If your family’s capital is starting to pass into your hands, you may be the person asked to evaluate sponsors. Families often expect a next-generation steward to bring discipline, not just enthusiasm. This is a practical process for reviewing a sponsor before any family capital moves.
Start with the people. Find out who runs the deal, how long the principals have worked together, and what they have done under their own names. Check public records and regulatory filings for the individuals and the firm. Ask for references from past investors, and include some you did not choose yourself.
Verify the track record. Ask for a list of completed deals, the original projections, and the actual results. Ask how many deals were sold early, refinanced, or returned to investors before the planned exit. A sponsor who keeps clear records should have these numbers ready.
Check the alignment. Find out how much of the sponsor’s own capital is in the deal. Then look at how the sponsor is paid. Fees paid regardless of results are different from fees tied to performance, so read both carefully.
Read the structure. Ask how the offering is registered or exempt, and who is eligible to invest. Review the entity documents, the operating agreement, and the distribution waterfall. Have counsel review the documents before you commit.
Stress test the plan. Ask what happens if the sale is delayed, rents fall, or interest rates rise. A sponsor should be able to walk you through a downside case, not only the base plan.
Set the rules before the deal. Decide in advance how much capital the family will commit, who approves each decision, and how the reasons are written down. A written investment policy protects the family and gives you a clear standard to apply.
Communicate with the family. Share the sponsor’s reporting, the key risks, and your reasons for any decision. Good questions in a family meeting build trust, even when the answer is no.
Sponsor review is a discipline, not a one-time check. A sponsor who welcomes detailed questions is giving you the information you need to decide. Work with your family’s CPA and attorney on structure and tax before you commit.
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Review the sponsor’s people, track record, alignment of interests, fee structure, and offering structure. Stress test the plan with downside scenarios, and have counsel review the documents.
Completed deals, original projections, actual results, and how many deals were sold early, refinanced, or returned before the planned exit.
A written investment policy sets how much capital the family commits, who approves decisions, and how the reasons are recorded. It gives the family a clear standard to apply.