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Grabbing the Bull by the Horns as an Independent Sponsor, with Chelsea Celistan
Episode 3821st January 2025 • Deal Us In • McGuireWoods
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To underrepresented independent sponsors, Chelsea Celistan has a simple message: “There is a large market that you can do really well in. Full stop.”

The head of Independent Sponsor and Company Direct Investment Strategy at Avante Capital Partners, Chelsea shares her encouraging vision in this conversation with host 

Phyllis Young. She also details challenges and strategies, emphasizing the need for discipline in finding the right deal, choosing the right partner, and creating value. Ultimately, “it's really just the people who are going to come in and grab the bull by its horns and kind of drive to make it happen. I think that's going to be who tends to win in this space,” she says.

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☑️ Chelsea Celistan | LinkedIn

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☑️ Phyllis Young

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This podcast was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this podcast, you acknowledge that McGuireWoods makes no warranty, guarantee or representation as to the accuracy or sufficiency of the information featured in the podcast. The views, information or opinions expressed during this podcast series are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods. This podcast should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action.

Transcripts

Voice Over (:

Welcome to D-L-S-N-A podcast brought to you by McGuire Woods. DLSN promotes the advancement of women in private equity and finance through conversations with women in the private equity and finance space. These conversations provide both insights and practical takeaways to inform your deal, work, and enhance the culture of your organization. If you're ready to drive the industry toward a more inclusive and diverse environment, then it's time to come to the table.

Phyllis Young (:

Hello everyone. Welcome to Deal us in podcast from McGuire Woods. My name is Phyllis Young. I am a debt finance partner in the Dallas and Houston offices of McGuire Woods. Today we have as our guest, Chelsea Stan, who is a principal and the head of independent sponsor and company direct investment strategy at Avanti Capital Partners. Chelsea, welcome to the podcast.

Chelsea Celistan (:

Thanks, Phyllis. Excited to be here.

Phyllis Young (:

Chelsea, why don't we start by you telling us a little bit about yourself and your background.

Chelsea Celistan (:

So I got into finance immediately after graduating college, spent a little bit of time in investment banking and then moved into private equity focusing on healthcare and then technology investing and joined Avante in February of this year to really build out this platform and focus both on the independent sponsor market as well as looking at investing directly with companies and management teams.

Phyllis Young (:

What attracted you to the private equity and finance space?

Chelsea Celistan (:

I was one of the people who actually went to college with a decent sense of what I wanted to do. I think that that was definitely a little bit unique in that sense that I went and said I want to be an investment banker. I didn't actually know what investment banking exactly was when I first started, but I knew what I really cared about was learning how businesses worked and getting to work on teams with people. And I found that for me, understanding how businesses worked was easiest by going and starting within the financials and getting a numerical picture and then understanding from that angle out. And so that really is what lent itself to doing investment banking. And then as I thought about moving into private equity, the fact that within investment banking, the transaction piece is really exciting, but at the end of the day, you don't necessarily know exactly what's going to happen with the business.

(:

You see the plans, you've made the models, you've seen the numbers, but watching it actually play out in getting to be part of that process was what attracted me to moving into control buyouts. And so that was still with that same original focus of wanting to better how businesses worked, how they derive value and how you augment said value starting there. But then adding in getting to work both with my own teams within the firm, but also working very closely with management teams as they look to grow their businesses was really what that intellectual curiosity and just ability to really learn all these different facets of businesses was really what attracted me here.

Phyllis Young (:

So is that what brought you to Ivanti Capital? You mentioned you joined in February of this year. What attracted you to Ivan Capital and can you tell us about your role there?

Chelsea Celistan (:

Sure, happy to. So it's actually a pretty unique story and it's one that goes to the value of relationships, which I think is the other critical piece that underlies especially private equity, but finance more generally. So actually when I was an associate before I went to business school, I was in a deal with Avante and so got to know the team really well because I was really taking the lead on running the lender process and really got to work hand in hand with a couple of their team members. And so I had this experience, the deal went on for a little while and so we were able to work together over the course of a number of months and by the time the deal closed, we had already established these relationships over the course of time business school coming out of business school that was now almost eight plus years ago at this point, almost 10.

