The Capital Stack for Independent Sponsors: Best Practices, Norms, and Considerations
- Jim Burke
- Oct 2
- 12 min read
Independent Sponsors source lower middle market private equity acquisition targets and raise capital on a deal-by-deal basis. Without committed capital, they rely on building compelling stories, sourcing aligned investors, and structuring deals that balance equity and debt.
The structure and capital stack of the deal is as important as the deal itself when raising capital and getting capital providers onboard. The deal structure and economics also determine how much (or how little) the sponsors stand to make. Needless to say, these are the important details that persist for the lifetime of the deal.
To unpack what a "typical" (or rather "illustrative") capital stack looks like for Independent Sponsors, I sat down with Drew Brantley from Frisch Capital Partners, a seasoned placement agent who has been raising equity and debt for Independent Sponsors for nearly three decades.
What follows is a breakdown of our conversation—organized into key themes of deal structure, equity, debt, service providers, and economics- enhanced with data from both the 2024 McGuireWoods and 2025 Citrin Cooperman Independent Sponsor reports.
The Three-Legged Stool: Deal, Sponsor, Thesis
When capital providers evaluate an independent sponsor-led deal, three elements matter most: the deal, the sponsor, and the thesis.
"When we're looking at a deal, the deal, the Independent Sponsor, and the thesis are the three legs of the stool. These three legs of the stool have to come together to be a compelling story that we believe capital providers are gonna buy into." - Drew Brantley, Frisch Capital
The three legs of the stool:
The Deal – The business must stand on its own merits: revenue mix, customers, markets, model, and financials. The transaction structure and valuation must also be within reason.
"It could be a nice business, but if they're buying it at 15 times EBITDA, and others are trading at six times, that's too much. Overpaying, for instance, can kill a deal before it starts."Â - Drew Brantley, Frisch Capital
According to the 2024 McGuireWoods Deal Survey, the pricing of most independent sponsor transactions reflects reasonable multiples, with 68% of deals closing between 4x-7.99x EBITDA. However, there's been an increase in deals closing at higher multiples (7x-10x) compared to previous years, reflecting independent sponsors' expanding reach into more contested auction processes.
The Independent Sponsor – Beyond sourcing the deal, sponsors must bring a value-add. This could include operating or C-suite experience, industry or vertical expertise, or prior transaction experience.
The Thesis – What happens after acquisition? The plan for growth, value creation, and execution matters. It doesn't need to be perfect but must show thoughtful consideration.
"We like to see that an independent sponsor has put pen to paper on why this business, where to take it, and why they are the right buyer."Â - Drew Brantley, Frisch Capital
Each leg is equally important to the story, though evaluation often begins with the company itself, followed by the sponsor, and then the thesis.
Deal Size
Independent Sponsor Transactions
Target EBITDA range: Generally $3M+
Deal size: Often $15M to $100M+ in enterprise value
Debt financing: Traditional bank loans, mezzanine debt, or SBIC funding (50-60% of capital structure)
Equity requirement: Higher absolute equity needs ($5M to $50M+)
Capital sources: Institutional investors, private equity firms, and larger family offices
"We are typically working on deals that are between $3M and $20M of EBITDA. It's kind of the majority of the size range that we tend to play in."Â - Drew Brantley, Frisch Capital
79% of Independent Sponsor respondents in the 2025 Citrin Cooperman survey are investing in or targeting companies with EBITDA of $2 million to under $5 million, with 64% targeting the $5 million to under $10 million range.
"It's not surprising to me that 79% of Report respondents are targeting deals with EBITDA in the $2 to $5 million range because that's the most inefficient part of the private equity market. Once EBITDA is above $5 million, it attracts more competition from traditional private equity funds, and therefore it may be harder for an independent sponsor to win the deal."Â - Richard Baum, Consumer Growth Partners
The 2024 McGuireWoods survey further confirms this sweet spot, with more than 75% of transactions involving target companies with enterprise values between $10 million and $75 million. Notably, deals exceeding $100 million in enterprise value now represent more than 10% of transactions—a 50% increase from the prior survey—reflecting the growing prominence of the independent sponsor segment.
