Does anyone have a good independent sponsor agreement template?

October 30, 2024

by a searcher from University of Redlands in Phoenix, AZ, USA

As a PE Portco exec for the past 22 years I have significant connections. Through those connections I have some friends and colleagues who are successful entrepreneurs needing investment or a path to exit. Most are middle and lower middle market.

Before I have my lawyer draw up an agreemnt I'd like to see if anyone has one. I may have 2-3 companies to present to other friends, PE, VCs, or angel investors by christmas

Thanks.

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Reply by a professional
from Dartmouth College in Los Angeles, CA, USA

First you'll need to work up a term sheet with the key terms, which for an IS would typically include: your proposed closing ("diligence fee'), which is typically rolled into the deal, your management fee (based on EBITDA of the target), and your carry with thresholds. The "agreement" I think you're referring to would be the Operating Agreement for the LLC which is buying the target (buying assets or holding shares). Typically most IS investors will want you to bring them the deal first before they'll spend the time on a generic agreement on terms, or at least some more specifics on types of deals. But if you have people interested you can probably ballpark your proposed terms to see if there's alignment. I wouldn't spend money on legal fees without a deal lined up.

Reply by a searcher
from Georgia Institute of Technology in Kansas City, MO, USA

Are you wanting to be the independent sponsor? If so, my experience with PE groups has been that they will provide the first draft of an agreement. Typically it is just an LOI and it will outline proposed capital structure, economics to the independent sponsor, diligence requirements, etc.

Alternatively, if I were raising money from a syndicate of investors, my approach has been more informal. We have communicated the terms of the investment via an internally developed CIM and then memorialized the terms in the operating agreement.

Happy to discuss though.

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