(:

And I had these really strong friendships and mentor relationships with the folks that I had worked with that I just had kept up over time and when they mentioned being really interested in looking at something where it would allow them a firm that has really been private credit focused to open up another channel that would increase the amount of equity that we're also able to do into some deals and invest more flexibly, I thought, oh wow, that would be an awesome opportunity to not only be able to join a firm that is at a great growth inflection point, a team of people who I know and respect as well as be able to build something which is this independent sponsor and company direct strategy, which is a really exciting opportunity as I think at where I am in my career now to be opening up a new channel, growing the pie and finding additional places where we can deploy capital and make really strong returns for our investors.

Phyllis Young (:

That's great. There's a couple of things I think I would like to talk to you about today, the podcast. I think a lot of our listeners would be really interested since you are the head of independent sponsor and company direct investment strategy, I think people would be really interested in hearing your thoughts about breaking into the independent sponsor model for people, particularly women and diverse individuals, what your thoughts are on that topic, but also just your unique role as a principal and as a head of a particular business group within an organization, your thoughts and your experiences as well really in just navigating that space. And so I think what you're doing is very unique and interesting for people who are independent sponsors, but also just from the standpoint of your actual role at Evonte Capital Partners. I think there's just a lot there to talk about really. First of all, I guess I would ask what are some of the unique skills or characteristics that you think are critical for success as an independent sponsor and what are some things that you are looking for your investments?

Chelsea Celistan (:

Yeah, I think there's definitely a lot to chew on. As you mentioned, the independent sponsor space is a really unique one and I think it's one that you kind of are either in the know or you're not, and it actually makes up a huge percentage of the lower middle market. If you look at volume of deals that are getting done, depending on the reports you read, upwards of 50% are being done by independent sponsors in the lower middle market specifically. So the lower middle market where you think this is where from a value creation standpoint, there's a lot of wood to chop and a lot of value to be created. The fact that there's so many independent sponsors and it is such a large makeup of this market creates a really exciting opportunity. I think what is pretty fascinating about the independent sponsor market is it's also matured quite significantly over the course of the last, call it 10 to 15 years.

(:

Independent sponsors are as they I guess used to be called more so fundless sponsors. It started off oftentimes as folks who were in investment banking and then decided, I don't want to do investment banking anymore. I just want to go find a deal or I'm just going to find a deal and pass it off to someone. And the market has matured to where there's a wide spectrum of folks. There are people who are following that exact model. There are also people who have spent long careers in private equity and then say, Hey, for one reason or another, I want to have more autonomy over the deals I do. I want more credit for what I'm doing. I want to be able to build my own track record if I want to have my own fund, et cetera, et cetera. There are myriad reasons as to why there are increasing numbers of folks who've been investors within the PE ecosystem or been operators within the PE ecosystem, built a company sold side company and then decided, Hey, I want to basically find a deal and raise capital, raise the equity in debt to be able to get this deal done and build my own portfolio that I manage or I manage with a partner or with a small group of people.

(:

And that is kind of the independent sponsor model and people have found a lot of success with that, right? There's a ton of opportunity just as there's a ton of opportunity in the lower middle market. And what's interesting also about it is it's almost where private equity was 15, 20 years ago where the market's not that transparent. People are running around finding deals, finding operators who are looking to sell their businesses and either through smaller auctions or finding things just in a proprietary nature able to conduct deals. But the thing is you have to really build your own ecosystem and so you don't have the infrastructure that a private equity firm has. You don't have the lawyers on hand the same way the QV provider is the same way. The consultants, the number of junior team members, the infrastructure is not there the same way.

(:

And so why it has lent itself to being a little bit less diverse, I would say, even as compared to private equity is because it's really incumbent on who you know and who is in your network who can help you, especially as you're getting started to get deals done. And so that hump to get over is more challenging for folks who aren't necessarily coming to the table with a lot of experience and a lot of capital. And so as a space matures, you're finding more and more people entering the ecosystem to be able to help with this. But that's kind of, I think in some part why it's less diverse today as compared to other areas of investing.

Phyllis Young (:

I hear a lot of times from people even in my own network that are thinking about delving into independent sponsor, but they are maybe a little bit hesitant for all those reasons that you mentioned. In terms of the ecosystem that's set up in the space that's set up there, what advice would you have for somebody that's thinking of getting into the independent sponsor space that currently right now is either in investment banking or another position at a firm?

