How To Start a Private Equity Fund From Scratch in 2026

So where does private equity play? What does the private equity even mean? Like what do those words even come together? So let's— I got my little beautiful graph here that I drew myself, by the way. We've got the private markets and we've got public markets. The life cycle of a business, let's say a good business, kind of simply drawn out, you would start here. This is your ignition point. You enter the private markets. A lot of private equity tries to start and come in at this point. And let's define private equity, what they are buying. Is private equity or private ownership of privately held businesses. A good example is like Sycamore Partners on Wall Street. Sycamore Partners, a lot of people have not heard of them, but you probably have heard of Nine West Shoes, Aeropostale, Staples department store. A couple years ago, they were trying to buy Victoria's Secret. That is a— that's a large private equity fund that comes in and buys companies usually at this stage and and then hopefully takes them to a point where they can IPO, do an initial public offering, and then sell to public markets and they can exit their positions, okay? That is one strategy of a private equity firm. There's a lot of different strategies. That's one kind of simplistic version of this. They're buying in the private markets to maybe one day sell in the public markets, or maybe they sell it to a bigger private equity firm later. And there's a lot of different structures to exit, but that's kind of the game they play in. Now there's other private equity firms that do different parts in this private market. And I'll kind of simplify this down too, is venture capital enters here, kind of at the ignition point or pre-revenue point. And venture capital a lot of times hopes to sell to private equity. And sometimes venture capital, they hold— I'll use blue so you guys see it— they hold all the way to the IPO and go there and they have this beautiful exit and it's amazing. Everyone's rich and happy and has yachts and it's just amazing, right? Other times, businesses don't go as well and they come in this distressed loop. There's also a lot of private equity firms that play down here. So they'll buy a company that's distressed. They enter here. They buy it on the cheap. They then work with this company. They get it ready and they get it back in good graces and sell it to another private equity company, or maybe they IPO it one day. But private equity can play in different parts of this game in this cycle. Additionally, I'll add down here, there are— that was kind of larger private equity. There's also micro or small private equity. I've seen a lot of people in my group specifically that are using this model to buy up local laundromats. We have a guy that he was buying funeral homes. He found that when he bought funeral homes— so right here, let's just say a funeral home trades, and don't quote me on this, but let's just say it trades at a 2x multiple. And let's just say 2x revenue, okay? 2x revenue. He found once he bought 10 to 15 of these, they no longer traded at a 2x multiple. Once he put them together, you centralise this. Instead of having 15 finance teams, you have 1 finance team. Instead of 15 marketing teams, you have 1 marketing team. So generally expenses drop. And he could sell that same portfolio for a 5x, which is a 1.5 times evaluate bigger than what he bought it for. So if he bought this whole portfolio for $20 million, the same portfolio with slight changes would sell for $50 million, something like that. So micro private equity has actually been this huge pop-up. We've seen people buying laundromats, car washes, simple boring businesses, pooling them together and doing some pretty cool things. There's other private equity firms that also strip apart companies and they say, you know what? We're just going to sell off the pieces. In any given sense, what they're trying to do is return value to shareholders. Now, what I'm going to share with you is how 99% of private capital in the world is raised through this simple structure. So, this is the general partner, limited partner structure. Now, to simplify this even further, all this is, this is a fund here or a pool of money. And what's happening is investors, I'm gonna put them up here, investors with money are putting money into a pool of money. Fund managers, people like me and you, are drawing from that pool. We're gonna go make investments. And whenever those investments make money, The investments flow back to the pool and get split between the investors and the fund managers. Okay, that's it. This is like the oldest business model on earth. It's like, hey, we're going to go— Christopher Columbus is like, hey, give me some ships in a pool of money. Give me some money. We're going to go to the New World, get a bunch of gold and bring it back. Okay? So like, whether you like that or not, like that's the model. We're going to go open up a blacksmith shop or we're going to open up a— build a new business. Give us some money in a pool. Whenever it makes money, we'll split the returns. A fund is just doing this on a much more massive scale, but that's kind of it. So when you ask the difference, like, what's the difference between hedge funds or private equity or venture capital funds? They're all kind of the same. The only difference is what they buy. Private equity, in this example, buys privately held businesses. A hedge fund buys public equity or stocks, bonds. Forex futures contracts, stuff like that. Same structure. I have other videos on my channel that talk about this. Pretty same structure. The investments just vary. Okay. Hopefully that makes a little bit of sense. So back to this structure. This is a general partner limited partnership