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.
BREAKING DOWN Sponsor
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 companies 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 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 who take a stake in the company as well. Investors often look for wide sponsorship in 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 mostly 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.
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.