Chelsea Celistan (:

Yeah, I think there are a couple of things. One is you really have to find before you take the leap, you have to start thinking through what your angle is going to be and then finding the people, finding the resources in order to be prepared for it. I think part of what people underestimate is that what is challenging in private equity is getting a deal to the LOI stage, finding someone who chooses you as a partner. You've agreed to terms the actual diligence, assuming a lot of it's done upfront. Things are mostly check the box, confirmatory by the end. That part is the simple part within pe, regular white buyouts, getting it done, that part is simpler. With independent sponsors, it's much simpler to find something and get it under LOI. It's way harder to actually effectuate the deal. So when you think about the types of things that you need to be prepared for, one is what's your angle?

(:

Is it that you've run this exact play at the firm you've been at? Is it some people in the space because your family has a small business in X, Y, Z industry really well? Is it you have a geographic poll somewhere where you might have an inside look? What becomes proprietary to you that you can use to differentiate and that's built to help you get the deal under LOI in the first place, but also as seek to get capital how you sell it. The other thing is that it's so much of it is network driven of are you coming to the table with the relationships that can get you over the line? And especially on the equity side of things, which is part of why we're excited to be pretty focused there as well with independent sponsors is the equity piece is really the hard part to raise.

(:

You have to find people who believe in your strategy, who support it, and you have to figure out how you're going to get that to come to the table because equity and debt are not necessarily created equal and something that is smaller and inherently a little bit more risky as a result of that. And so it's really that ability to be able to sell someone of your skills and capabilities that is critically important. It's your ability to kind of hunt until you kill with this because it's not like a search fund or not like any other job where you have a salary coming in as long as it takes you to find a deal and sign it up and get it done is as long as you're on the hook for it. And kind of going in with eyes wide open to that, it takes a level of tenacity.

(:

It takes a level of grit because you're going to get a lot of nos before you get some yeses. It takes really thinking through your network in both. Do you want a partner, do you not want a partner? Do you know lawyers who focus on this space? Who do you have around you that you can just start bouncing ideas off of? I think if a little bit of this is always in some ways fake it till you make it in terms of it will come as you approach it confidently, but I think those are some of the traits that folks need to have to go in eyes wide open to be really successful. I mean, there's a little bit of luck here, right? Investing always requires a little bit of luck, but a lot of it is setting yourself up and organizing yourself such that you can get people on board that you're the person to effectuate this value creation plan that you've created.

Phyllis Young (:

What are some kind of, when you're talking about leveraging your network and your relationships, and particularly for sourcing deals and thinking through the strategy, what someone's independent sponsor strategy would be, what are some practical tips or advice that you have in terms of what someone could be doing to source deals and raise capital?

Chelsea Celistan (:

Yeah, I think a lot of that is who you decide to partner with, and I've seen partners of a couple different ilk. One is the type of operating partner the same way a PE firm might have. One where some person who you've interacted with over time who has superior knowledge about a specific space and might be able to send you deals is this type of person who can look at things and help diligence them and they become a selling point because everyone would want them on the board, their involvement, their advice. That sort of person becomes someone who's a real asset and deals with independent sponsors. I think in terms of actually finding deals I operating partner in, having a very specific space of interests are what really help on the proprietary end of things. I think even with smaller auctions and that sort of thing, there are so many buy-side brokers out there as well that can be helpful on the capital provider side of things, that one is really, if you're thinking about this, I would wait to approach a capital provider unless you know someone who's in the space really well and can talk one-on-one.

(:

I would wait until you have more of a thesis. It's also easier when you have a deal to find capital providers, but it's really identifying the firms that are out there who have put a stake in the ground that they work with independent sponsors. They're investing in the independent sponsor space, they're excited about it, of which they're a number of other sbs like Avante and other types of firms that are doing equity and debt investing flexibly like us. And so that's, you can get into that ecosystem, but it's easier to do so if you don't already know some of those folks already through your role by having a deal and being able to come to the table with something for folks to look at. And that is really what helps them to evaluate you, even if the answer on that particular deal is we might not be interested for whatever reason.