structure. You're going to raise money in here and this structure is governed by 2 main documents, your LPA and your PPM. These 2 documents are what I lovingly call the Bible. Okay? They're called the Bible because this is like the laws, the covenants, all the stuff of your fund. And these are kind of expensive. They are thick. They are big documents, okay? These are probably 100 pages each if not more. Minimum 100 pages. And this will probably charge you about $30,000 to get set up, okay? Just on a general one. I'll actually share in a few minutes examples of ways that You don't have to spend that much, but on a general sense, if you're going to talk to a lawyer, they're going to say minimum $30,000 to build out these laws. Now, I get a lot of questions. Bridger, can my fund do X? Can my fund do Y? The answer 9 times out of 10 is yes. You just have to write it in your LP and PPM. Now, once you write it though, you got to follow it. For example, in your LP and PPM, you'll say, hey, our fund, we're doing private equity, we are going to buy Distressed car washes. Okay, that's what we are doing. Distressed car washes. And you write it down your LP and PPM. Boom. And that's what investors are buying. So, if the best real estate deal that you have ever seen comes across your desk and it's amazing and you like, should the fund buy it? Well, guess what? The fund cannot because your Bible said we only buy distressed car washes. Once you write it, you got to follow it. If you say, hey, our fund minimum check size to invest in our fund is $100,000. $1,000. Once you write it, it's in the Bible. You got to follow that. Okay, so these are crucial. But again, when you're— you get to write the Bible. Me and you get to decide all the stuff. Now, we'll talk about the legal— there's certain legal things you have to follow. It's kind of like the example I give is like kind of like football. In football, you have lines, right? You have a goalpost, you have an end zone, you have the rules of the game, 100%. And it's important to know the rules. And we on this channel, we talk a lot about the rules. But within the rules, there's a lot of strategy that you can apply in the rules. Does that make sense? And so what we do is kind of help you think through the strategy of what you're doing within the rules of the game. Now, a couple more things on this before we move on. So right here, a lot of funds also have a— I'm going to call it the management company. And this is where both these entities is kind of where the managers are. Right here. Me and you, the fund managers, manage here. You have 2 entities for— I'll actually walk you through it right now. And the other question I always get is, Bridger, like, what licenses do I need? So let's address both of those to run a fund. Many funds run off what's called a 2 and 20, which stands for 2% management fee and 80/20 split, meaning when money comes back up, It is split 80/20. 20% of that goes to the general partner, 80% goes to the investors. So this year, if we, if we got $100,000 return, $80,000 would go here, $20,000 go to the general partners. Or if we got a $100 million return, $80 million would go here, $20 million would go here. That's why fund managers are some of the wealthiest people on planet Earth, because this thing scales like crazy. And then additionally, a lot of funds charge a 2% management fee on the whole portfolio. So for example, if we managed a $100 million fund, equity-raised fund, 2% per year or $2 million would go to the management company for giving investment advice. So that would be 2% would go here and your 20%, which is called carried interest, would go to the general partner. Now talking about licenses. So where does that come into play? Do I need a license? Do I not? Down here in the management, this is where your licenses would sit if you need them. Again, I'm going to emphasize if we have other videos on our channel that talk through a lot of funds, especially when you're starting, can launch without a license. And that comes down to a few things. I'm going to kind of get down here for a second. That comes down to if you're going to be an investment advisor, a registered investment advisor, RIA, or an exempt reporting advisor. An investment advisor falls at the state level, an RIA falls at the federal level, and an ERA, exempt reporting advisor, is exempt from these registrations. And a lot of funds, if you are less than $150 million, you can qualify as an exempt reporting advisor, which means you don't have to have any licenses. Again, I'm not gonna dive into this video. You guys can link to my other videos on my channel that talk about licenses. But this is the classification you can get into, and a lot of private equity funds can qualify for an exempt reporting advisor if you're under $150 million. If you don't qualify for that, the license you would need is what's called a Series 65 license. This allows you to give investment advice and get paid for investment advice. This is the same license that your brother-in-law holds that works at Merrill Lynch and says, hey, can we manage some of your portfolio. I get paid for investment advice. Because what you're doing here is you're getting paid 2%, whether the fund goes up or down, you're getting paid 2% for investment advice. You are giving investment advice to the fund. That's what the investment management company is doing, and for that you're getting paid. And because you're giving investment advice, you have to have a Series 65 license. But again, a lot of funds that you guys— you and me are looking at can qualify as an exempt reporting advisor, an ERA, And you actually don't have to have a Series 65 license, which is pretty darn cool. The first goal of your fund is we want to build a fund that investors want. That's the goal. Anybody