An independent sponsor I know contacted 123 capital providers for a single $20M enterprise value deal last year. He got 98 nos, 22 maybes that went nowhere, and eventually soft-circled $2M in equity from three family offices. It took him four months. He closed the deal, generated a 3.1x return in fourteen months, and now has a waiting list for his next SPV.
That's the reality of co-investment fundraising in 2026. It works. It's also brutal.
What Is a Co-Investment (and What Is an SPV)
A co-investment is the economic arrangement of investing alongside a lead sponsor into a specific deal; an SPV is the single-purpose legal entity that pools capital from multiple co-investors.
A co-investment is a direct investment alongside a lead sponsor into a specific deal, typically offered to limited partners at reduced or zero fees. Unlike a blind-pool fund commitment, the LP sees the exact asset, the exact terms, and the exact capital structure before writing a check.
A special purpose vehicle (SPV) is the legal entity created to hold that single investment. One deal, one entity, one set of investors. The SPV pools capital from multiple co-investors, makes the investment, and distributes proceeds when the asset is sold. In private equity, SPV fundraising has become the primary mechanism for deal-by-deal capital formation.
The distinction matters. A co-investment is the economic arrangement. An SPV is the legal wrapper. GPs who confuse the two end up with sloppy structures and confused LPs.
Co-invest volume grew 28% in 2024 according to Preqin, reaching a record $33.2B through co-invest structures (Chronograph 2025). That's not a blip. LPs now reserve 15-30% of their total private markets allocation specifically for co-investment opportunities (Chronograph 2025). The capital is earmarked. The question is whether your firm is capturing any of it.
Why the Current Environment Makes Co-Investment Fundraising Necessary
Blind-pool fundraising has broken down because LPs do not trust the mechanism after a $3.7 trillion unrealized backlog and DPI stuck at 0.6x against benchmarks; co-investments fix the trust problem.
The fundraising timeline for traditional blind-pool funds has become punishing. Median time-to-close hit 18.1 months in 2024 (PitchBook), with some managers grinding past 23 months. Fundraising declined two consecutive years. CNBC called it a "Darwinian era" in February 2026, and they weren't being dramatic. Some established funds are facing extinction.
The problem isn't that LPs don't have capital. The problem is that LPs don't trust the mechanism.
Here's why. The 2018 vintage, which should be fully mature by now, is returning 0.6x DPI against a 0.8x benchmark (Bain 2026 Global PE Report). That's not a rounding error. That's a $3.7 trillion unrealized backlog sitting on GP balance sheets, and LPs are staring at it every quarter. When your existing fund hasn't returned capital, asking for more capital in a new blind pool is a hard conversation. What LPs want in 2026 is simple: proof that you can actually sell things.
And yet, Preqin's 2025 survey shows most LPs plan to maintain or increase their private equity allocations. The appetite is there. The trust mechanism is broken. Co-investments fix the trust problem because they're the opposite of a blind pool. The LP sees the deal. The LP decides on that deal. No seven-year lockup hoping you'll pick winners.
This is why co-investment fundraising has shifted from a nice-to-have supplement to a primary GP fundraising strategy in 2026.
How Co-Investments and SPVs Are Structured
SPVs are typically Delaware LLCs with 0-1.5% management fees and 10-20% carry for non-fund LPs, a 4-8 week fundraise timeline, and $5,000-$15,000 in administration setup costs.
The co-invest SPV structure follows a pattern that most sophisticated LPs now expect:
The legal entity. A Delaware LLC or LP (occasionally a Cayman vehicle for international investors). Single-purpose. Clean operating agreement with distribution waterfall, management fee terms, and carry provisions spelled out before a single dollar moves.
Fee economics. This is where GPs get it wrong. Cambridge Associates puts it clearly: "GPs typically offer co-invest on no fee/no carry to existing LPs, but charge economics to non-LPs." That bifurcation is the market standard, and ignoring it costs you deal flow.
For existing fund LPs, co-investments are offered at zero management fee and zero carried interest. It's a relationship benefit, a reward for the blind-pool commitment. For outside co-investors, new LPs, family offices, and other allocators who aren't in your fund, economics are fair game.
