Selecting the appropriate capital partner is vital for independent sponsors. Unfortunately, we very often hear stories about failures from sponsors about capital partners that re-trade deals, out of the home at the eleventh hour or lessen than ideal partners after having a transaction closes.
We usually see our clients asking us: Which capital sources get the best partners for unfunded sponsors? What should fundless sponsors consider when searching for a capital partner? What type of funding source is the best fit in my opinion and my deals?
Here are 3 traits shared by great independent sponsor funding sources:
1. They Offer Fair Independent Sponsor Economics
The proposed independent sponsor economics (transaction fee / promote, carried interest or ownership / ongoing management fee) are meant to reward the sponsor to the value delivered also to incentivize the crooks to grow the business enterprise being acquired.
If you bring a proprietary deal, with an attractive valuation, which has a solid management team and growth intend to the table, you ought to be rewarded with superior fundless sponsor economics. Why is anything a lot less than that reasonable or acceptable?
Be careful to never fall into the trap of accepting below market economics when you can avoid it. Many of the long-time and well-known fundless sponsor capital providers often reap the benefits of their unfunded counterparts, particularly new sponsors or ones that are not running a tight capital raising process.
Any pushback from the capital source including “Well, it’s really a stretch deal for us” or “That’s not might know about do” ensures they probably not an excellent fit to suit your needs or your deal.
2. They Embrace the Independent Sponsor Model
The ideal funding source embraces the independent sponsor model simply because they want to, not simply because have to.
Let’s face the facts, you cannot assume all SBIC, family office or equity finance fund hopes to invest with fundless sponsors, but since the independent sponsor market is growing, it is harder for private equity finance firms to ignore being a viable method to obtain deal flow.
You have to ask the correct questions – the number of independent sponsor deals they have done? What economics they have provided sponsors before? What are their criteria for fundless sponsor deals? How do they view your role following transaction closes? Based on their responses, you are able to decide if they really need to work with you…
3. They Provide More than Just Debt or Equity Capital
A great funding partner brings more to your table versus the capital to shut your deal.
The best funding sources are strategic – they’ll enable growth by funding add-on acquisitions; they’ve got helpful industry connections; they’ve already insight on suggestions to grow an organization.
As a smart investment bank focused exclusively on raising debt and equity capital for independent sponsors, we’ve spent years building relationships with capital providers and know which funding sources would be the most complementary a variety of types of deals and sponsors. Fit matters in a very partnership.