The interview below is part of a series from McGuireWoods featuring impressive professionals in the independent sponsor space, as part of our ongoing commitment to the independent sponsor community. To recommend an independent sponsor for a future interview, email Jon Finger at jfinger@mcguirewoods.com.

Q: Why did you decide to become a capital provider to independent sponsors?

Michael Kornman (MK): As experienced independent sponsors, we recognized the significant untapped potential for investors that truly understood this space. While small business investment company funds, family offices, traditional private equity funds and institutional limited partners working directly with independent sponsors offer advantages, they each come with compromises.

We and our independent sponsor friends wanted equity investors that combined the strengths of these groups and focused exclusively on this market. This vision led to the creation of our firm, Align Collaborate. As an equity partner built specifically for the independent sponsor marketplace, we offer the benefits of working with various investor types without the associated drawbacks.

Grant Kornman (GK): Our key insight was that most investors in this space had never been customers of these capital markets. They often stumbled into investing with independent sponsors through tangential strategies, lacking a deep understanding of what independent sponsors truly needed.

We believe that we’ve created the equity solution for independent sponsors that we’ve always envisioned but couldn’t find. Our equity solution is expected to be a powerful new tool for independent sponsors to invest in promising companies. This approach enables us to build a robust investment portfolio, support talented sponsors and contribute to the growth of this exciting private equity segment.

Q: How long have you been operating as a capital provider to independent sponsors, and how long did it take to close your first deal?

GK: We believe that we have accomplished a remarkable amount in a short period. We launched at the October 2023 McGuireWoods Independent Sponsor Conference and closed our first investment in May 2024. This quick progress validates our belief and underscores the industry’s appetite for our specialized approach.

MK: We recently invested in a value-add distributor of supplies for the label printing industry, partnering with Valedor Partners and Acacia Advisors. The company we invested in exhibited strong core attributes, including robust profit margins, consistent growth and services for an industry with noncyclical demand drivers. Valedor and Acacia exemplified the strengths of independent sponsors. They structured the investment and built a productive partnership with the seller and management. We believe they have laid out a good plan to grow this company over the next few years, and we are excited to have a majority equity position in this investment.

GK: We’re thrilled to have completed our first deal. This milestone marks the beginning of our journey to build a strong portfolio by partnering with and supporting what we believe are best-in-class sponsors and exceptional companies.

MK: As an active investor in this marketplace, we aim to make three to four investments a year, with funding ranging from $10 million to $50 million of equity per investment. Our sweet spot falls between $10 million and $20 million. While we primarily focus on business-to-business products and services, we’re open to exploring consumer and healthcare opportunities when partnering with independent sponsors that bring specialized expertise in these sectors. This approach allows us to maintain our core focus while leveraging the unique insights of our partners in select diversified investments.

Q: Why do you think the independent sponsor model has grown so robustly, and what changes do you envision?

MK: We believe the independent sponsor model represents the future of private equity. This model attracts a diverse range of professionals: sector experts, former private equity professionals with institutional investment experience, ex-investment bankers with unique deal-sourcing strategies and former CEOs of successful businesses. The appeal lies in avoiding the 12 to 18 months it takes to raise a fund, eliminating pressure to deploy capital and allowing sponsors to focus on their passion — building great companies with a smaller, more focused portfolio.

GK: Our definition of “independent sponsor” is broad. It encompasses boutique private equity firms raising capital deal by deal, smaller family offices with programmatic investing strategies seeking additional capital for larger deals and funded sponsors pursuing investments on a deal-by-deal basis between funds. Given its numerous advantages, we anticipate many private equity firms will transition to this model after completing a few investments this way.

Q: How are you differentiating Align Collaborate from other capital investors in this space?

GK: We believe there are several qualities that make us unique in this space. Foremost, when we invest with an independent sponsor, they receive full attribution. This clarity is crucial if an independent sponsor ever decides to raise a fund, as there’s no ambiguity about who sponsored these investments and who executed the value creation strategy.

We understand that for independent sponsors, a fast “yes” is ideal, but a fast “no” also is valuable. We pride ourselves on our ability to move quickly, which is critical in the independent sponsor world. These deals often have challenging timelines, with only 60 to 90 days between signing a letter of intent and closing the transaction. We believe that many investors struggle with this pace. However, we’re set up to work within these compressed timeframes. If we’re brought in early enough, we can collaborate on due diligence and shoulder some of the pursuit costs, especially when we’re providing the majority of the capital.