According to Carta's 2024 data, more than 50% of SPVs now charge management fees. The range is typically 0-1.5% annually on committed capital, with carried interest between 10-20% depending on the GP's track record and the deal's risk profile. Some GPs charge a flat deal fee of 1-2% at closing instead of an ongoing management fee.
The timeline. SPV fundraising for a single deal typically runs 4-8 weeks from term sheet to close. That's compressed compared to a fund raise, but it means the GP is running a capital formation process and a deal process simultaneously.
Administration. Fund administrators like Carta, AngelList, or Allocations handle SPV formation, investor onboarding, K-1 distribution, and ongoing reporting. Cost runs $5,000-$15,000 for setup depending on complexity, with annual admin fees of $3,000-$10,000.
The Dual-Track Most GPs Miss
GPs who build their co-investor base continuously rather than reactively close SPVs 40-60% faster because prospects already know the strategy and have indicated allocation interest.
Here's where I see managers stumble. They find a deal, get it under LOI, and then start raising co-invest capital. That's backwards.
The dual-track approach means you're building your co-investor base continuously, not reactively. Your LP pipeline should be warm before you have a specific deal. When the deal surfaces, you're calling people who already know your strategy, have seen your track record materials, and have indicated allocation interest. You're not cold-calling family offices with a ticking exclusivity clock.
I spent the first part of my career at Carlyle, and even at that scale, the best deal partners maintained their own LP relationships independent of the fundraising team. They knew who would co-invest in what sectors, at what check sizes, on what timeline. That institutional knowledge is what separates a GP who closes co-invest SPVs in three weeks from one who's still scrambling at week six.
What we're seeing at Praxis Rock is that the GPs who build systematic co-invest pipelines, 30-50 qualified co-invest relationships maintained year-round, close SPVs 40-60% faster than those who start from scratch each time.
The dual-track requires:
The Execution Reality of Deal-by-Deal
A first-time SPV fundraise typically requires outreach to 100-150 capital providers with brutal rejection rates, but conversion improves dramatically by deal three or four as the warm base compounds.
Let's be honest about what independent sponsor SPV fundraising actually looks like on the ground.
That 123-contact, 98-rejection story from the opening isn't unusual. It's sort of the median experience for a first-time independent sponsor raising equity for a lower middle market deal. The practitioners posting on X and private forums tell the same story: massive outreach, brutal rejection rates, and eventual success that builds compounding credibility.
Deal-by-deal investing in private equity is harder than fund investing on a per-transaction basis. Every deal is a standalone fundraise. Every deal requires re-underwriting the GP, not just the asset. Every deal demands that the GP run a capital formation process while simultaneously running diligence, negotiating terms, and managing the seller.
The numbers are real. For a $20M enterprise value deal requiring $8M in equity:
Those are ugly conversion rates by any standard. But they improve dramatically with each successive deal. By deal three or four, the same GP is raising from a warm base, closing in 3-4 weeks, and turning away capital.
VC Lab's data shows that initial SPV commitments scale 23-58% in follow-on vehicles. The first deal is the hardest. The fifth deal is the easiest. The compounding effect of a demonstrated track record in co-investment structures is the single most valuable asset an emerging GP can build.
Forbes reported in 2025 that managers are now deliberately going deal-by-deal as strategy, not as a retreat from fund formation. That framing matters. The GP who says "I chose this model" is positioned differently than the one who says "I couldn't raise a fund."
Why LP Demand for Co-Investments Is Growing
Three forces drive demand: the $150 trillion private wealth market entering PE through co-invest structures, LP psychology shifting toward deal-level control, and permanent fee pressure.
Three forces are converging to drive LP demand for co-investment structures to historic levels.
First, the $150 trillion private wealth opportunity. GPs have historically raised from institutional LPs: pensions, endowments, sovereign wealth funds, insurance companies. That universe is roughly $30 trillion in private markets AUM. The private wealth market, high-net-worth individuals, family offices, and RIAs, represents $150 trillion in investable assets with single-digit private equity penetration. These investors don't write $25M blind-pool commitments. They write $500K-$5M co-invest checks into specific deals they can underwrite. