Independent Sponsors and QS... | Lippes Mathias LLP

Independent Sponsors and QSBS: Why Direct Deals Are Gaining Ground in Private Equity

May 25, 2026 | Corporate Blog

Why is the direct investing model transforming private equity?

Experienced deal makers are leaving PE/investment banking/consulting and launching their own independent sponsor firms.
Roughly 75% of independent sponsor model deals are in the lower middle market (LMM) with enterprise values of $10 million - $75 million.
These targeted LMM companies (often founder/family owned under $10 million EBITDA) are the sweet spot for most independent sponsor deals -> offering opportunities for outsized returns through professionalization and organic/strategic growth.
Success is based on finding attractive deals on a proprietary/semi-proprietary basis, coupled with the independent sponsor's own industry expertise (and/or that of their operating partner, CEO sourced for the opportunity, etc.).
Robust capital network of Small Business Investment Companies, family offices, Ultra-high-net-worth individuals, and high-net-worth individuals provides the capital for these deals. The ability to underwrite a specific deal is a huge attraction, alongside the alignment of interest created in the independent sponsor/investor waterfall.
The direct “deal by deal” structure also allows extensive flexibility, including deciding to structure as Qualified Small Business Stock (QSBS) -> and reap the extensive federal / state capital gains tax benefits.
Essential for the independent sponsor to choose the right trusted advisors (independent sponsor lawyers, accounting, etc.) familiar with independent sponsor deal structures and related nuances. Inquire as to the number of independent sponsor model deals they have closed, the depth of their team, the value prop they offer, etc.

Independent sponsor and private equity attorney John J. Koeppel's commentary on "Distinguishing Private Equity, Independent Sponsors, and Family Offices," June 16, 2025, Principium White Oak

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Related Team

John J. Koeppel
Partner | Executive Committee | Team Leader - Private Equity | Team Leader - Independent Sponsor