Our flexibility is another key differentiator. We can provide anywhere from 25% to 100% of the equity needed for a deal depending on the size of the company. This range is particularly valuable for independent sponsors, as their universe of options often narrows quickly when considering factors such as company size, industry sector and check size. We aim to be a versatile partner that can adapt to various scenarios, making us a good fit for independent sponsors.

MK: While there are numerous debt providers in the market that can write significant equity checks, and others that only offer small equity investments, the strength of our model lies in our position as an equity-only investor. This approach ensures we’re aligned with the independent sponsor’s interests. It’s worth noting that there aren’t many investors that maintain an exclusive focus on this market while operating solely as equity investors. We believe this specialization allows us to offer a unique value proposition to our independent sponsor partners.

Q: What are the most common misconceptions about the independent sponsor model and capital providers to these sponsors?

MK: One common misconception is that independent sponsors choose this path because they can’t raise a fund. In reality, we think that many independent sponsors could be fund general partners but opt for the deal-by-deal model due to its better investor alignment and focus on their passion — helping inspired management teams build world-class businesses. Independent sponsors have become credible buyers and are incredibly skilled investors. Many are institutional-grade professionals who managed or spun out of established funds or proven business builders.

GK: We believe that independent sponsors are emerging as the next wave of investors. We frequently speak to young partners at top-tier private equity funds eager to pursue their entrepreneurial ambitions. It’s an obvious choice to hang their own shingles and invest as independent sponsors. As skilled investors, they can execute two to three investments in the time it would take to raise a fund. This approach offers flexibility, allowing them to raise a fund later if it becomes advantageous.

Q: What are some of the most important considerations for you when choosing an independent sponsor for a deal?

GK: We’re enthusiastic about supporting a range of sponsors. Our investment strategy encompasses newcomers that just left prestigious positions to strike out on their own, where their first investment could be career-defining, and seasoned firms operating on a deal-by-deal basis for a decade or more. Our goal is to serve the independent sponsor community to become the preferred equity partner across the board.

MK: Successful independent sponsors, regardless of how long they have pursued a deal-by-deal model, share several key traits. They embrace a David versus Goliath mentality and are driven to generate exceptional returns. We believe that these sponsors are passionate about identifying investments with exceptional return potential and deeply committed to helping management teams grow their companies. They’re motivated by the equity upside and approach their work with intense dedication. This drive is complemented by excellent communication skills and a strong commitment to responsible capital stewardship.

About Grant Kornman

Grant Kornman is a partner at Align Collaborate and a member of its investment committee. Prior to Align Collaborate, Grant co-founded NCK Capital, a boutique independent sponsor that acquired controlling interests in lower-middle market companies, with his business partner Michael Kornman. NCK was a pioneer in the independent sponsor community and built a successful portfolio of companies in many different industries, including environmental services, post-secondary education, wholesale distribution and building services.

Prior to NCK, Grant was the Florida development partner for The Lane Company, one of the largest multifamily management and development companies in the Southeast, which acquired and developed between $1 billion and $2 billion of assets annually. Grant began his career as an associate at Sterling Partners, a private equity firm with over $4 billion in assets under management. Grant has a B.S. in business administration in finance from Georgetown University and is a board member of the Lone Star Chapter of the Young Presidents Organization.

About Michael Kornman

Michael Kornman is a partner at Align Collaborate and a member of its investment committee. Prior to Align Collaborate, Michael co-founded NCK Capital, a boutique independent sponsor that acquired controlling interests in lower-middle market companies, with his business partner Grant Kornman. NCK was a pioneer in the independent sponsor community and built a successful portfolio of companies in many different industries, including environmental services, post-secondary education, wholesale distribution and building services.

Over the course of Michael’s entrepreneurial and investment career, he founded, built and ran companies such as Quickfire Restaurants and ASAP Air Services. Michael’s vision and leadership guided these companies through many strategic milestones, including securing outside equity and debt financing, obtaining mission-critical regulatory approvals, and executing company recapitalizations and sales.