Our Partners
The Independent Deal Sponsor concept
What is a fundless or independent sponsor?
Fundless or Independent Sponsors are individuals or groups that seek to acquire, grow and exit one or more businesses for a profit, much like conventionally funded private equity firms. Unlike their traditional private equity counterparts, however, they don’t have a dedicated pool of committed capital at their disposal and are usually required to raise debt and equity capital on a deal by deal basis.
The most successful fundless or independent sponsors combine the rigor, sophistication and approach of traditional private equity investors, focusing on proprietary deal sourcing, transaction execution, portfolio company monitoring and often invest invest personal funds along-side other investors.
Private equity operating partners and industry executives
We work with experienced industry executives seeking to either become private equity operating partners or help them secure the required debt and equity capital to complete their own acquisition.
Typical private equity operating partner roles include:
• Deal Sourcing Partner: industry expert or senior executive that has broad relationships in an industry and is aware of an acquisition opportunity, but doesn’t necessarily want to be involved in the acquisition or growth of the business
• Semi-active: industry expert or former senior executive involved in new transaction diligence, strategic guidance and active mentor to management team, but not working with the business in a day-to-day capacity
• Functional Expert: former executives or consultants with deep expertise in a particular area (e.g., sales, procurement, digital marketing, finance, lean manufacturing, systems and technology implementation, etc.) that want to come in on a project or full-time basis as needed
• CEO or President: former industry executives or consultants with a broad range of skills and ability to develop and implement a value creation plan, support and coach management and bring in external expertise as needed
• C-Level Partners: Former C-level industry executives looking for a full-time role inside of a private equity owned company; roles may include Chief Operating Officer (COO), Chief Financial Officer (CFO), Head and Sales and Business Development, etc.
The independent sponsor model
The Independent Sponsor Model represents the evolution of the traditional private equity model, whereby talented private equity sponsors aim to identify, acquire, grow and exit a business for a profit, while avoiding some of the traditional private equity pitfalls and barriers to entry.
For many sell-side advisors or business brokers, the concept of selling your client’s business to an independent sponsor, or a firm without a dedicated pool of capital, can be a create a great sense of uncertainty.
We work with numerous independent sponsors who acquired businesses sold by sell-side advisors and business brokers.
Independent sponsor economics
Appeal for Operating Executives and Private Equity Professionals
Many talented operating executives and private equity professionals have gravitated towards becoming independent sponsors because it represents an opportunity to utilize their skill sets with a higher degree of autonomy than acting as an employee, while offering the ability to create an enormous amount of personal wealth, if successful.
For the private equity professional working as an employee of a fund, with either limited upside potential or an unclear view about the path to partnership, the fundless sponsor model presents an opportunity to be rewarded for the value you’re creating, without navigating the long and sometimes bureaucratic climb to partnership or setting up a new fund.
Independent Sponsor fees and compensation
Like traditional private equity firms, independent sponsors are compensated through a combination of fees and profit sharing. In most cases, the independent sponsor is typically compensated through:
- A deal fee or transaction fee paid at closing: in many cases, there is an expectation that a portion of this fee will be reinvested into the transaction alongside other investors
- Ongoing compensation based on the role of the sponsor: generally, executives stepping into a day-to-day operating role will receive a healthy salary and benefits, while the active board-level advisor will usually receive a management fee
- Upside participation: upside participation can be structured through a carried interest or promoted interest vehicle, common equity vested at inception or common equity vested based on timing or performance hurdles; in a successful independent sponsor transaction, the upside participation should represent the largest component of the independent sponsor’s economic package
For more information on fundless sponsor fees or compensation, please contact us.
Investor appeal
Investors that embrace the independent sponsor model as a source of deal flow, are attracted to the concept of seeing proprietary or non-auctioned deal flow and individually selecting the target companies (vs. investing in a blind fund), while negotiating independent sponsor economics based on the relative value of the sponsor and investment opportunity.
As the independent sponsor model has evolved and become more mainstream, it should be no surprise that many talented individuals with professional investing and operating backgrounds have started venturing out to form independent sponsor groups.
For more information on the independent sponsor model, please contact us.