can go pay a lawyer $30,000, $40,000, $50,000 and just have a fund set up. That's not the purpose. The purpose is to build a fund that investors are dying to have, that they're just going to pour money in. A lot of people ask, Bridger, I can't raise money. Well, it's probably because you didn't build a fund investors wanted. That's the hard truth. So how do we go through a process of building a fund investors want? That's where we more discovered what we call the Fund Launch Formula. There's a formula to launch your fund. It's in 4 steps and I'll walk you through each one. Let's talk about the first one. A lot of people, again, Bridger, I want to launch a fund, I'm ready, okay, what do I do? Let's go hire a lawyer. And I'm gonna go, eh, hold on. Hiring a lawyer is actually step 4. Is legal, is actually hiring the lawyer and getting those legal set up. And I would argue that's kind of the easiest part. The harder part is here, building a fund investors want. Let's talk through what it— like, Bridger, what are you talking about? Okay, number one, the first thing I would tell people to do, especially in private equity, is have and find a great deal, especially on your first fund. Lead with a deal. A deal, and I'm talking one deal specifically, but also this, and I put it in air quotes, this represents what we're trying to discover. In a fund, you are trying to discover what's called asymmetrical risk. If you've ever heard of high risk, high reward, or low risk, low reward, right? You've probably heard of that before. What asymmetrical risk is, is relatively low risk for high reward. That's what we're trying to— that's why we get paid big bucks to run funds, is to find things that have relatively low risk to high reward. I was with Ray Dalio just a few months ago, and Ray Dalio talked about this concept of— he's like, I, I can diversify away 80% of my risk in any portfolio without losing my upside. He goes, I can de-risk 80% of my portfolio without losing the return side of things. And by the way, speaking of Ray Dalio, a lot of you guys might say, well, I can't do a fund. I'm too young, I'm inexperienced. I got to do investment banking for 20 years. That's what I thought. I was going to do investment banking for 20 years and then do a fund. And what I realized with people like Ray Dalio, do you guys know Ray Dalio started his first fund at age 26 years old? Pretty crazy. Warren Buffett started his first fund at 25 years old. He raised $105,000. Ray Dalio raised $265,000. Ken Griffin started when he was 20 years old. Raised roughly a quarter million dollars. These guys all started early and they started small. There is a lot of benefit in just getting started, getting in the game, getting moving. And yes, there's other examples of people that launched their funds when they were 50s or 40s or 30s. There's examples across the board. But what I'm telling you, that all of them got started, they got in the game and they got moving. When you start watching not what they say they did, but watch what they did, watch the actual moves they made. You'd be surprised how many people got in this game way earlier than they thought about it. So back to asymmetrical risk. Where is high risk, high reward? Can I even find that? Is it even possible? Let me give you an example. So let's talk private equity. Let's say me and you are launching a business. We're business partners. And there's outside investors and there's a certain level of risk and reward associated with the business that me and you are gonna start, okay? Let's just call it medium risk, medium reward. And we're going out, we're trying to raise money. And then, We introduce Elon Musk as our third business partner. Okay? If you're an outsider investor, an outsider investor is over here. What do you think happens to the reward part of that return? Does reward go up or down? Probably up. Elon Musk is going to be our third business partner. The chances of success, in my opinion, go way up. Okay? So that's number one. What happens to risk? Elon Musk, one of the richest people on earth. He can capitalise things. I would In my opinion, it's probably a less risky investment than other investments. I would bet on that deal rather than others. So risk goes down or stays the same and reward goes way up. Ta-da! What did we just create? Asymmetrical risk versus reward. Just by adding one partner, we created asymmetrical risk versus reward. This actually is very commonplace, especially in small funds. There is a lot of asymmetrical risk. In private equity. This is what they are banking on. We are going to buy a distressed company. We are very good at running sales teams and marketing and systems, and we're going to bring this distressed company back to profitability and crush it. Why? Because we have expertise. That's one category that you could have asymmetrical. There's a lot of different categories you can have asymmetrical risk on. But regardless, step 1, have a great deal where you find ace and backtest this and stress test this. Do a syndication or 2. Prove this model out, and I'll share an example in a second with capital raising on how this works. Okay, Bridger, I've got a great deal. I want to go to legal, and I go, "Hold on before you go to legal. Don't do that yet. Come back." Step two is we are going to frame the fund out. We're actually going to frame what the fund will look like. What's the lockup period? How long will the fund function for? What's our waterfall structure? American or European waterfall? This is stuff we have all over our channel. I want to share one though with you because our channel is full of all this stuff, so I don't want to tell you too much, but I wanted to share one here on frame. And actually, I'm going to go to a new whiteboard here on the concept of open versus