Independent Sponsor advice

I want to become an independent/fundless sponsor for a dental rollup. I'm currently on the sell side as a dental business broker, and I've been a dental operator in the past. I'm thinking my experience is lacking to raise a fund; however, I want to take down 5-20MM in EBITDA through a collection of offices, integrate them into a platform to then flip.

Any advice on making connections with LPs/Family offices to do this after I get LOIs on the offices?

Thanks, WSO, this is a great community!

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Comments (10)

Jul 29, 2018

I think you are right that it's going to be hard to get people to invest in a traditional fund, I think you might be selling yourself a bit short. I think it's definitely doable to go out and present your strategy to investors and get pledges for when you actually find deals that fit your strategy. I know quite a few people who went down that route (and none with a strategy as polished as yours). It's also pretty hard to get people to go down a sales discussion when you don't already have the capital lined up and having pledges really helps show you have the ability to close a deal.

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Jul 29, 2018

Thanks for posting mtnmmnn. That makes sense, I was going to get the pledges once I had it all packaged up, but I like your idea of doing it first. I might get some useful parameters to include in the LOIs. I bet I could get the LOI's without the pledges, but I know it will be more comfortable with them.

I was planning on just going through pitchbook and messaging many family offices and some select institutional investors that I know want more dental or healthcare. Any thoughts on other good strategies to get pledges? Any help is much appreciated!

Most Helpful
Jul 29, 2018

I think that targeting investors that have already shown appetite for similar investments is a great place to start, but ultimately, you can get a wide range of investors interested and the only way to know whether they are interested or not is to knock on their door. I haven't done this myself, but based on the group of people around me who have done it, I would suggest you approach:

  • The typical institutional PE investor. While your check size will be too small for the largest players, there are still tons of smaller pension funds, banks, asset management firms, insurance companies, etc that are investing in the LMM (or at least interested in the LMM). Some firms (including the larger ones) sometimes can have formal or informal allocation to startup managers. I see more and more PE professionals starting on their now by using the pledge model to fund 2-3 deals before raising their first fund so LPs are definitely more receptive to the model and many are willing to go way below their normal minimum check size to back a new manager
  • Family offices / PWM: Family offices for obvious reasons. I know people in my network had good luck raising pledges from wealthy entrepreneurs / executives they met through their wealth manager
  • Senior investment professionals: you would be surprised on how receptive senior PE guys are to backing similar strategies. Plus they obviously know tons of potential investors. Most won't see you as competition since they play in a different market. If there are any healthcare focused fund in your area, I would definitely try to talk to some of the partners.
  • Country clubs, investment clubs, etc: Again, pretty self explanatory.

Ultimately, the pledge model is really the best of both work for investors because it gives the investor an exposure to a higher return asset class (LMM PE), but without having to commit to a long lock-up in a fund where they don't have discretion and pay management fees until a deal is funded. I would however, make sure that investors are on the hook for dead deal costs and related expenses as those can run pretty high.

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Jul 29, 2018

Sterling partners fund blew up and now they have a few MDs/ VPs that started their own fund working medical and dental opportunities. They are currently doing this in Texas and might be of interest.

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Jul 30, 2018
Black Magic:

Sterling partners fund blew up and now they have a few MDs/ VPs that started their own fund working medical and dental opportunities. They are currently doing this in Texas and might be of interest.

Black Magic, can you PM the names of those guys if you know them. We have a good bid of Dental practices in Texas and that would be helpful on our sell side.

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Jul 30, 2018

PM'ed. my notifications aren't showing up sorry for the late reply.

Dec 21, 2018

What happened with Sterling?

Jul 30, 2018

Have you thought about approaching sponsors (equity and/or mezz) with the platform idea? If you piece the deal together, you can retain a substantial amount of equity and rely upon their fund resources and lender relationships.

Jul 30, 2018
Bullet-Tooth Tony:

Have you thought about approaching sponsors (equity and/or mezz) with the platform idea? If you piece the deal together, you can retain a substantial amount of equity and rely upon their fund resources and lender relationships.

I've thought about Mezz, but I'm assuming PE would want at least half the carry. I'm planning on sharing a good bit with the team I put together so not very appetizing for me. However, I open to it if the LP pledge route does not work.

With Mezz, I'm wanting to line up a bunch of practices but they won't close all at once. So the first few transactions, I won't have over 2MM in EBITDA. I've heard you need at least 2MM EBITDA and 10MM in revenue for Mezz.

    • 1
Jul 30, 2018