An independent sponsor, or fundless sponsor, is a type of capital group or individual seeking acquisition candidates without having the equity financing required to complete the transaction up front (hence, they are “fundless”). Independent sponsors are usually ex-M&A professionals (investment bankers or private equity experts) who desire equity ownership in a business and/or would like to be more involved in the operations and growth of an organization.
Independent sponsor groups often possess extensive experience with middle market transactions, management teams, and mid-sized organizations; and can serve as valuable advisors to complement the acquisition and operations of the organization. However, in order to complete a transaction, they need a strong financing partner such as a private equity group, family office or high net worth individual. For their valuable services, independent sponsors may typically receive a closing fee, equity stake and ongoing management fee as compensation.