closed-ended funds. Okay, there's 2 main types of funds that are ran in the fund universe or space, and I want to walk you through both of them. So An open-ended fund versus closed-ended fund. What are the differences? I'm going to draw little data points here. This is a timeline. So let's say here's our timeline and let's just put— ta-da! We're going to go here and let's just call this 10 years and 5 years. Okay. In an open— I'm going to do open first right here. Open-ended fund. A lot of times like in a hedge fund. So I currently run an open-ended fund, meaning investors It's open. They can join the fund. They can leave the fund. Every quarter, we have moments where people can join the fund or leave the fund. They can add more money or take money out. And what happens is this is usually perpetual. This lasts into eternity. Hopefully, your fund's crushing it and you just keep going as an open-ended vehicle. This is much more common for hedge funds. Private equity funds—they're often running a close-ended fund—and I'll talk why in a second. A close-ended fund—the way it works—a lot of funds will do this: We're going to say, "Hey, we're going to raise." This is let's call this the one-year mark. We're going to raise all the capital in the first 18 months. So we're going to raise money, money, money, money, money. Okay, we are raising money, and then. After we raise the money, we're going to start deploying that capital. We're going to have what's called a deployment period. Sorry, I'm drawing pretty bad here. This is our deployment period. And we're going to deploy into, we hope, 20 different companies. And then we're going to work with those companies and value add and all this cool stuff. We hope by year 5, we're going to start exiting and start selling those companies. So we'll have an exit here, an exit here, an exit here. And we hope by year 7, we have sold and exited all those companies. But let's say the world crashes, World War III breaks out, whatever it is, we can hold all the way to year 10. But for sure by year 10, we will pay back all of our investors. Does that kind of make sense, that timeline? Now additionally, once money is raised in this fund, new money can't join like this. Also, money can't leave. Your money is closed up. It's locked up for the duration of the fund. Because— and I'll tell you the reason why is let's imagine year 4. There's a big economic something and everyone gets scared and spooked and they all start, you know what? You know what? Give us our money back. Well, you're like, I can't. I don't have liquidity. We're deployed into 20 companies. I could fire sale them, but like, that's not a good strategy. I don't want to sell when I'm forced to sell. 'Cause we don't have liquidity. And what you usually say is like, hey, if you really want your money out, it's a— well, a lot of funds say this, it's a 50% penalty if you wanna leave the fund early. It's a big deal. You don't leave these funds. These are closed-end vehicles. That's why it's for credit investors that can, you know, have money locked up for 7 years. And they stay in the fund. You do this because you don't have liquidity. A hedge fund has liquidity. You go to the market, I can just sell some stocks and get liquidity. You don't have this. And what it does is it creates a sense where you can think long-term. Generally, investors do a lot better over a long period of time if they just stay in. And this allows investors— they cannot sell even if they want to sell. And you, the fund manager, have discretion on when they sell and what's the best exit and entry point to maximize returns. Does that kind of make sense? Open-end versus closed-end funds. That's why you do this. Now, Bridger, I don't want to wait this time period. You can change this again. You write the Bible. You could do a 5-year fund or a 4-year fund or a 3-year fund. It's up to you. Now, the last thing I'll say is a lot of funds will do this. They will launch— I'll draw it right here. After they raise their first fund right here, they're going to launch fund 2 right here. And fund 2, once this one's done raising money, fund 2 opens. They start raising money for 18 months in fund 2 and then they start deploying in fund 2 and then they have their exit period. So at the same time that Fund 1 is deploying, Fund 2 is raising capital. And the same time that Fund 1 is exiting, Fund 2 is deploying. Does that make sense? Then you launch Fund 3, or Fund 3 would be here. And all— and now you're running 3 funds at once and 4 funds at once, and they're all just timed out differently and layered on top of each other. We have another video that talks more about this, opening and closing funds, but I want to make sure you guys knew this. So let's go back to the Funnel Launch Formula. So that's the kind of stuff you're gonna think through when you are framing out, we got our beautiful paper here, when you're framing out your fund, one of the things will be like, okay, do we wanna run an open or close-ended fund? That would be one of like the 20 things you put together here, okay? Once you have that figured out, you drive it down into a PowerPoint usually or some kind of presentation and then Step 3, you go and raise capital. But Bridger, I can't raise capital until my legal doc's done. Yes, you can. You can go and actually start getting verbal commitments from investors. This is the best way to launch a fund. Again, the goal is to build a fund investors want. And what you're going to do is you're going to go soft pitch investors and say, hey, we have this idea. We found asymmetrical risk. We actually have a lead deal that we're trying to close on. We have this awesome company we're trying to buy the next 60 days and we're framing the fund out. We want to buy 20 other companies just like this first