Independent Sponsorship and Patient Capital: Lessons From a Decade in Private Equity
In Season 4 of The LAB: Value Creation in Private Equity, hosts Nick Creasey and Scott Estill sit down with Sequoya Borgman, Founder and CEO of Borgman Capital. With a background grounded in financial engineering from roles at top accounting firms, Sequoya built Borgman Capital around a deal-by-deal model rather than a traditional committed fund. Over the past decade, the firm has completed 22 acquisitions using special purpose vehicles funded by a growing network of high-net-worth investors and family offices.
In this conversation, Sequoya explains how flexible hold periods benefit business owners, how technology makes a 500-investor network an operational advantage, and why buying right comes before operational transformation. This discussion offers business owners, M&A advisors, and private equity professionals a practical look at lower-middle-market investing and founder succession.
Listen to their discussion on the evolution of the independent sponsor model on The LAB Podcast.
Key Takeaways
Flexible Hold Periods Align Better With Business Realities
Traditional private equity funds operate on a rigid 10-year timeline, forcing acquisitions in early years and exits toward the end regardless of market conditions or operational needs. By using special purpose vehicles (SPVs) for each transaction, Borgman Capital eliminates the pressure of a fund clock. This allows the firm to hold companies for 10 or 20 years if it serves the business. For founders and family owners, this patient approach minimizes disruption to employees and aligns closely with long-term stewardship.
A Distributed Investor Base Delivers Operational Leverage
Managing over 500 accredited individual investors and family offices would normally create severe administrative burdens. Borgman Capital built its proprietary platform, Pass The Hat (PassTheHat.com), to automate onboarding, fund administration, tax reporting, and compliance. Removing administrative friction transforms this investor base into a major competitive asset. These investors—themselves successful entrepreneurs and executives—actively contribute proprietary deal flow, serve on portfolio boards, assist with executive hiring, and introduce prospective customers or suppliers.
Culture Is Hard to Repair and Must Be Evaluated on the Factory Floor
When evaluating a founder-led business, technical systems and operational processes can be modernized, but a toxic workplace culture is nearly impossible to fix. Evaluating culture requires looking past corporate slogans and observing daily human interactions. Simple indicators—such as whether a owner knows employees by name and whether workers make eye contact on the factory floor—signal whether a strong foundation exists. A seller who genuinely cares about employee welfare and legacy ensures a smoother leadership transition.
Entry Discipline Precedes Operational Transformation
While Borgman Capital maintains a dedicated operational managing director to work with portfolio companies weekly, returns remain anchored in classic LBO fundamentals. Paying a reasonable purchase price, applying appropriate leverage, and using strong cash generation to pay down debt create reliable equity value. In a simplified illustration, paying off debt on a 50% equity and 50% debt structure over five years doubles the equity value. Operational improvements remain vital, but they should enhance a disciplined purchase rather than rescue an overpriced deal.
Questions Addressed in the Conversation
How does an independent sponsor build seller confidence without a traditional blind pool fund?
Seller confidence is established through a demonstrated track record of execution, infrastructure, and personal co-investment. After completing 22 transactions over 10 years without failing to deliver equity, capital certainty becomes clear to prospective sellers. Additionally, Sequoya and his partners hold the largest equity positions in their deals, proving direct alignment.
What is the primary value an independent sponsor brings to investors?
The core contribution of an independent sponsor is direct, proprietary deal sourcing. Winning acquisitions solely by bidding the highest price in open investment banking auctions adds little value. Investors partner with independent sponsors to access unique, off-market lower-middle-market opportunities uncovered through personal networks and direct relationship building.
How should a firm handle leadership misalignments after an acquisition?
Leadership mismatches require immediate, decisive action once identified. Even with exhaustive pre-hire screening, background checks, and assessments, some executive hires turn out to be poor fits. Holding on to a misaligned leader in hopes they will change compounds risk and harms business performance. Once a mismatch is clear, the most responsible decision is to make the change without delay.
From the Conversation
“Institutional investors provide capital, but capital is a commodity. Our investor base provides capital plus operational leverage.”
-
This transcript has been edited for clarity and readability. Please refer to the original podcast recording for the complete conversation.
Introduction
Nick Creasey: The LAB takes the ethereal to the practical. Our podcast acts like a business school case study for private equity professionals, CEOs, operating partners, and chief transformation officers. We all know transformation is the key to differentiated alpha. Here is how you actually do it. Our audience tunes in to learn from those in the field, getting their fingernails dirty and driving meaningful growth through better operations, technology, and data. We learn from going to business school, teaching at business schools, and applying these lessons in the real world—showing that case studies actually help the insights stick better. Come join us.
All right. Well, welcome to the fourth season here of The LAB Podcast. We are excited to have Sequoya on. We are going to talk about his model, what he has been doing, why his grass may be greener, and the success that he has had.
