Gregory Hawver

of the private equity ecosystem, there's another type of investor called a search funder, or it's also called entrepreneurship through acquisition. That's another niche and a popular model, but that is different from an independent sponsor because those searchers, as they're called, they're typically right out of business school, super bright. They're usually from, you know,

of the private equity ecosystem, there's another type of investor called a search funder, or it's also called entrepreneurship through acquisition. That's another niche and a popular model, but that is different from an independent sponsor because those searchers, as they're called, they're typically right out of business school, super bright. They're usually from, you know,

MIT or Kellogg or one of the top schools, and they are getting what they do is they graduate, they find investors to invest with them as you know, a super impressive MBA student, and then they go out and search for a deal for 18 months. So we do draw a distinction between sort of that class of investors, which can be successful.

MIT or Kellogg or one of the top schools, and they are getting what they do is they graduate, they find investors to invest with them as you know, a super impressive MBA student, and then they go out and search for a deal for 18 months. So we do draw a distinction between sort of that class of investors, which can be successful.

And again, the independent sponsors, usually super experienced and someone that you can trust to run an investment for you.

And again, the independent sponsors, usually super experienced and someone that you can trust to run an investment for you.

Yeah, we're seeing that evolve. The the typical independent sponsor model, it kind of breaks down. Maybe we'll just go to economics real quick. So a typical independent sponsor economics, what they get in a transaction is essentially three pillars. We call them sometimes the first pillar.

Yeah, we're seeing that evolve. The the typical independent sponsor model, it kind of breaks down. Maybe we'll just go to economics real quick. So a typical independent sponsor economics, what they get in a transaction is essentially three pillars. We call them sometimes the first pillar.

is a management fee, which is usually like a percentage of earnings or EBITDA of the company, sometimes usually 5%. So that's sort of for their ongoing efforts for running the company. So they're getting a management fee. They're also getting some form of closing economics. You got to be careful from a regulatory perspective, but that's maybe 1% to 2% of the purchase price.

is a management fee, which is usually like a percentage of earnings or EBITDA of the company, sometimes usually 5%. So that's sort of for their ongoing efforts for running the company. So they're getting a management fee. They're also getting some form of closing economics. You got to be careful from a regulatory perspective, but that's maybe 1% to 2% of the purchase price.

And then there's a carried interest or promote, which is the most important part of the economics. So after you reach several hurdles, the independent sponsor is sharing in the upside of the business. So to answer your question, what are independent sponsors putting into the deals? They are most always putting in those closing fees. So they're taking that 1% to 2% of economics.

And then there's a carried interest or promote, which is the most important part of the economics. So after you reach several hurdles, the independent sponsor is sharing in the upside of the business. So to answer your question, what are independent sponsors putting into the deals? They are most always putting in those closing fees. So they're taking that 1% to 2% of economics.

And instead of putting that in the form of cash in their pocket, they're investing that into the business in some form or another. And that's sort of the typical model. What we're seeing evolve is some sort of smaller family offices saying, I want to... If the acquisition requires $10 million of equity capital, maybe we want to put in $3 million.

And instead of putting that in the form of cash in their pocket, they're investing that into the business in some form or another. And that's sort of the typical model. What we're seeing evolve is some sort of smaller family offices saying, I want to... If the acquisition requires $10 million of equity capital, maybe we want to put in $3 million.

And maybe with respect to the other $7 million, we want to use the independent sponsor model and earn economics from our LPs, but we're going to put in real economics. So it varies, but that's what I'm seeing in the market, Scott.

And maybe with respect to the other $7 million, we want to use the independent sponsor model and earn economics from our LPs, but we're going to put in real economics. So it varies, but that's what I'm seeing in the market, Scott.

Yeah. Yeah. Good question. And also talk about kind of the deals that are successful. A successful independent sponsor is someone who, as I said, is experienced, not just generally, but typically within the sector that they're hunting for deals in. So I'll use the widget sector, but someone who has bought and sold companies in that space for years and years.

Yeah. Yeah. Good question. And also talk about kind of the deals that are successful. A successful independent sponsor is someone who, as I said, is experienced, not just generally, but typically within the sector that they're hunting for deals in. So I'll use the widget sector, but someone who has bought and sold companies in that space for years and years.

And they're typically, Scott, finding deals that are not widely shopped. So independent sponsors are not very successful candidly in big auction processes that are run by blue chip investment banks that are just finding the highest bidder for a company. Independent sponsors are really out there forming relationships with founders and that way they're able to find these proprietary deals.

And they're typically, Scott, finding deals that are not widely shopped. So independent sponsors are not very successful candidly in big auction processes that are run by blue chip investment banks that are just finding the highest bidder for a company. Independent sponsors are really out there forming relationships with founders and that way they're able to find these proprietary deals.