Insights from a recent interview with Doug Bunim of OFS Capital Management.
By Lou Sokolovskiy
To the uninitiated, the world of independent sponsors brims with opportunity. Identify a target company, win over the seller, run some numbers, charm a few capital providers—and voilà, a deal is born. But the reality, as many nascent sponsors discover, is far less tidy. The timeline to a first successful transaction can stretch well beyond a year, often edging toward two. For many, the hoped-for celebratory dinner remains stubbornly hypothetical.
There are reasons for the delay. The market, though expanding, is competitive. Roughly 1400 independent sponsors are active in the United States. Yet few close deals quickly, and fewer still do so profitably—at least the first time around.
Why Credibility Matters More Than Economics
Doug Bunim of OFS Capital Management, a veteran in the field and long-time capital partner to independent sponsors, offers a dose of seasoned pragmatism. In a recent conversation with Opus Connect, Bunim warned that too many new entrants view their inaugural transaction as a potential financial windfall. This, he says, is a mistake. “The first deal isn’t about economics,” Bunim argues. “It’s about credibility.”
Much like the inaugural fund of a private equity firm, the first deal serves as proof of concept. With no established track record, the sponsor’s role is to demonstrate viability—not to extract maximum value. Indeed, over 60% of independent sponsor deals use a “variable-with-hurdles” model, according to a McGuireWoods study, where compensation hinges on longer-term metrics such as internal rate of return (IRR) or multiple on invested capital (MOIC).
The implications are clear: sponsors must temper expectations and recalibrate incentives. Many early deals come with modest management fees—typically 5% of trailing EBITDA, with hard caps often below $1m. The real payday, Bunim notes, lies in future transactions built on a successful precedent.
The Importance of Skin in the Game
More crucial than structure is skin in the game, a point also emphasized by Scott Porter of Brightwood Capital Advisors. Rolling the deal fee into equity is no longer enough. Capital providers now expect a tangible personal commitment—however modest in absolute terms. “[You] have to put something in that is meaningful to you,” Bunim stresses, even if not meaningful to the deal itself. Such contributions change the dynamic of negotiations and send the right signals to investors
Curiously, one underexplored source of such capital is the sponsor’s own network—friends, family, and other close relations. While potentially awkward, these contributions are disproportionately persuasive. “That’s real skin in the game when it’s friends and family, and people recognize that you’re going to do everything. Everything you can to try and make this deal work and return capital to everyone.”
Present Like an Institutional Sponsor
Presentation, too, matters. Rather than forwarding a raw confidential information memorandum (CIM) or link to a data room, sponsors are advised to behave like proper institutional actors: produce a short memo, articulate diligence plans, and flag open questions. Simulate an investment committee process. A polished deck does more than impress—it reassures. “Focus on making it look like you’re a real sponsor [with] an IC committee,” Bunim urges.
Finding capital partners is another friction point. Placement agents may help—but at the cost of sponsor economics. Private equity firms might co-invest, but that often means sharing control. Even “one-stop” funds that offer the full capital structure, Bunim says, are worth negotiating with: “Never hurts to ask” whether they will share deal expenses. This is especially relevant in the lower mid-market, where sponsors often shoulder more of the broken-deal costs.
Soft Commitments Aren’t Real Until They Close
And then there are the ever-elusive soft commitments. New sponsors often take early enthusiasm from capital providers at face value—an error. A pledge of interest, however heartfelt, is not a wire transfer. “It’s like soft-circling in a traditional fundraise,” Bunim cautions. “It isn’t real until it closes.” Capital providers may vanish into new mandates, dislike your sector, or simply go quiet. The prudent sponsor builds redundancies, expands their network, and avoids placing too much faith in a shortlist of initial allies.
The Foundation for Future Success
For the independent sponsor, the path to a first successful deal is more marathon than sprint. Building trust, proving competence, and risking personal capital are prerequisites to entering the club. The economics may be thin at first, but the foundation laid through that initial transaction is what enables future success. In a maturing market, credibility remains the most valuable currency of all.
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July 2025
