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.

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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.

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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.

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Independent Sponsor Compensation​

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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:

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• 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

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• 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 

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• 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

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For more information about fundless sponsor compensation, read our guide on Independent Sponsor Economics.

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Investor Appeal

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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.

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Learning More​

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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.  ​

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To discuss the path to becoming an independent sponsor or direct investing with independent sponsors, please contact Access Capital Partners: