It’s All About the Jockey: How to Vet a Sponsor Before You Invest

A saying I’ve repeated for years is, “It’s about the jockey, not the horse.”

In investing terms, a jockey is a sponsor — the person or team who runs the deal. Having been both an investor and a sponsor myself for decades, I can tell you this: a good jockey can save a bad deal, but a bad jockey can ruin a good one.

This is one of the most important lessons you’ll ever learn if you’re an investor seeking financial freedom through passive income — the kind I talk about in The Lifestyle Investor. It doesn’t matter how good the numbers look; if you’re betting on the wrong sponsor, you’re gambling, not investing.

For a deeper dive, Hans Box, Co-Founder of Box Wilson Equity, a multifamily, self-storage, mobile home park, distressed debt, office, and preferred equity investment firm, shares his insights. During his career, Hans has personally acquired, invested, and managed over $350 million in assets.

In this post, we outline the exact questions that savvy investors should ask before wiring funds to a sponsor, like how to assess risk, recognize red flags in offering documents, and why alignment, transparency, and track record matter more than hype.

Whether you’re considering your first syndication or refining your due diligence process, these insights can help you make smarter, safer investments.

Start with the Sponsor — Always

At the start of my career, I made a few deals that appeared incredible on paper. The projections were strong, the assets were solid, and the story was compelling. But the sponsors? It’s safe to say their enthusiasm didn’t match their execution.

In that moment, I learned the first rule of private investing: the jockey is more important than the deal.

Before analyzing returns or proformas, consider who is in charge. And, to do this, ask yourself:

• What’s their track record?
• How transparent are they?
• Do their incentives align with yours?
• Have they survived a downturn?

Rather than chasing home runs, Hans says you should hit singles and doubles, and you’ll never lose money. Sponsors with steady, consistent wins are worth more than those whose market momentum is riding high.

Check the Track Record — and Dig Deeper Than the Spreadsheet

Each sponsor has a story, but not every one stands up to scrutiny.

Ideally, a solid track record shows consistency across multiple asset classes and deal sizes. If you have flipped ten apartments, you may not be ready to manage a complex with 200 units. Everything changes with scale.

Also, keep an eye out for “short-cycle” wins generated by hot markets. If a sponsor bought in 2019 and sold in 2021, it may have been luck, not skill, that made them money.

Ask these questions when reviewing past deals:

• Did they execute their business plan?
• Did actual NOI match projections?
• Were returns driven by operations or just appreciation?

Hans points out that in a bull market, anyone can look smart. When conditions change, you want sponsors who can create value.

Ask the Hard Question: “Have You Ever Lost Investor Capital?”

Investors rarely ask this question, but it’s one of the most revealing. But if a sponsor admits losses, do not write them off immediately. It’s all about how they respond.

Did they take responsibility? What did they learn? How did they protect investors afterward?

The market has humbled today’s most disciplined operators. Hans points out that battle-tested sponsors tend to build conservative, resilient portfolios.

When someone dodges, deflects, or claims they’ve never lost money, that’s a red flag. Anyone who has been in the game long enough has faced challenges. Instead, you want someone who has learned from them.

Test for Transparency — Before You Invest

Transparency is everything.

It doesn’t matter whether you’re investing $25,000 or $2 million with a trustworthy sponsor; your questions will be welcomed. In addition to reviewing the deal structure, risks, and expected returns, they will also give you advice on how to proceed.

A simple litmus test is to ask for their proforma in Excel. It’s usually a sign they are hiding weak assumptions if they call it proprietary.

In addition, please request:

• Sample investor reports
• P&L statements from current assets
• Examples of how they communicate during tough quarters

Hans often tells investors, “If you don’t get information before investing, imagine how difficult it will be to get updates when things go wrong.”

The bottom line? You can tell a lot about a sponsor’s financial management by how they handle your due diligence questions.

Make Sure They Have Skin in the Game

Each sponsor should invest a significant amount of personal capital in their own deal. Period.

Whenever I vet an opportunity, I ask: “How much of your own money is in it? ”

Alignment is key. If you win, you want to know your sponsor wins, and if you lose, you want to know the sponsor loses. This is what Hans calls “shared risk symmetry.” If a sponsor profits more from acquisition or asset management fees than from deal performance, it’s time to move on.

Evaluate the Proforma — But Don’t Believe It Blindly

Proformas are just forecasts, and forecasts can be revised to look good.

Take a closer look at the assumptions behind IRR or equity multiples instead of focusing on them:

• Is rent growth based on conservative market data or best-case scenarios?
• Are taxes and insurance properly adjusted after the sale?
• What’s the contingency plan if revenue is missed by 10%?

As Hans puts it, if everything goes perfectly, you’re dealing with an optimist, not a conservative.

Also, request a sensitivity analysis for base, downside, and upside scenarios. Bases should be realistic; downsides should be manageable.

Focus on True Value-Add — Not Marketing Buzzwords

Every deal claims to be “value-add.” But few truly are.

An effective value-add strategy can increase income or reduce expenses — not just ride market growth.

For example:

• Upgrading units to justify higher rents
• Improving management efficiency
• Repositioning assets to attract better tenants

It’s a red flag if the plan is vague (“we will modernize the interiors”). Specific metrics and local market comparisons back the value-add in a deal.

In Hans’ words, a real value-add creates a margin of safety — that’s how you can protect the downside as well as grow the upside.

Look for Conservative Financing and Stress Tests

A sponsor’s risk tolerance can be determined by its financing strategy. If there are no hedges on your floating-rate debt, be wary of high leverage.

Further, make sure to ask:

• What happens if rates rise or occupancy dips?
• Have they modeled stress scenarios?
• What’s their cash reserve plan?

Those who survive cycles always prepare for the worst. Rather than avoiding risk, the goal is to understand and price it correctly.

Understand the Deal Structure

Even a great sponsor can structure a deal that favors them over their investors. Take a close look at the fine print — fee structures, preferred returns, and waterfalls.

Here’s what to watch for:

• Preferred Return (Pref). Profits should be shared with you before you receive your base return.
• Waterfall split. Typically, profits are divided 70/30 or 80/20 after you’ve met your preferences.
• Fees. It’s standard to charge fees for acquisition (1-3%), asset management (1-2%), and disposition (1-2%).

Sponsorships that profit heavily upfront, regardless of performance, are not aligned — they are extractions.

Read the Operating Agreement

Last but not least, make sure you have legal documents that protect you. The following are two key points:

• Manager removal rights. In the event of negligence or fraud, can investors remove a sponsor?
• Prioritize your capital stack. Make sure you understand where your equity is located. Preferred equity or mezz debt may be paid before you.

In general, the higher the risk, the higher the return you should demand. Do not assume that “equity” means equal treatment.

The Bottom Line: Bet on the Right Jockey

You’ve heard it before — but it bears repeating: it’s all about the jockey.

The numbers matter. Cycles in the market are important. However, nothing matters more than the people you work with and how they structure the deal.

Hans says that freedom does not come from chasing significant returns. Instead, it comes from compounding smart, safe wins over time and never losing money.

So slow down. Ask the most challenging questions. Review every assumption. And if something feels off, even slightly, walk away.

As a private investor, patience, prudence, and partnering with the right sponsor are more than strategies; they are values. They’re your edge.

Key Takeaways

• Pick the sponsor first, not the deal. Sponsors can rescue mediocre deals, but not the other way around.
• Dig deeper than numbers. Make sure track records are accurate, ask about losses, and confirm that actual execution has occurred.
• Demand transparency. Your questions reveal how they’ll handle your money.
• Insist on alignment. Along with your capital, sponsors should invest their own.
• Protect your downside. Don’t let FOMO rush your decision, avoid hype, and chase consistency.

Featured Image Credit: Daniel; Pexels: Thank you!