Independent Sponsor Model - Terms and Investors

searcher profile

June 19, 2023

by a searcher from Columbia University - Columbia Business School in West Palm Beach, FL, USA

My raise has pivoted a bit from a true search fund to more of an independent sponsor model (that may turn into a roll up eventually). Does anyone have standard deal terms for independent sponsor models please?

Related, typical investors for this seem to be more family offices. Does anyone know if funds will also do this model (but then there would be a "double carry" situation presumably)?

Thank you all!

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commentor profile
Reply by an investor
from University of Missouri in Austin, TX, USA
A lot of good information shared above. Confirming that FO's are commonly in this space, as are SBICs, and traditional PE groups.

And as you guessed around return thresholds, that is correct - there is a double carry situation with many agreements as the group who raised the capital has to get paid THEN you get paid. You will need to underwrite a much higher return in order to get paid. Additionally, your track record and relationships will play a big role in dictating what terms you are able to negotiate with a capital provider. Note, you will almost definitely not be in a control position if you are securing funds from a FO or a traditional fund.

Most importantly (very commonly misunderstood), the economics are VERY different than the search fund model. You will not be putting up <10% of the capital and receiving 80% of the common.
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Reply by a searcher
from Stanford University in Dallas, TX, USA
Traditional PE funds are getting more involved with independnet sponsors, since it is becoming more difficult to find quality deals at a reasonable valuation. Family offices are involved, although they tend to move more slowly than funds. Mezz/Equity funds are also a great source for independent sponsors, since they can provide a significant portion of the capital required but typically don't take a control position.

I've got a good feel for typical independent sponsor deal terms if you want to discuss offline.
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