Let's kick off. Obviously, you are the founder and CEO of Borgman Capital, and you operate as an independent sponsor. Independent sponsors have been around for a long time, and the model has evolved. One of the reasons you have had success and why people like to work with you is that while many in finance think it is all about the numbers, not many folks we speak to have been at Grant Thornton, KPMG, Deloitte, or RSM—places where you build a deep foundation and appreciation of financial engineering economics, but then apply it in a different way.
According to The Wall Street Journal, the number of independent sponsors has doubled in recent years and continues to grow. You have been doing this for a while. What do you think it takes to succeed in this space, and how are you seeing around corners compared to others?
Sequoya Borgman: Thanks for having me on the show. Happy to talk about it.
Independent sponsors—or fundless sponsors, as they used to be called—have really grown. As you said, there are almost 1,500 or so of them out there now. It is modeled after a traditional private equity or fund model, but we decide to do special purpose vehicles and set up each investment vehicle as a one-off Reg D filing rather than raising a pool of capital for a fund of multiple investments. That is really the difference.
We launched a decade ago, we have 15 people on the team, and we have bought 22 companies in that period. Any lower-middle-market PE firm out there has a similar model, breadth of infrastructure, and track record as we do. Over the years, we decided there are many benefits to being flexible, having longer hold periods, and remaining agile around deal structures and types of businesses.
It is a great model. You actually see more funded PE shops going down the special purpose vehicle route these days simply because of that flexibility and the ability to exit along their own timelines.
Seller Comfort and the Flexible Capital Advantage
Scott Estill: How do you approach the seller side of the model? A business owner knows you do not have a committed traditional pool of capital. What do you do and say to get them comfortable that you are the right option? Does it give them more flexibility and the ability to take advantage of the economics? And how do you make sure your internal team finds this to be the right model versus working for a traditional LBO shop?
Sequoya Borgman: Getting sellers comfortable was more of an issue when we were first launching the firm 10 years ago. After buying 22 companies, we have never come up short on equity. In a lot of these companies, my partners and I hold the largest chunk of equity, so capital certainty is less of an issue now.
When going through competitive investment banking processes, an investment banker might still have initial questions about the equity. But for the majority of businesses we buy, it is a non-issue.
Sellers really like the flexibility. With a 10-year traditional fund life, you have to buy the business at the beginning of that window and sell it toward the end. Sellers often dislike the disruption that cycle causes for their business and employees. They favor special purpose vehicles where it can be a 10- or 20-year hold. It creates less uncertainty for employees and aligns more with a family office strategy. We compete effectively along those lines and get sellers comfortable knowing we are not flippers like a traditional fund.
Nick Creasey: When researching your firm, it definitely felt reminiscent of a family office approach—very founder-focused, looking for true long-term partners. Are there specific businesses that are more suited to this model than others? What appeals most to founders when you speak with them?
Sequoya Borgman: The typical business we buy is either founder-, entrepreneur-, or family-led that has not yet been professionalized or had institutional capital involved. We invest early in that lifecycle.
Our role is to professionalize the business, bring on a professional management team, implement systems and processes, de-risk the transition, and eventually sell to a larger private equity firm or strategic buyer that does not want to handle that early heavy lifting.
Founder Transitions vs. Growth Equity
Nick Creasey: When entrepreneurs are interested in this model, some are ready to step back while others want to roll a significant amount of equity and gain your operational best practices. Do you lean more toward owner transitions or owner-retention growth deals?
Sequoya Borgman: We skew more toward the owner transitioning out over a 12- to 24-month period, where we bring in a new leader and management team.
However, we have also done growth equity investments where we back a younger founder who has another 10- to 15-year runway. They want a partner to provide capital access, execute add-on acquisitions, and help scale the business. Those are great deals. Like any good partnership, both sides must be fully aligned and trust each other.
About 70 to 80 percent of our acquisitions involve an owner in their 60s who wants to retire to Florida, spend time with family, and take some chips off the table. We step in, bring in a new president, and work with the owner to find a leader who fits culturally with the team.
Scott Estill: For founders who spent decades building a company, preserving their legacy and taking care of employees is often as important as the purchase price. That focus on culture must be a primary consideration when selecting new leadership.
Sequoya Borgman: Absolutely. We want a seller who cares deeply about their employees, business, and legacy. You can tell immediately when walking a factory floor whether the owner knows everyone's name and whether employees look you in the eye.
If a seller is burnt out and just wants a big check to walk away, those businesses are much harder to buy. They often suffer from morale issues and poor workplace culture. It is exceptionally hard to turn around a bad culture, no matter how good the incoming leader is. When a seller genuinely cares about their team, you know the foundation is strong and the transition will be smoother.