Phyllis Young (:

I want to shift things maybe just a little bit in thinking about what your role at Avanti Capital Partners, particularly thinking about women and what do you see as maybe some barriers or opportunities for women and diverse individuals in the independent sponsor space particularly maybe because maybe they have some unique perspectives or some unique ways of thinking about how to navigate the space.

Chelsea Celistan (:

So I took this role because I was so excited about the opportunity and the runway that I thought it would give me. I'm really grateful to the team to be in this position. I also think that it is very unique, having been to a number of conferences this year, there are just not that many diverse people in the room. Whereas in some ways that is a barrier because you're not going to walk around seeing necessarily a bunch of your friends who you've known for a long time or a number of people who are going to look like you per se. The flip side of that is number one, every time I go to a conference, I stand out so people very easily remember who you are and that sort of thing. That's actually been a little fun. Sometimes I like to wear a fun outfit or that sort of thing and see how that goes, but the other piece of it is that within the independent sponsor space, because so much more of this is individual because you don't have a firm that's sitting behind you on things, the fact of the matter is there's not community the same way.

(:

And so what I've been really excited about as well is being able to connect with other independent sponsors and capital providers and find folks and help be the bridge to either potential partnerships or you should know this other person. How do we think about best practices? Because it's really given the number of deals, the number of spaces is really not a zero sum game the same way it is as you get to middle market, upper middle market, mega fund PE where it truly is one firm versus another in the independent sponsor space, there's so much more of like, Hey, I've worked with a really great advisor, let me tell you about it. Or I had this challenging negotiation with a capital provider, let me help you, that sort of thing. But it's mostly the challenge is being able to figure out who else is out there and have a space for that.

(:

And so what I've spent some of my time really thinking through within the Avanti ethos of being a connector has been saying, okay, how do we find really talented people who are also diverse or also fall into different categories who might not know each other and connect them? And that has served as being a really awesome jumping off point for a number of great conversations that I also get to be a part of, which is awesome. And really think through how do you get more diverse folks in this space? How do you help people who are in this space excel and have increasing numbers of deals where people are able to generate generational wealth and that sort of thing. So it's a mandate because it's a smart way to do business. It's also a mandate because it also drives a lot of impact, and that's how we really think about things at Avante. And so that's exciting to be able to port a very similar ethos and mindset that we've used within the PE community into the independent sponsor community as well.

Phyllis Young (:

Right. So being a connector, it sounds like you play that role and you see that as a very valuable role in the independent sponsor model and the independent sponsor space. What about the role of mentorship, particularly in advancing diversity? Do you see mentorship and allyship

Chelsea Celistan (:

Playing roles as well? Absolutely. I think what we've seen now from a number of diverse and not within the independent sponsor space, because you're somewhat of a lone wolf, this idea of mentorship and learning from folks who've been through it is just immense. And what's really heartening to see is that independent sponsors who have been very successful, I can think of a number in my head who I've gotten to know over the course of 2024, have really been very open and very willing to share and very excited to share with promising folks who you don't need to go through this pitfall because I lived it. And I can tell you how folks coming up are just starting to do deals now can be successful. And I think because it tends to lend itself to people who are really looking to, I've seen even a number of independent sponsors where it's like someone who's been in this space a long time, it's going to team up with a newer independent sponsor who might know a particular area really well and do deals together. And so that mentor apprenticeship piece of things which exist in private equity obviously, but in a different way. I think that also applies here quite well.

Phyllis Young (:

And what are some characteristics, I guess I would say when you're thinking about going back to your role, your day job at Avante Capital, what are some qualities that you are looking for? What are you looking for in independent sponsors?

Chelsea Celistan (:

Yeah, so the partners that we are looking to do deals with when it comes to actually getting that deal done is folks who have done deals before have a track record of success, whether or not that was within another firm or doing it on their own. It's really this level of transparency that is able to drive trust when it's you as an independent sponsor in the cockpit and you're working with various capital providers in a management team. And if something is going well, people want to know about it. If something is not going well, people want to know about it In that transparency and ability, investments are just a bumpy ride. The lower mill market is a bumpy ride. There's a lot of exciting opportunity to really grow things quite dramatically. It's not going to go up into the right, rarely does it ever go up into the right in a linear sort of way.