Independent Sponsors Capital Stack
Illustrative $10M Deal Economics:
Capital Stack
✅ $6M equity
~$300K from Independent Sponsor
$5.7M from Capital Providers
✅ $4M debt
Fees
✅ Closing Fee = 2% fee on EV (Typically, clients are rolling all or a portion of the fee back into the deal for equity)
✅ Management Fee = 5% on EBITDA (Depending on the equity investors, sometimes the fee is shared)
✅ The Promote (Carry) = 10-30%+ of upside with a few hurdles:
0%: until investors receive full capital back
10%: 1.5 MOIC
15%: 2 MOIC
20%: 2.5 MOIC
25%-30%: 3.5 MOIC
The McGuireWoods data shows that management fees based on 5% of TTM EBITDA have become the default choice, with 72% of EBITDA-based structures falling in the 5-5.99% range.
Closing & Advisory Fees
Independent Sponsors often negotiate closing fees, management fees, and a promote (carried interest) on a per-deal basis. If structured well, this model can be incredibly lucrative. If structured poorly, congratulations—you just spent six months working for free.
The most common fees for Independent Sponsors are:
Closing Fee (Transaction Fee)Â = 1-5% of the deal size paid at close
Management Fee (Advisory Fee)Â = 2-5% of revenue or EBITDA (if you're operating the company)
Exit Fee = 1-2% of total proceeds when the asset is sold
Recent data from the 2025 Citrin Cooperman report shows fee standardization continuing. 82% of Independent Sponsors now use a percentage of transaction value to calculate closing fees, with 56% using 2% of transaction value. As dollar amounts, closing fees most commonly fall in the $251,000 to $500,000 range for 42% of respondents, with 28% receiving fees over $500,000.
For management fees, 51% calculate fees as a percentage of EBITDA with a floor and cap, with 69% using 5% of EBITDA when using this calculation method. As dollar amounts, 54% of respondents typically receive management fees between $251,000 to $500,000. If you aren't operating the company post close and merely advising, an alternative to a Management Fee is earning a Monitoring Fee. This is less common and usually amounts to a few hundred thousand per year.
The Promote (Carried Interest)
Promote is where a sponsor makes money. Carry often kicks in after hitting a predetermined hurdle threshold MOIC or sometimes IRR hurdle.
According to the 2024 McGuireWoods survey, over 71% of transactions use a variable-with-hurdles model for carried interest, representing a 10-point increase from 61% in the prior survey. This illustrates the continued shift to a true "Independent Sponsor model" of economics.
The survey reveals that MOIC is the most common hurdle measure at 54%, though hybrid models combining MOIC and IRR have jumped to 34% of deals, providing greater protection to capital partners in longer hold scenarios.
The 2025 Citrin Cooperman report shows a 6 percentage point increase in hybrid models over the past six years further confirming this trend - accounting for 16% of deals in 2019 to 22% in 2025.
Key Detail - Hurdles are usually MOIC not IRR based. Hybrid models are on the rise.
"We mostly see MOIC. If it has an IRR component to it, it's simply there to protect the equity investor because of the time value dynamic." - Drew Brantley, Frisch Capital
Some equity investors will make sure there is an IRR hurdle, because they don't want to hold the deal for 15+ years to make only three times their money.
Standard Private Equity Promote (Less common for Independent Sponsors)
✅ The Promote (Carry) =
8% preferred return
Carry kicks in after 1.5–2x MOIC
80/20 or 90/10 carry split (may step up)
"There's two main ways that promotes are structured. One is an 80/20 split after an 8% preferred return. That's what a typical private equity fund gets. A small minority of Sponsors get that type of structure. Most Independent Sponsor deals are a tiered or hurdle based structure." - Drew Brantley, Frisch Capital
Independent Sponsor Promote
The McGuireWoods data shows that independent sponsors are earning significant top-end economics, with 35% achieving 25% carried interest and 21% reaching 30% at the highest hurdles for MOIC-based deals.
The 2025 Citrin Cooperman report also provides detailed benchmarking on carried interest structures. For minimum carried interest, 32% of respondents achieve 10-14.9%, 24% achieve 15-19.9%, and 29% achieve 20-24.9%.
