Traditional, Self Funded & Independent Sponsor definitions

I've been seeing in various places LPs that only invest in one vertical mix these things up so I thought I'd put some definitions out there for those that weren't clear. Traditional Searcher/CEO in residence gets upfront cash/salary for search and then gets 25% of target equity split 8.33% immediate, 8.33% vesting over time and 8.33% on a sale/liquidity event. In addition to the last third being conditioned on a liquidity event there is often a performance hurdle as well. They also typically get a salary in the $150,###-###-#### ,000 range. They will always be the CEO post-acquisition. Typically deals between 2-5mm in EBITDA Self-Funded Searcher funds the deal from savings or a job. No investor: Typically, they will get SBA funding and 100% of the equity by coming up with 10% of the down payment and having additional post close liquidity. With a post LOI Investor: Typically, they will either not put up any money or very little to satisfy the lender and their investor(s) will put up the rest. They will offer a 1.5-2x step up and structure the investor equity as preferred shares with a hurdle before getting distributions on shares not related to their own equity contribution. They will nearly always be the CEO post-acquisition. Salaries are all over the place. Typically deals below 1.5mm in EBITDA Independent Sponsor funds the deal from savings or a job (normally for the first deal), or through fees from management fees from a previous or ongoing portfolio investment (when they have several successful deals). They act more like traditional private equity investors, but on a deal-by-deal basis. Always has a post LOI investor but does not raise a committed fund though they may have investors lined up pre-LOI. Typically, they will either not put up any money or very little to satisfy the lender and their investor(s) will put up the rest. They will rarely be the CEO post-acquisition. No salary unless it's for a board seat, the IS as a firm will charge the LP a management fee. The IS will also typically have three characteristics that differentiate them from a traditional or self-funded searcher. 1. Closing fee: They will have a success fee typically 2-5% of the deal (larger % for smaller deals and smaller % for larger deals), usually a combination of cash and equity with equity making up more than 50% of the fee 2. Ongoing management fee: Typically, the IS will charge between 4-5% of annual EBITDA on a monthly, quarterly or annual basis to manage the company. This management or oversite will take the form of a board seat, recruiting management, coming up with KPIs and strategy but not actively running the business 3. Carry/Promote: In addition to any equity they put into the deal they will take a 20-30% promote payable at sale/liquidation event after all investors hurdles have been hit. They may also have a "catch-up" provision that allows them excess returns as well after hurdle has been hit. Typically deals between 3-10mm in EBITDA using LMM/SBIC, conventional institutional capital Obviously people mix and match specific deal terms and structures but these are the most common in each category.