institution) if I were to go work for an institution or PE shop.
I worry that I could make the same amount over a 5-year span just based off my annual salary + bonus + points without the start-up risk and stress. I should be making at least 3x in my opinion at the end of the 5 years. 2x isn't enough for the risk & stress. The experience would be amazing but I need to be properly compensated. I feel like I need an annual bonus to keep me motivated... the equity is the prize at the end.
Thoughts?
Don't look for immediate profits or income, if thats what you seek then you'd be better of working for someone else. Don't look on a five year span, look on a 15-20 year span, do you believe you will have a better future here, if so, then you have to suck it up. I think most guys that are around your age on this site would take the opportunity in a heartbeat. When you invest in yourself, you don't seem immediate gain, but over the long-term, if you believe in yourself to perform, you'll kill it.
i think you should ask for a tad more than 25% if you're raising half the LP equity and sourcing debt. but i don't think it's a horrible bargain and it sounds similar to other agreements i've heard about.
one question is whether "the platform" is a fee-heavy platform. is it possible to do well without promote? you might not hit your promote if you think we are "due" for a downturn or slowdown (not that i am predicting one, but you might have an opinion). but if you own 25% of a big "fee machine" then you could still be way better off than going out and working for an established shop.
another question is, of course, DO you have a $300,000/yr offer from a PE shop? might not be as easy as your headhunter friend makes it sound.
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