Section III
Sponsor due diligence
Track record, co-investment, the fee stack, and the questions that end a call early.
In a passive investment the asset matters less than the person operating it, because you are buying their judgment for five to ten years and you cannot fire them easily. Sponsor diligence is the work of establishing what that person has actually done, what they are paid regardless of outcome, how much of their own money moves with yours, and what they do when a deal goes badly. Almost all of it can be done before a call: the securities filings are public, the litigation dockets are public, and the offering documents say what the fees are if you read past the summary. The rest is a conversation, and a prepared conversation is a different instrument from a friendly one. This section covers what to collect, where it lives, how to read it, and which answers are disqualifying.
All 11 articles in this section
- 01SponsorsPillarHow to Evaluate a Sponsor Before You WireIn a passive investment the operator matters more than the asset, because you are buying their judgment for years. Most of the work is documentary.
- 02SponsorsReading a Track Record: Full-Cycle Deals vs Deals Under ManagementA record of twelve deals with two completed exits is a record of two deals. The other ten are estimates produced by the person asking you for money.
- 03SponsorsSkin in the Game: How Much GP Co-Investment Is MeaningfulThe percentage of the raise is the wrong measure. What matters is the proportion of the sponsor's own net worth, and whether the money came from outside the deal.
- 04SponsorsSyndication Fees: What a Sponsor Earns Before You Earn AnythingSyndication fees one by one, the total a sponsor earns from a deal that only returns your capital, and how IRC 709 treats syndication costs for tax.
- 05SponsorsWhat Is an Acquisition Fee? The Base, the Math, and What to Compare It AgainstAcquisition fee definition: a one-time sponsor fee paid at closing out of investor equity. The base it is charged on can move the dollars more than the rate.
- 06SponsorsAsset Management Fees: A Percentage of What, ExactlyThe rate varies little between offerings. The base varies enormously, and it decides whether the fee keeps being paid while your equity is impaired.
- 07SponsorsTwelve Questions to Ask on a Sponsor CallQuestions with checkable answers, asked after the documentary work rather than instead of it. The purpose is to test a view you already hold.
- 08SponsorsRed Flags in a Syndication OfferingNot every warning sign is fraud. Most are ordinary carelessness, misaligned structure or pressure, and all are visible in documents beforehand.
- 09Sponsors"Guaranteed Returns" and Other Language That Should End the CallSome phrases describe something that cannot exist in a Regulation D offering. Others are merely imprecise. Knowing which is which is a diligence tool.
- 10SponsorsRegulatory and Litigation History: Where to Actually LookFour public databases, none of them connected to each other, each covering a different part of a sponsor's record. Together they take about an hour.
- 11SponsorsWhat Good Investor Reporting Looks LikeReporting is the only window a passive investor has into an asset they cannot inspect, cannot vote on and cannot sell. Most agreements require almost none of it.