The first thing to ask yourself about a potential sponsor is simple. How have they done in the past? Have they done a good number of deals? Have they ridden through some hard times and learned what to do?
Because when it comes down to it, the sponsors are the ones who will be piloting the plane. Sure, they know where they want to land, but if stormy weather comes and there’s turbulence will they be able to expertly navigate through it?
Again, in great economic times, most every sponsor ends up looking great. But the truly great ones will do a better job managing the downside when the economy is poor or when things go unexpectedly.
Once you dig into the fee structure of a deal and figure out how some sponsors are getting paid, you might find that they’re more incentivized to take on as many deals as possible rather than making sure that each deal provides the best returns for investors.