Leveraging Pass The Hat and High-Net-Worth Networks
Nick Creasey: You have developed an online platform that allows accredited retail investors to access these private equity opportunities. How has that evolved, and why has it been so successful?
Sequoya Borgman: It has been our strategy from day one. Many firms start deal-by-deal and then transition to raising a fund. We doubled down on high-net-worth, accredited investors. Today, we have over 500 retail, accredited investors and family offices investing with us.
Most firms avoid that route because of the administrative complexity, but we built a platform called Pass The Hat (PassTheHat.com) that automates onboarding, back-office fund administration, quarterly financial reporting, tax documentation, subscription agreements, and accreditation checks.
Where a traditional firm manages 10 institutional investors through a fund administrator, we manage 500 through Pass The Hat. That platform removes the operational burden and creates a major competitive advantage. Those 500 investors are successful entrepreneurs and executives who add immense value. Deal flow comes directly through that network. When we acquire a business, our investors step up as board members, help source key hires, and open doors to new customers or suppliers.
Having 500 aligned partners actively cheering for and supporting the portfolio is a massive differentiator. Institutional investors provide capital, but capital is a commodity. Our investor base provides capital plus operational leverage.
Scott Estill: Having network partners economically incentivized to help is invaluable. Independent board members are often one of the most underutilized assets in private equity, but your network functions like a broad advisory board you can tap whenever challenges or growth opportunities arise.
Sequoya Borgman: The best opportunities come through personal networks. Across our portfolio, we have around 40 outside board members, all of whom are highly successful individuals who know their respective industries inside and out. That level of access is a huge asset.
Operational Value Creation Strategy
Nick Creasey: How do you approach value creation during the hold period? What high-level targets or quick levers do you focus on after the acquisition closes?
Sequoya Borgman: Before investing in any business, we build a detailed value creation plan identifying key growth levers. Priorities can shift once you take control, but there is usually low-hanging fruit.
One of our managing directors focuses exclusively on portfolio value creation. He comes from an operational background, whereas much of our remaining team has investment banking or finance backgrounds like myself. He meets with every portfolio company weekly to drive high-level strategy and operational execution.
At the end of the day, financial engineering still plays a core role. Buying right and structuring appropriate leverage on a business is classic LBO strategy. Paying down debt generates significant returns. If you buy an asset with 50% equity and 50% debt and pay off that debt over five years, you double your equity—a 20% annualized return right there.
Operational improvements are the cherry on top, but buying well, holding great businesses, and finding the right buyer at exit delivers strong fundamental returns.
What Makes a Great Independent Sponsor?
Nick Creasey: You have executed over 20 deals over the last decade. For senior professionals or dealmakers considering the independent sponsor route, what truly distinguishes a great independent sponsor?
Sequoya Borgman: The primary value an independent sponsor provides is deal sourcing. You must be able to directly source high-quality, off-market opportunities at reasonable multiples.
If you are only competing in polished investment banking processes where the winner is simply whoever pays the highest price, you add very little proprietary value. Investors back independent sponsors to gain access to unique, off-market lower-middle-market deals derived from personal networks or targeted direct outreach.
Second, you have to possess an entrepreneurial mindset. Unlike investment bankers who receive large transactional fees at closing, an independent sponsor's primary upside is realized at exit—which might be 5, 7, or 10 years down the road. You have to be in it for the long haul and truly enjoy participating in the entire lifecycle of the business, from meeting the founder in their garage to scaling the company and ultimately executing the sale.
Lessons Learned and Leadership Decisions
Scott Estill: Looking back over the last decade, is there an expensive lesson or something you would have done differently to reach this point faster?
Sequoya Borgman: The most expensive lessons are always the ones you remember best. The single biggest lesson centers on talent and hiring.
You can run exhaustive recruitment processes, conduct background checks, perform personality assessments, and have candidates interview with board members. Yet, once someone starts, you occasionally realize they are simply not the right fit. You usually spot it quickly after they join, even if it was impossible to see beforehand. Making incorrect hiring decisions or placing the wrong person in a critical role has been our biggest learning area.
Nick Creasey: The key takeaway is to fail fast rather than holding on and hoping things improve while the fund's returns suffer. If your gut tells you a leadership change is needed, acting promptly is critical.
Sequoya Borgman: Private equity sometimes gets a bad reputation for making talent changes quickly, but that urgency is warranted. In the past, we made the mistake of holding on too long in hopes that someone would change, but they rarely do. We do not do that anymore. As soon as we realize it is not a good fit, we make the necessary decision immediately.
Nick Creasey: It is great to see your growth and success, Sequoya. Thanks for joining us on The LAB Podcast.
Sequoya Borgman: Thanks for having me. It has been a pleasure.
