Job Alert: VC Fund General Partner
Want to join the venture capital industry? Now is the time to make the move.
Title: General Partner
Sector Focus: Information Technology and Mobile Computing
Mandate: Ontario based, with a North American investment strategy
Fund Size: $100 million
Salary and bonus: $250,000 per annum
Residual management fees: zero; your fund will operate on a fixed annual budget, not the traditional 2% mangement fee
Your required equity contribution to the fund: $1.5 million
Carry: you and the team can participate in the 20% “upside sharing” when the fund winds down after 10 years, regardless of when the limited partners have seen all their capital returned to them, or when LPs start to make an irrevocable cash profit on their investment following the 100% return of their original capital.
Due diligence: don’t be surprised if it takes us 6-18 months to complete our due diligence process on your fund, your team, and your investment strategy.
Small print:
1. Your required sizable equity stake in the fund means that on a after tax basis, the present value of your salary and bonus will be worth less than the LP commitment that you are required to personally fund at the outset. In essence, if you aren’t already rich, you can’t apply. And if you are already rich, you will still essentially work for free for the life of the fund (year 10) until we find out how it peforms. Even if you hit the lights out and have returned all our LP capital by year five, and were are roling in gravy at that point.
2. If things don’t work out, there will be no funds available that will allow severance to be paid.
3. Although it is a 10 year committed fund, the “no-fault divorce” clause in the limited partnership agreement means that the limited partners can terminate you after three years, and replace you with a competitor who will manage the fund going forward. It is true that your original $1.5 million LP commitment remains trapped in the fund until the end of the fund’s life.
4. Unless they are positive, you are well advised to keep your opinions on the government, crown corps., venture capital and the limited partnership world to yourself during your time in the industry. Any public airing of personal or industry association views that might be seen to be criticism – constructive as those views may be – is deeply frowned upon.
MRM
Did the calendar turn back to April 1? or did you just get fired and you are looking for a replacement 🙂
Hi Philip
This isn’t about our firm, or anyone specifically. No job openings there today. This is satire, which I do allow myself sometimes. Although some in the Canadian VC industry say this job posting is all too true.
Thanks for stopping by.
MRM
I’m ready to go. Call me.
Not all funds are being forced to accept these terms, just the ones the LPs want to get rid of.
Rich
Interesting. This is good news in a way. Do you have specific details as to which funds are which?
MRM
Seems to make investing seem like a privilidge, rather than a right, and comp looks more like that of a regular businessman than an investment banker, albeit still with true performance based upside of consequence in an industry where large upside optionality is not trivial. Arrange a non-recouse loan for the required investment, negotiate a less onerous no-fault, get a bit more activity based bonus potential year to year, and sounds like a good opportunity. Maybe will get a next generation group of people going who are just glad to be in the business. Am I missing something?
Thanks for stopping by AJ
I think the key difference between your thoughtful proposal and the current mood of the Canadian market is the idea of the non-recourse loan to provide the capital to invest in the limited partnership. That’s not currently on offer. Putting all of your after tax salary and bonus into the business is a good idea when you can see you way clear to growing enterprise value. Unfortunately, there is no such thing as EV in the fund management business (other than for Blackstone, for example).
Amazingly, when entrepreneurs and employees in public and private companies get granted options in the equity of the business, no one cries foul. If things work out, they get rich. If they don’t work out, they go on to another job. But no one every claws back the salary and bonus.
The rumoured entry price for the Canadian VC general partner appears to now be: if things don’t work out, you’ve worked for essentially no compensation for the life of the fund.
Next time an entrepreneur pitches us a deal, I’m going to ask if they are prepared to roll all of their salary and bonus into an ESOP. Will report back.
MRM
The money in goes into the same portfolio being invested in, not the franchise. Since this portfolio is supposed to be worth three times money or more by the end of the life of the fund, wouldn’t investing in your own fund be a privilidge, rather than a burden? Since everyone had zero return in the public market over the last ten years, but VC is pretty good by comparison (as you have often noted), wouldn’t this skin in the game model have done a favour for most? And to suggest “if things don’t work out” that all your money is gone, would be one of the worst portfolio performances in VC in a long time, few funds have lost more than 50%, most muddle along and get your cost back. And, many entrepreneurs as you know forgo salary in the start up phase, and put all their net worth in to boot. What is the difference for a start up fund – the model you note at least pays your rent and set up costs? Why is a start up business in investment/asset management supposed to be exempt from the rules that every other business a start up faces? And if indeed the source of capital is government, then arguably you have not met the full commercial test and perhaps overall economics should reflect that fact. Sorry, but I see the deal as not great, but not necessarily out of order. Welcome to reality, financiers!! The world now knows the excesses of the finance industry, and the pendulum will swing too far the other way for sure, and the fault lies with those who took, but didn’t deliver – and as usual they ruin it for the next generation, at least for a while.
Hi again AJ
I’m not advocating against the LP investment; obviously it is designed to increase in value. That’s why the fund is being set up. My single larget investment is in our own fund.
As for the comparison to start ups, your parallel doesn’t work. The satirical VC funds we are talking about are not start-ups; they aren’t first-time funds. We are talking about the funds that have been around for 10 or 30 years.
But let’s not throw the VC industry into the same category as Wall Street excesses. The fact that some of the lead LP investors are now governments is a challenge, and does not meet the private sector test you cite. Should that have a dramatic impact on compensation of the leaders of the funds?
That’s a good question. Does managing a fund of government money (such as a public pension plan) require compensation below that of a private sector pension plan, for example?
Does the source of funds under management create a two-tier compensation system in Canada? Not that I’ve seen.
Would be happy to give you as many guest posts on our site to put forward ideas that should work for everyone. The industry is certainly open to any and all constructive suggestions.
MRM