Self-Funded Searcher Vs. Independent Sponsor

SELF-FUNDED SEARCHER VS. INDEPENDENT SPONSOR

As an attorney to Search Funds, Self-Funded Searchers, and Independent Sponsors I have noticed a blurring of the lines between Self-Funded Searchers and Independent Sponsors when it comes to sought after economics.  My team and I recently published an article which details the economics that an Independent Sponsor can expect.  I think that this could be a worthwhile read for any Self-Funded Searchers out there who like the idea of a carry/promote structure with performance hurdles better than common equity subject to vesting.  Please see a link to the article below:

https://www.mvalaw.com/news-publications-781.html 

John C. Gilson
Moore & Van Allen PLLC
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12 likes 278 views 16 comments

searcher Massachusetts Institute of Technology - MIT Sloan School of Management University of Lancaster Fachhochschule Reutlingen, Hochschule für Technik und Wirtschaft - 03/01/2021

Thanks, John! Interesting article!

like reply | 1 like

searcher University of Miami Augustana College - 03/01/2021

Would be nice to see this all in a simple side-by-side

professional University at Albany, State University of New York - School of Business - 03/22/2021

Paul - I really liked this suggestion and we are in the final stages of putting a simple side by side together. I will be sure to let you know once we post it.

like reply | 0 likes

searcher The University of Michigan - Stephen M. Ross School of Business Rice University - 03/01/2021

Awesome!

investor University of Virginia-Darden - Darden School of Business Davidson College - 03/01/2021

One of the best firms for self-funded searchers...hands down...

like reply | 3 likes

professional University at Albany, State University of New York - School of Business - 03/02/2021

Thanks, Dave!

investor University of Nebraska - Lincoln - 03/01/2021

Nice succinct work up on the typical economics of an independent sponsor deal. One does give up meaningful economics by choosing search model over independent sponsor model.

searcher - 03/02/2021

Thank you John. Valuable info.

searcher Carnegie Mellon University Harvard University - 03/02/2021

Thanks John. Great article.

searcher Stanford University London Business School - 03/02/2021

Thanks John. Very useful.

searcher The University of Chicago - Booth School of Business Davidson College - 03/02/2021

Independent Sponsor model looks good on a risk-adjusted basis, but also consider that (in my experience) nearly all investors will also require the Sponsor to co-invest "a meaningful sum" for incentive alignment. So one needs to factor that in. Also, in practice Independent Sponsors are not normally taking over the CEO role but are rather serving as board advisors or operating partners. The business of being an IS relies on generating a handful of deals and a track record as a sponsor, not as an operating executive. Again, all of this is just my firsthand experience but maybe others see it differently.

investor University of Nebraska - Lincoln - 03/02/2021

Patrick - good thoughts! The co-invest issue is workable and not a show-stopper. I just saw a deal with standard independent sponsor economics....independent sponsor raised 'friends and family' for his c0-invest contribution. LPs just want you committed and have some skin in the game, and they'll understand if your early/mid-career, especially if you have a quality opportunity.

100% agree. That said, this amount can often times be a de minimis amount of "skin in the game" and if the deal is right the investors will be very quick to drop this requirement.

searcher University of St. Gallen - 03/02/2021

Thanks for sharing. Does anyone have similar information for Europe?

searcher Harvard University - Harvard Business School Georgia Institute of Technology University of Florida - 03/22/2021

Hi John - seems like the link is broken now? Is it possible to refresh?

https://www.law360.com/articles[redacted]

I can also email you a pdf of the article if you'd like. Just send me your email address.

SELF-FUNDED SEARCHER VS. INDEPENDENT SPONSOR

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