However, maximum carried interest rates have increased significantly, with 64% of respondents now obtaining 25% or more carried interest at the highest hurdles, up from just 37% of respondents in 2019. Between 2019 and 2025, carried interest structures have shifted markedly in favor of Sponsors, with maximum carry rates of 25%+ nearly doubling from 37% to 64% of respondents, while MOIC has overtaken IRR as the dominant hurdle basis and nearly three-quarters now employ full catch-up provisions.
Independent Sponsor Contribution - Skin in the Game
A typical contribution is 5% with a range of 2%-20% of the equity. Equity contribution is sometimes lower, even low six figures, but always a meaningful amount for the Sponsor to show they have skin in the game.
The 2025 Citrin Cooperman report provides insights into typical equity contributions. 72% of Independent Sponsors are required to contribute equity by their capital providers, with 86% contributing their own funds when required to contribute capital.
Capital providers expect sponsors to have skin in the game, whether through personal capital or funds raised from friends and family. That can be personal capital, backing from a family office or HNWI or pooled capital from accredited investors, friends, family, colleagues etc.
"You just need something. It helps capital providers feel warm and fuzzy at night. Not that it's gonna go sideways, but if it were to, the feeling is that somebody else is gonna feel the pain besides them."Â - Drew Brantley, Frisch Capital
Rolling Fees
It's very common for Independent Sponsors to roll their Closing Fee into equity as part of their equity contribution. The McGuireWoods survey found that 53% of Independent Sponsors rolled 100% of their due diligence fees into equity, with 71% rolling at least 75% of the fee.
Similarly, the 2025 Citrin Cooperman report found that 56% of Independent Sponsors roll their closing fees into equity, though a smaller percentage—42%—roll their fees in full.
This alignment across both surveys underscores how fee-rolling has become a standard way for sponsors to demonstrate skin in the game or bolster their equity while preserving cash for other uses.
Raising Capital
Independent Sponsors are best served involving capital-raising partners early.
"We love to get involved two to four weeks before LOI. That way we can be a second set of eyes on terms and structure, and also make the capital raise efficient. If we're brought in too late, parallel processes create inefficiency and risk." - Drew Brantley, Frisch Capital
The capital provider landscape for Independent Sponsors shows both diversity and clear preferences. The 2024 McGuireWoods survey reveals a diverse ecosystem of capital providers, with family offices leading as the most common lead investor at 27%, followed by mezzanine/equity funds at 25% and private equity funds at 19%.
This leadership role of family offices is further confirmed by the 2025 Citrin Cooperman report, which found that family offices remain the dominant capital source overall, cited by 62% of Independent Sponsor respondents. The Citrin Cooperman data reveals the broader capital ecosystem, with high-net-worth individuals (HNWIs) 55%, SBIC funds 53%, and mezzanine funds that co-invest 45% rounding out the top sources.
Notably, the report shows significant shifts in capital source preferences over time, including a 19-percentage point increase in SBIC popularity over the past three years.
Fundraising Strategy
Sponsors should also lead with a clear, thought-out thesis rather than a scattershot approach. Sending four CIMs (Confidential Information Memorandum) and asking "which one do you like?" rarely works. Instead, articulate why this deal, why this sector, and why you are the right buyer.
Raising capital requires significant time and effort. A best practice is to engage capital providers post LOI. Capital Providers require three to four weeks to be able to run through a proper process. They need time to meet the management team, assess the market, customer base and do their due diligence. According to the McGuireWoods survey, the large majority of transactions (70%) involve only 1-3 Institutional capital providers.
Lead investors dictate many terms, including equity vs. debt mix and minimum/maximum check sizes. They set the rules of the road so getting a feel for the deal and the economics by speaking to a lot of different capital providers is crucial.
For this reason, many Independent Sponsors choose to work with placement agents. The best time to engage an advisor is two to four weeks before the LOI in place. This allows the advisor to align on strategy and strengthen your pitch when you begin engaging capital providers.
"Raising the capital, going to find the capital takes a lot of energy and effort. You have to kiss a lot of frogs to find the right ones. We help take that heavy lift off Sponsors shoulders so they can focus on due diligence, managing the seller, their pipeline, or even just having time for family." - Drew Brantley, Frisch Capital
Experienced advisors can anticipate what ranges of leverage a deal can support, but ultimately, providers set the terms.
