Independent sponsors raise capital deal-by-deal rather than from a blind pool. How deals are structured, how economics work, and what capital partners should expect.
Think of an independent sponsor deal like a restaurant that only opens when the chef finds the perfect ingredients. No ingredients, no restaurant. No deal, no fees. That is a very different incentive structure than the one charging you rent whether the tables are full or not.
I have sat across from capital allocators who had committed to traditional PE funds and spent 18 months watching management fees accrue before a single deal closed. Two percent annually on committed capital "to cover operations," which, I will tell you, works out very nicely for operations. The capital partners got quarterly letters. They got fee invoices. What they did not get, for a very long time, was a deal.
That is the comparison you should hold in your head when you evaluate the independent sponsor structure. Not as an attack on traditional PE. Just as context for what you are actually choosing between.
An independent sponsor sources, underwrites, and manages acquisitions without a committed capital fund. Instead of raising a blind pool and deploying it over five years, an independent sponsor brings capital partners to each specific transaction. The capital partner sees the deal, the company, the thesis, the diligence, the financial model, before committing capital. There is no "trust us, we'll find something good" step.
This is different from traditional PE in three ways that matter. Deal-level transparency: you know exactly what you are investing in before you wire funds. No management fee drag on undeployed capital. And specific company economics: your return is tied to the performance of a specific business, not a portfolio average that can hide a lot of interesting choices.
Berkman Woods acquires businesses primarily in the $2M to $10M enterprise value range, using SBA 7(a) financing as the primary debt instrument.
A representative deal structure: target company doing $5M in revenue with $1.2M EBITDA, purchase price $5.5M (4.6x EBITDA). SBA 7(a) debt of $4M on a 10-year fully amortizing term. Equity required of approximately $1.5M, covering the Berkman Woods deal fee and equity contribution. Capital partner equity of $1M to $1.3M, coming from a family office, institutional co-investor, or private credit fund.
For transactions where SBA leverage alone does not solve the full capital structure, typically deals above the SBA goodwill cap or where the business needs acquisition-related working capital, private credit bridges the gap. Typical mezz terms: 12 to 15% total return including a combination of cash interest and PIK, with warrant coverage of 1 to 3% of equity.
Deal fee at close: typically 2 to 4% of enterprise value, paid from deal proceeds at closing. This compensates the sponsor for sourcing, underwriting, and transaction management. You pay it once, when the deal closes. Not before.
Management fee during hold: modest, typically covering costs of ongoing oversight, reporting, and portfolio company support. Structured at the deal level, not on committed capital sitting idle.
Carried interest on exit: 20% of profits above a preferred return to capital partners. The preferred return, typically 8%, means capital partners receive a baseline return before the sponsor participates in carry. The sponsor generates meaningful carry only if the deal creates real value. That is the alignment you are buying when you work with an independent sponsor.
Deal sourcing. Where do the deals come from? Proprietary off-market flow built through direct owner relationships is more valuable than deals sourced exclusively from broker processes where 20 buyers are bidding and everyone is bidding the same number because they all see the same book.
Operating capability. Can the sponsor actually run or improve a business post-close, or are they financial professionals who rely on hired operators they met last month? In the lower middle market, operating capability is often the difference between a deal that compounds and one that calls you with problems.
Sector depth. A sponsor with genuine expertise in healthcare, specialty contracting, or professional services underwrites those businesses more accurately. Ask for specific examples. Not categories. Examples.
Track record. Prior deals, exits, realized returns, LP references. For newer sponsors, the quality of the deal thesis and the diligence process is the leading indicator. Sloppy diligence on a small deal becomes a very expensive education.
Reporting. Quarterly at minimum, with direct access to financial statements. If a sponsor is vague about what post-close reporting looks like, that vagueness is the answer.
The thesis is simple. Deal-by-deal selection gives capital partners something traditional funds cannot offer: the ability to choose what they invest in. You are not committing to a manager's judgment blind. You are evaluating specific opportunities and deploying capital where your conviction is high.
The lower middle market businesses that independent sponsors target, businesses in the $1M to $5M EBITDA range, often founder-owned, often not marketed to institutional buyers, have historically offered better entry multiples and stronger operational improvement potential than the larger buyout market. Less competition. More value creation runway. That combination does not last forever once everyone discovers it. But for now it is real.
Berkman Woods is an active independent sponsor acquiring businesses in healthcare, specialty contracting, professional services, and niche manufacturing in Texas and Oklahoma. We work with family offices, institutional co-investors, and private credit providers. If you want to understand our deal flow and how we structure these relationships, let's talk.
Related: Co-Investors · Family Offices · Institutional Investors
