Fundless equity sponsors are the ultimate gamblers in the private equity universe. Sourcing and vetting deals without any committed capital, lining up financial sponsors on a deal-by-deal basis, and paying out of pocket for office space and due diligence, they roll the dice with each transaction.
“We have to make it work. Fundless sponsors live or die off of every single deal. We don’t have the luxury to not make sure every deal’s a winner,” says Jeffrey Muti, founder of Silverline Partners, a New York-based fundless buyout shop. Muti took out five home equity loans to write the $5 million check for his first fundless deal in 2005.
Despite the risks, interest in fundless deals has been growing. The method is sure to gain more appeal in a tight credit market, since fundless sponsors don’t face the pressures of having to put a large pool of money to work with the clock ticking on an investment period.
Michael Alcamo, president of boutique investment bank M.C. Alcamo & Co. Inc., puts the nationwide number of working fundless sponsors between 100 and 300, ranging from individuals to small firms.
On Sept. 19, Alcamo, a fundless sponsor himself, will serve as chairman of the fourth master class on the topic held by Capital Roundtable, an educational conference company devoted to private equity. The session will be held in Manhattan and features 20 speakers who’ve been operating in the fundless realm.
The challenge of doing fundless deals attracts scrappy buyout pros who prefer the autonomy of working alone or want to build a track record to raise their own fund in the future, said Burt Alimansky, chairman of the Capital Roundtable. But the road is a hard one. “Many are called and few are chosen,” said Alimansky, managing partner of Alimansky & Bethell Group, a fundless buyout firm.