I spent several years at a software and technology focused independent sponsor after starting my career in investment banking, working across sourcing, diligence, fundraising, deal execution, and portfolio company work.
Happy to answer questions about how the independent sponsor model actually works, raising capital deal-by-deal, compensation and carry, working on a lean team, career development, and the pros and cons versus traditional private equity.
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Thank you for this. A couple questions:
- What level did you enter in and how did the promotion cycle work?
- How many deal professionals did/does your firm have and how has it scaled?
- What were/are your primarily sourcing tactics?
- Compensation and carry mechanics?
Thank you in advance OP.
Sure - see below:
What level did you enter in and how did the promotion cycle work?
Entered as Associate and left as Vice President. Promotions at the end of the year and follow normal cadence. In fact, founders of the independent sponsor spun out from an established PE firm (which is common) so a lot of overlap from traditional PE with hiring/back-office/comp.
How many deal professionals did/does your firm have and how has it scaled?
Four total, composed of 2 senior partners and 2 investment professionals (VP and Associate (me) when I started) with 2 contracted operating partners. We didn't scale which is the nature of the IS model; you basically do 1-2 deals a year and stay at steady state. If you want to scale, you typically go out to raise your first committed fund and leave the IS life behind. This is a very common way that a lot of first time funds got their start - track record proven as IS and then fundraise based on that result.
What were/are your primarily sourcing tactics?
Sourcing was primarily from boutique investment banks (smaller processes) and business brokers, with some proprietary deal flow as well (banker conferences, industry conferences, cold email/call, lawyers, accountants). We averaged 100 deals per year at top of funnel, down to about 4-6 LOIs.
Compensation and carry mechanics?
Lower compensation than traditional PE but still solid. Depends how far along the IS is with investing and fees generated thus far (which is a separate topic around deal fees/structure). Carry however was more than traditional PE (to compensate for lower salary/bonus)- and the pure beauty of being an IS is that you collect carry on a deal-by-deal basis; no waiting around for the fund to clear its hurdle. Each deal has its own hurdle so when you exit, you get paid carry immediately (should the investment be successful of course).
How often would you lose deals in competitive processes by nature of not having committed capital / needing to raise equity on a deal-by-deal basis?
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