What Is a Sponsor

A sponsor can be a range of providers and entities supporting the goals and objectives of an individual or company. Sponsors invest in private companies, create demand for publicly traded securities, underwrite mutual fund shares for public offerings, issue exchange-traded funds, offer platforms for benefits and more.

Key Takeaways

  • Sponsors are corporate entities that provide support within the financial services industry.
  • This support can include providing underwriting for a stock, mutual fund, or exchange-traded fund offering.
  • Another type of sponsor is an employer that provides benefits for its employees. These plan sponsors can act as fiduciaries and do the legal and administrative work necessary to provide plans to participants.

A sponsor can provide a wide range of services and support within the financial industry.

1. Startup companies are sponsored through investors. Startups often build a diverse group of investors that can include individuals, venture capital firms, private equity firms, and corporations. A sponsor may also be considered the lead arranger in a funding deal.

For example, in October 2017, Digital Asset Holdings LLC raised $40 million in a Series B funding round. The funding round was led by Jefferson River Capital LLC as the lead sponsor.

2. When a company chooses to go public it also engages the support of a sponsor or sponsors. Sponsors help guide the company through the initial public offering process (IPO) and also provide credibility for new investors considering the IPO investment. Leading IPO sponsors are typically investment banks that take a stake in the company as well. Investors often look for wide sponsorship of a stock before investing, believing that the endorsement of institutional investors adds a measure of safety to their investment decisions.

For example, Roku was one of the most highly publicized IPOs of 2017. Underwriting sponsors on the deal included Morgan Stanley, Citigroup, Allen & Company, and RBC Capital Markets.

3. Underwriting sponsors are also utilized for mutual fund and exchange-traded fund offerings. An underwriter must sponsor a mutual fund issue for investors to have access to it. The sponsor of an ETF is essentially the managerial body of the ETF that brings together the needed parties and regulatory framework to establish the ETF.

In the context of exchange-traded funds (ETFs), the fund manager or other entity who files the needed regulatory materials with the SEC to create the ETF is considered the sponsor.

4. Benefits plan sponsors are also well known in the investment industry. Plan sponsors are companies or employers who create a benefit plan for their employees. The plan sponsor can work with various entities to provide a comprehensive benefits plan. Plan sponsor benefits can include a wide range of offerings for employees including retirement savings plans, pension plans, health plans, financial wellness plans, and more.

As the plan sponsor, employers take responsibility for the benefit plans offered. The plan sponsor does the research, selects the appropriate service providers, deals with legal and administrative elements, and are sometimes legal fiduciaries. Those benefit programs are then offered to employees, who can join as participants.