By Lou Sokolovskiy
In the world of private lending and independent sponsor deals, success often hinges on more than just strong financials and market opportunity. This is a lesson that Scott Porter of Brightwood Capital Advisors, a firm with a long history of supporting the independent sponsor community, shared in a recent interview with Opus Connect. “Your skin in the game”, as he put it, matters perhaps more than you think.
This human element is becoming increasingly important in an industry where technical factors like expertise, equity support, capital structure, and regulatory risks once sufficed.
“Every deal is a partnership and the capital structure and the distribution of risk ought to reflect that,” said Porter.
Porter’s emphasis on “skin in the game” is backed by a major 2022 study by McGuireWoods, showing that nearly 60% of deals had sponsors putting more than half of their closing fees back into the deal as equity, sending a strong signal that everyone is equally committed to the deal’s success. The rest (42%) put in 100% and this was “the most common result.” (For more info, Look at the diagram below from McGuireWoods)
The Lender’s Perspective on Sponsor Commitment
But what does "skin in the game" look like from a lender's perspective exactly? It exists on a spectrum, Porter says. One end of the spectrum (less favorable from Brightwood's perspective) is represented by independent sponsors where the independent sponsor takes a fee and rolls it into the deal rather than contributing significant actual cash. It can feel like the independent sponsor is "playing your capital for option value," and Brightwood (as the capital provider) is holding the majority of the risk. This can occur when an independent sponsor does a lot of deals across a wide variety of industries and their involvement feels less focused or personally invested in any single one. Brightwood would be less excited to work with such a sponsor, Porter said.
The other end of the spectrum (more favorable from Brightwood's perspective) is represented by independent sponsors where the deal is perhaps their first deal, and they have "everything riding on this deal," meaning they are highly focused on its success and are really willing to invest heavily in it. Attract Capital, a New York-based lender, echoes Porter’s comments, saying that no-money-down deals are seen as “unserious” and rarely close, showing how valuable cash equity is to gain lender confidence.
Evaluating Sponsors in a Shifting Capital Landscape
Porter’s warning also comes at a time of a growing rise of direct lenders that challenge the dominance of traditional banks, as Opus Connect’s Atul Sehgal has written about here.
Porter says his company doesn't typically restrict an independent sponsor from pursuing other deals, but it assesses their approach to the market, looking at their history, industry experience (or lack thereof), and the nature of their capital commitment (cash vs. rolled fees). Brightwood is particularly interested in working with independent sponsors for whom "this needs to work”, essentially a do-or-die situation.
"If you're going to do five of these,” he said, “and... do sort of portfolio theory, well, we're not going to be as excited as being one... of your chips on the board there.”
What do you think? Should having ‘skin in the game’ be a deal breaker for lenders?
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June 2025