one. Do you guys want to— can I put you down for a half-million-dollar commitment? The legal docs, we're going to get those done. If everything checks out though, can I put you down for a verbal commitment for a half million dollars? And they're going to either say yes or no, which are the 2 options, right? If they say yes, great. If they say no, also great. We say, well, what's holding you back? And they're going to tell you things about your fund you need to tweak. And what you're going to do is you're going to come back to step 1 and step 2 and start iterating on the fund. And you're going to go through this process of, you know what, maybe we should tweak that deal or find a more asymmetrical risk or strengthen our team or make it— maybe 7 years is too long. Maybe we should do a 5-year fund or a 3-year fund. And what's happened, you're going to tailor and tweak a fund that investors are dying to have. Our goal in Blackhearts, our group, we try to get people roughly $2 million in verbal commitments at this stage before we go to legal. And then guess what? We go to legal and I walk in and say, hey, I want XYZ with a drink and a side of fries. It's pretty easy. And boom bada bing, we got our legal set up. My— again, I said legal costs are $30,000. My firm that I use, they charge $30,000, sometimes $45,000, sometimes $50,000. They did my last fund for $15,000. Why? Because I knew everything I wanted. To contrast that, I had a friend. He didn't do this process. His first fund, he spent over $500,000 on his legal docs. Why? Because he went to legal first and the legal people sat down and taught him what's an open-ended and closed-ended fund. Taught them about all these different things, and they billed him $1,200 an hour to teach him about funds. OK? Additionally, on lawyers, what I'll say is another kind of a back to the football analogy. Lawyers are great. They're kind of like— think about football, like a referee. A referee can teach you about where the sideline is. What's an end zone? What's a 4th down? What's a punt? What do all these terms mean? They can teach you all that. But there's a big difference between talking to a referee and talking to Bill Belichick about the game of football. Bill Belichick also knows the rules of football, but he can teach you the strategy within the rules. What to do on a 3rd and long or a 2nd and 5. What would you do in this situation versus this defense? See the difference? And so that's where I think there's so much value in you coming and watching these videos and like figuring this whole game out. And figuring out exactly what you want. And then you take it to the lawyers and say, boom, I want XYZ with a drink and a side of fries. Boom. Can you build this for me? Great. Let's build it out. And that's what we want. And that's the process, the strategy used to build a fund investors want. That's the biggest deal. Now, last thing I want to share specific to— I keep saying that last thing I'm going to share. This is truly the last thing on private equity funds is the team you build. You might be wondering, well, Bridger, I don't know how to do a fund, raise capital, all this stuff. There are 3 distinct people inside of a fund. So here they are. These are the 3 distinct roles in a fund. It's beautifully drawn here by my own self. Okay, so we've got our person or people that are the expert investor. This person knows the deals, the companies inside and out. They're very, very good at this. Next circle, this is the fund manager. These people know funds inside and out. This is— I would very gravitate toward this camp. I know funds compliance, all the rules, laws, legal licenses inside and out. And then finally, you have your capital raiser. This person is a born salesperson. I mean, they're just naturally networked. They know how to meet people, get into family offices, talk to the right people, get you in. Typically, the same person who's good at raising capital is usually not good at deploying the capital or running the fund. A lot of times you need these 3 distinct roles in your fund. Now, I'll say this as well. This is something that changed my life, this concept. You guys have all heard this before. It's not the how, It's the who. So instead of asking, who can I— or sorry, how do I run a fund? The question you should ask is, who can I find that can help me run a fund? Instead of saying, how can I raise capital? You go, who can I find to raise capital? Does that make sense? See that difference? Now additionally, it doesn't need to be 3 people. This can be— this could be 2 people. In my current fund, me and Dan Young, we run an 8-figure hedge fund. I run the fund management, he does the expert investing, and both of us raise capital together. We share that role. In other funds, this could be 30 people. And as you grow, you're probably— you're going to eventually do just a sliver of one of these. And you might do a part of this part over here, right? Yeah. And so you're going to grow, but all 3 of these roles need to be done, especially in private equity. The alpha, like we talked about earlier, finding asymmetrical risk will happen a lot in, obviously in here, but especially the team you have when you go and buy a company, how you manage that company, how you upgrade and move and refinance that company will be massively done through here. And you can find a lot of experts in this space, in that field that you guys can monetize and use very well. So with that, hopefully that was a crash course on private equity. We've got tons of other videos on this channel. I'm gonna stop here, but talk about licenses, other cool stuff. You guys are amazing. Drop a comment down below, like this video. Let me know what you guys think. If you want more videos on this topic, let me know what you want. See you later.