Investing business level vs deal level. What am I missing?
Has anyone had experience as a sponsor where someone has invested at the business level and subsequently the deal level instead of just at the deal level?
I understand deal level but business level scares me and seems like more oversight and worse returns and being handcuffed? I'm sure they can help with growing the business and other aspects etc.
I do not have term sheets yet so I can't underwrite but talking to a couple groups and trying to understand what I'm missing.
Based on the most helpful WSO content, investing at the business level and deal level each have their own unique aspects and potential benefits.
When you invest at the business level, you're essentially buying into the entire operation of a company. This can provide a broader exposure to the company's performance and potential upside, but it also means you're taking on the full risk of the business. It can indeed involve more oversight, as you're not just looking at a single deal, but the entire business operation.
On the other hand, investing at the deal level means you're putting your money into a specific project or transaction. This can offer more focused returns and potentially less risk, as you're not exposed to the entire operation of the business. However, it also means you might miss out on broader growth opportunities within the company.
In terms of returns, it can vary greatly depending on the specific business or deal, and the market conditions. It's not necessarily that one is always better than the other, but rather it depends on the specifics of the situation.
As for feeling "handcuffed", this could be a concern if you're investing at the business level and the company isn't performing well. However, this can also be an opportunity to influence the direction of the company and potentially improve its performance.
In the end, it's all about doing your due diligence and understanding what you're getting into. Whether it's business level or deal level, each investment comes with its own set of risks and rewards.
Sources: Sponsor vs LP, Is this right for me? Lost in place, How to better understand businesses and articulate investment ideas?, From PE >> Startup >> Back to PE
Based on the most helpful WSO content, investing at the business level and deal level each have their own unique aspects and potential benefits.
When you invest at the business level, you're essentially buying into the company as a whole. This can provide you with a broader exposure to the company's operations and potential upside from all its deals. However, it also means you're exposed to the overall risk of the business. This could be a good option if you believe in the long-term strategy and management of the company.
On the other hand, investing at the deal level means you're investing in a specific project or transaction. This can provide more control and potentially higher returns if the deal goes well, but it also means you're taking on the specific risks associated with that deal. This could be a good option if you have a high conviction in a particular deal and are comfortable with the associated risks.
In terms of oversight, investing at the business level might indeed involve more oversight, as you're involved in the broader business operations. However, this could also provide more opportunities to influence the direction of the business and its strategy.
Ultimately, the choice between business level and deal level investing depends on your risk tolerance, investment goals, and confidence in the specific deal or overall business. It's always a good idea to thoroughly analyze the potential risks and returns of each option before making a decision.
Sources: Sponsor vs LP, How to better understand businesses and articulate investment ideas?, Is this right for me? Lost in place, From PE >> Startup >> Back to PE
What do you mean the "business level"? You mean like, invest in your GP entity?
I'm not personally familiar with someone doing this with a syndicator (I'm assuming that's what's happening here based on your description). Obviously Blackstone, Brookfield, etc. are all publicly traded companies and thus have hundreds of investors at the "business" level, but at that scale it makes sense from a liquidity perspective. Do you have a reason to sell a GP stake to someone investing in your deal? I guess if they have a ton of confidence in your ability and you are capital constrained to contribute GP equity on future deals it could make sense.
If you mean they invest at the fund level and then tack on additional equity on the deal level as a JV, then that would be less unusual and the rationale would typically be an additional equity requirement beyond the size of the fund's capital.
No this would be an investment at the parent company level, not a gp. They would fund subsequent deals but would have ownership and rights at the top.
Still confused by what you mean by "parent company" and "at the top". Do you mean they want to buy ownership in the entity that will be sourcing future deals, syndicating equity and putting in a small amount of equity themselves, finding debt, and operating the property, in exchange for an outsized piece of the returns? What I just described is the general partner in each deal, so you are saying they want to continue to invest in deals as a limited partner while also having a stake in the GP business.
To me that is strange but not outlandish, strange mainly because why would a GP want to give up a slice of promote to have a silent partner that doesn't provide any operational leverage and still invests in deals anyway. But like I said if you are syndicating and strapped for cash maybe you need a nut for the next deal and a roof over your head.
If I'm totally reading this wrong please try to give a bit more detail on what the ownership structure looks like here. When you say investing at the "business level" (to me) it either sounds like buying out an entire operating company (i.e. instead of buying 5 apartment buildings from ABC Apartments, buying the entire ABC Apartments corporate structure with leasing, prop management, SG&A functions, etc.), or something on the total opposite end of the spectrum where these guys want to invest in buying a commercial building and then also invest the tenant in place.
Business level investing reminds me of some old school Wood Partners level shit. Haven’t heard of that in a minute.
My firm used to do this but doesn't anymore - its a pain in the ass for real estate folks to be managing an operating company interest. We stick to forming programmatic property-level ventures now.
Amet saepe et architecto debitis distinctio repudiandae cum. Ipsa dolore neque explicabo enim. Amet voluptate molestiae eos eveniet.
Placeat explicabo quam asperiores sed omnis ea. Aliquam quis commodi earum illo vel. Aut iste quod laudantium omnis et. At praesentium sequi illum minima consequuntur molestias aut.
Rem a enim nemo officiis recusandae error. Dolorem fuga inventore similique deleniti sunt quia.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...