(:

It's that ability to drive transparency, drive visibility, and established trust. That's really critically important. Viewing your capital providers as true partners, thinking through, Hey, a goal for an independent sponsor should be, how do I get the smartest people around the table to help with this and figure out the right answer? I might be leading the drive to figure out set answer, but how do we just make sure we're getting the input to get to where we need to be going? And then it's just really, that is also driven with an amount of self-awareness of being someone who is a leader and responsible and can have a hard conversation and can really be the driver. So that's really when we think about what good looks like, those are really the characteristics and those are the types of partners that paired with the experience, but it's really thinking about someone who has high integrity, high transparency, strong leadership, commercial instinct. That's what good looks like to us.

Phyllis Young (:

That's really interesting and helpful, and I think our listeners here who are thinking about getting into the independent sponsor space would serve well to take that to heart. One last question. What's some advice that you would give to underrepresented professionals entering into this?

Chelsea Celistan (:

I think the biggest takeaway someone should have from this is there is a large market that you can do really well in full stop. There is absolutely ability for more people to come into this space and have really great outcomes. It is all about being disciplined to find the right deal, being disciplined about choosing the right partner and being really disciplined in finding a way to create the value that you said you're going to in the onset. And so I think that because there is such opportunity, it's really just the people who are going to come in and grab the bull by its horns and kind of drive to make it happen. I think that's going to be who tends to win in this space. And so I think that there's a ton of opportunity for underrepresented folks. I would welcome people to reach out if they're interested or wanting to learn more or being able to get introductions. I know you all at McGuire Woods have such a deep network in that as well, but I think no one should feel discouraged by being underrepresented for that sake. I think there's so much opportunity, and I think the exciting piece is just being able to acknowledge that and focus on building that ecosystem that's going to help you get to a really great outcome.

Phyllis Young (:

That's great advice. And yes, McGuire Woods. I think one of the unique things about the firm really is the depth of the understanding, the relationships within the independent sponsor space, the relationships, the legal, understanding, every single aspect of it. And just kind of like you mentioned as well, just the connecting the resources that the firm has and being able to be a connector and then obviously having people like you on our podcast as well to share information and best practices. It really adds to the space and really adds to the relationships. One last question, which is our signature question for the DLSM podcast that we ask all of our guests. What advice would you give to your younger 22-year-old self? In other words, when you were starting out your career, what's some advice that looking back you would give to yourself now?

Chelsea Celistan (:

It's funny. I was just at an event the other night and someone said it really well. To me, I would say be patient. I think it's really critical to have a north star of where you're trying to go and a clear vision of a goal and an endpoint, but it's the patience to remember that everything's not going to be linear. Everything is not going to be the way that you necessarily mapped it out. You're going to learn things in very mysterious ways. It's the real blood, sweat and tears that you put in and that you are grinding day to day, and then you see the outcome and maybe days, weeks, months, years from now. And it's just the patience to know that if you're going in the right direction and doing the right things, you're going to get closer and closer to that. And so I think that that is the perspective that if I were to go back to 18-year-old Chelsea saying she wants to learn about businesses and find out how they create value and how I can add to creating that value, she's still in here, but she's definitely hard charging, but a little more patient than she was then.

Phyllis Young (:

I love it. All right. Thank you so much, Chelsea, for being a guest on D in. Really appreciate you being a guest and hearing all of your insights into the independent sponsor space.

Chelsea Celistan (:

Yes. Thank you so much for having me, Phyllis. It was a real pleasure to be here, and thank you for the questions.

Phyllis Young (:

You are welcome, and thanks to our guests for listening to our podcast today.

Voice Over (:

Thank you for joining us at the table for this episode of Deal Us In. If you have a recommendation for an inspiring interviewee, a question you'd like us to ask or topic you would like to hear covered, or if you'd like to tell us about women-focused initiatives in the field, please email us at wpe f McGuire woods.com. We look forward to hearing from you. This podcast was recorded and is being made available by McGuire Woods for informational purposes only. By accessing this podcast, you acknowledge that McGuire Woods makes no warranty guarantee or representation as to the accuracy or sufficiency of the information featured in the podcast. The views, information, or opinions expressed during this podcast series are solely those of the individuals involved and do not necessarily reflect those of McGuire Woods. This podcast should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action.

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