A reader recently asked me to contrast the human elements of working for a larger fund versus a smaller fund. The reader specifically asked about differences in learning curves, compensation, quality of life and hierarchy. It’s a great question because larger funds mean larger deals… and larger deals mean a completely different set of competitors, vendors, deal sources and processes.

Learning Curve

• We’re not dealing with rocket science here, so the learning curve isn’t particularly steep for private equity; once you’re through the door (i.e. you get hired), it becomes more about your resourcefulness
• For larger funds, the focus is firmly on becoming a confident and polished dealmaker; this means developing great communication skills and fitting in with the culture at the big end of town (sounds easier than it is)
• For smaller funds, the focus is on becoming an amiable dealmaker and an articulate consultant; this means personally connecting with business owners (often ‘moms and dads’) and learning how to deliver pragmatic advice with confidence (which can be a challenge for some people)
• The other difference relates to structuring; larger deals are more likely to use complicated instruments, whereas smaller deals often stick to pref equity and senior debt; but, none of this is too difficult if you apply yourself

Compensation

• Make no mistake, in a large firm you will earn multiples of what your smaller firm counterparts make, and the gap only increases from the day you start
• Smaller firms will attempt to bridge the gap by offering carry (albeit, a small %), but don’t become blinkered by this; it takes a long time for your carry to fully vest (10 years+) and there’s a lot of fine print that will mean you get much less than your initial calculations (see this post on my real-world carry calculations, Part 1, Part 2)
• With that said, carry is the holy grail for private equiteers, but you need a relatively large fund to make it meaningful (or great performance, but don’t count on that); of course there are many other variables, but you know what they say about a bird in the hand (base salary)…

Quality of Life

• Private equity isn’t investment banking, we work pretty reasonable hours
• If anything, smaller firms will work you a little harder as they often have fewer people working on more deals
• Irrespective of firm size, before accepting a position at a PE firm, make sure it doesn’t have a PowerPoint culture; this can indicate they work 80+ hours a week pumping out decks, which as we know, is what most investment bankers do
• You can do the sums to work out the management fee income to work out if they’re running on fumes or flush with cash; there’s a lot to be said for frugality, but it can be downright dispiriting having to pay for your own gas to drive out to investees (trust me, it happens, especially in single-owner firms)
• Above all, you need to be inspired by the people you work with and you need to feel that you’re a part of something big; great teams will make 90-hour weeks enjoyable, and uninspiring teams will make 35-hour weeks painful

Hierarchy

• You operate much more autonomously at smaller firms and get experience across a wide range of domains; this is implicit in having fewer people and working on smaller deals
• At larger firms, you’re more likely to have a set of duties that complement the overall team
• If you pick the right mid-market firm, you can grow very quickly, simply by having complete autonomy to close deals, manage investees and effect exits; you’ll never enter a mega-sized fund as a junior with this level of autonomy
• With that said, you’ll quickly feel under-compensated if you’re closing all the deals as a junior and being paid a janitor’s salary; you need a different mindset regarding compensation and duties going into larger vs. smaller firms

Clearly my experience with mega vs. mid-market firms is limited to a sample that’s nowhere near the entire population of private equity firms. So I’d be interested to hear thoughts, disagreements, questions, etc.