"We've been doing this long enough that we can look at a deal and say, based on the industry, revenue mix, and markets, we think it can sustain this range of leverage. But the capital providers are going to tell us." - Drew Brantley, Frisch Capital
Equity: The Starting Point
Typical Equity Contribution:
Investor Equity Contribution:Â 80-95%
Independent Sponsor Contribution: 5-20%
Raising equity is the cornerstone of the capital stack. Debt follows equity, not the other way around.
"Ultimately, it's fine to go get leverage reads. You can do that all day long, but a lender's only gonna do so much work before you get the equity." - Drew Brantley, Frisch Capital
"When we're raising capital for an Independent Sponsor deal, we always lead with the equity. Candidly, the equity always takes longer than the debt does. GPs get misguided sometimes, but you always want to start with the equity amount." - Drew Brantley, Frisch Capital
The equity universe is wide: family offices, institutional capital providers, Private Equity firms, SBICs, hedge funds, holding companies, and beyond. The filter is simple: do they work with Independent Sponsors, offer reasonable economics, and close in a timely fashion (around 90 days)?
"We bring in competition to give our clients choice so that they can pick their partner, pick the capital structure, the terms, and get better economics, and provide certainty of close. Do not confuse interest with certainty of close." - Drew Brantley, Frisch Capital
Certainty of close is critical. Many sponsors confuse a capital provider's "interest" with real commitment, only to be burned 60 days later when the group walks away at committee stage.
Debt: Beyond Just the Cheapest Option
Selecting debt is not only about finding the lowest rate. Flexibility and alignment with the growth thesis are often more important, structured based on the company's industry, revenue mix, and growth trajectory. Drew warned against obsessing over the cheapest interest rate:
"Don't get focused on interest rate. The knife always cuts both ways. If you get cheap debt, that means you're gonna have more restrictive covenants. " - Drew Brantley, Frisch Capital
Senior bank debt offers attractive rates—typically around 4%—but covenant violations can quickly turn cheap capital into an existential threat. Bust a covenant during a slow quarter, and banks show zero patience. They can tighten controls: constant oversight, cash flow sweeps, and even seizure of receivables. If the situation deteriorates, they could escalate to a workout group—one step away from taking the business entirely. A single covenant breach, even temporary, can put the deal at risk.
For buy-and-build strategies or rapidly growing businesses, flexibility often matters more than cost. Independent Sponsors must weigh cost savings against operational constraints and execution risk.
Independent Sponsors structure debt through four primary sources, each serving distinct roles based on cost, terms, and risk profile:
Commercial Banks
Traditional lenders provide the lowest-cost debt at 3-5% through term loans, revolving credit facilities, cash flow loans, and asset-based loans. However, senior bank debt imposes strict covenant requirements with minimal tolerance for breaches.
SBIC Funds
Small Business Investment Companies leverage SBA-guaranteed loans to offer flexible financing at typical rates of 12-14% through debt or mezzanine financing. They often step in on smaller deals where traditional banks are less active.
Private Credit
Private lenders (a wide array of non-banking financing sources) offer the advantages of custom solutions and speed—typically faster than banks or SBIC lenders. Private lenders provide unitranche loans, subordinated debt, and direct lending facilities at higher costs but with greater flexibility and fewer covenant restrictions than traditional bank financing.
Mezzanine Debt
According to the National Center for the Middle Market, mezzanine debt bridges the gap between senior debt and equity with typical rates of 10-14% plus equity warrants, playing an increasingly central role when other sources alone cannot complete the capital stack.
The right debt stack depends on the thesis, the company's cash flow, and the business model.
Final Thoughts
Independent Sponsor deals are complex and dynamic but deal terms are finally converging and some best practices and norms are beginning to define the 'Independent Sponsor model'.
Success depends not just on sourcing attractive companies, but also on structuring capital stacks that align equity and debt thoughtfully, while ensuring economic reward to sponsors for performance.
As Drew summed it up:
"At the end of the day, the deal, the Independent Sponsor, and the thesis have to come together. That's the story capital providers are going to buy into."
Independent Sponsors face unique challenges in building the capital stack for each deal-by-deal transaction. Success requires thoughtful equity and debt structuring, credible theses, alignment with capital providers that understand the nuances. With the right approach, sponsors can navigate complexity, raise capital efficiently, and build enduring partnerships.
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