Can Independent Sponsors structure a deal for equity instead of carry?

by a searcher from Concordia University

4 months ago

Question regarding the deal structures for independent sponsors ("IS"):

- Usually, IS will get paid in 3 ways: closing fee, management fee, and carried interest
- Carry interest is not equity, but an agreement to pay out a split of the total returns generated at the exit of a company
- Is there a way to structure a deal where an IS would get a part of the equity instead of some carry? 

The Search Fund model allows for the searcher to get some equity - can we replicate some of this with the IS model?

Curious to get your thoughts on this. 

1 like
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11 comments

searcher from Duke University

I've started doing deals like this. I'll invest alongside a self-funded searcher, who takes the PG, invests a bit of cash, and gets the majority ownership, and I and my partners invest most of the cash and each take minority equity positions. We don't do any fees or carry, just straight equity ownership.

4 months ago | like reply | 1 like

investor from University of Pennsylvania - The Wharton School

Everything is negotiable, so this is possible. However, if you're not putting hard dollars into the investment, I think it's pretty unreasonable to expect something other than reward in the upside scenario. Carry is the reward an investor gets for a successful outcome, and it aligns the incentives of those around the table.

4 months ago | like reply | 1 like

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