Think You Need Millions to Buy a Business? Think Again.

Entrepreneur

25-06-2025

How to build a fundless buyout strategy — a flexible path to long-term wealth creation.
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Most people assume that to succeed in private equity, you need to raise a multimillion-dollar fund first. But what if you could flip that script?
A new generation of dealmakers is doing just that, acquiring and growing businesses without a traditional PE fund. This "fundless sponsor" model isn't just a workaround for those who can't raise capital. It's become one of the most agile and operator-friendly paths to long-term wealth creation.
If you're a founder, operator or emerging investor, here's how you can scale like a private equity firm without ever raising a fund.
Related: 10 Factors To Consider When Making An Acquisition
What is a fundless sponsor?
A fundless sponsor (also known as an independent sponsor) is someone who sources, negotiates and structures a business acquisition without having pre-committed capital from investors. Instead, they raise equity on a deal-by-deal basis.
In simple terms, you find a good business to buy, lock in the terms with the seller and then bring in investors and lenders to finance the deal.
This model has exploded in popularity, especially for deals in the lower middle market (companies with $1M–$10M EBITDA), where valuations are lower, sellers are more flexible, and larger funds typically don't play.
Want to explore live deals? Platforms like Axial and MicroAcquire offer vetted deal flow for buyers.
Why fundless is the new fund smart
This strategy offers some unique advantages:
No blind pool : Investors commit capital to specific deals they like.
Faster to launch : You don't need a track record or institutional LPs, just hustle, judgment and one good deal.
Alignment with investors : Equity backers get deal-level transparency and control.
High upside for you: Fundless sponsors typically earn 10%-30% of profits (a "promote"), plus acquisition and management fees.
It's not surprising that even experienced GPs are shifting toward this model. It allows them to stay lean, focus on execution and build trust with investors one win at a time.
Anatomy of a fundless buyout
Let's break down a basic deal structure:
Target company : HVAC company doing $1.2M EBITDA, asking $4.8M (4x EBITDA)
Financing plan : $3.2M in SBA/bank debt $1.6M in equity from investors
Sponsor economics : 2% acquisition fee ($96K) 20% is promoted after investors get an 8% preferred return Potential management/monitoring fee
Once the deal is done, you (as the sponsor) lead strategy, oversee operations and align incentives with your investors. You earn your upside by creating value, not by charging annual management fees like a fund.
SBA loans are a common tool here, especially the 7(a) loan program, which allows you to borrow up to $5 million with as little as 10% down.
Related: A Beginner's Guide to Private Equity
Who are the investors?
Fundless sponsors typically raise capital from:
Family offices that want direct ownership in operating businesses
High-net-worth individuals (HNWIs) who prefer cash-flowing deals over speculative VC bets
Former operators looking for passive income and equity exposure
Private credit and small-cap PE firms open to co-investments
One big plus: These investors are often more collaborative and flexible than institutional LPs. But you must be ready to show them a clear plan for value creation and downside protection.
What makes this work?
Here are four factors that separate successful fundless sponsors from the rest:
Relentless sourcing: You'll need to look at 50-100 businesses to find one worth pursuing. Build relationships with brokers, run cold outreach campaigns, and use your industry insight to find overlooked gems.
Deal de-risking: Validate financing early. Soft-circle investors. Confirm that seller expectations are realistic before going deep.
Operational playbook: You're not just a buyer, you're a builder. Have a 100-day plan post-close. Know how you'll grow revenue, improve margins or professionalize the team.
Repeatable system: Your first deal is your track record. Document everything. Treat every step — outsourcing, diligence and investor communications — as a template for your next acquisition.
Common pitfalls to avoid
While the fundless model is accessible, it's not easy. Here are some common mistakes to sidestep:
Overvaluing the deal : Don't fall in love with a business that doesn't pencil out. Keep discipline on price and debt terms.
Underestimating operations : Buying is one thing, running a business (or managing a team that does) is a whole other challenge.
Weak investor alignment: Choose equity partners who are patient, aligned with your vision and comfortable with the inherent risks.
Remember: Raising money deal by deal is about trust and clarity. If you communicate clearly and deliver results, capital will follow.
Related: What You Need to Know to Buy the Right Business and Acquire Your Empire
When (and if) to raise a fund
Many sponsors eventually raise funds, but not always.
Only raise a fund when:
You've closed a few successful deals
You're bottlenecked by capital, not deal flow
Your LPs ask for it
You're ready for the admin, compliance and investor expectations that come with it
Otherwise, staying fundless gives you flexibility and control. You can scale at your own pace and even build a portfolio of cash-flowing businesses before raising a dollar of committed capital.
You don't need a $100 million fund to build wealth through private equity.
You need a great deal, the right partners and a clear strategy to create value. Fundless buyouts are the entrepreneurial version of PE — scrappy, focused and aligned.
In today's economy, where capital is cautious and execution matters more than ever, that may be the smartest strategy of all.