"Financial Sponsors" include private equity firms, growth investors, venture capital firms, family offices, and other organizations that invest in privately held businesses.

Financial Sponsors invest capital in operating companies (called portfolio companies) with the goal of generating financial returns over a defined period of time.

Most Financial Sponsors have full control of their companies owning the majority of the common equity and exercise strategic guidance through the board of directors. Venture capital firms and some growth investors invest on a non-control basis through a minority position in their companies.

Capital invested by Financial Sponsors comes from a range of institutions such as pension funds and insurance companies as well as high-net-worth individuals. Most Financial Sponsors raise and deploy capital through a series of investment funds, with investors being limited partners in the funds.

“Finding the right executive talent to match up with current and contemplated portfolio companies is a very high priority for us. As investors, we can provide guidance and capital to our companies, but we need great executive partners to succeed.”

-- David Gorton, Partner at Tailwind Capital

Financial Sponsors Typically

  • Target companies based on the size of their investment fund, often putting approximately 10% of a fund into 10+ portfolio companies.
  • Leverage their industry sector, finance, and strategy expertise while partnering with operating executives with complementary skills and experience.
  • Target annual investment returns to their investors of 15% to 25%, though this target varies based on the nature of each deal.
  • Hold investments for three to five years, during which time they seek to significantly improve the operating and financial performance of the portfolio company.

Example Calculation Of Value Creation

At Acquisition At Exit $20 million $200 million $100 million $100 million 10x $50 million $600 million $200 million $400 million 12x EBITDA CFO drives profitability over the hold period Sale price is 3x purchase price Incremental debt used to fund growthinitiatives and add-on acquisitions Successful sale results in a 4x MOIC (Multipleof invested capital) and $300 milion of valuecreation Larger, better company commands a highervaluation multiple Valuation Multiple Enterprise Value Debt Equity Value

Private Equity Firm Structure

4 Partners/Managing Directors (MDs)4 Vice Presidents (VPs)4 Associates4 Back Office (GP) General Partner 0-5 Portcos Pre-Fund ~ 10 Portcos $250 Million Fund I ~ 10 Portcos Fund II $500 Million ~ 10 Portcos Fund III $750 Million

3-5 years between funds

Each fund has 10-40 Limited Partners (LPs) as investors:

  • Pension Funds
  • Insurance Companies
  • Family Offices
  • Wealthy Individuals
  • Endowments (Harvard, Yale, etc.)

Each GP will review 500+ investment opportunities per year:

  • Will Take 250 "Books"
  • Will Bid on 25-50 Deals
  • Will Meet with 15-25 Management Teams
  • Will Close on 1-2 Platform Deals Per Year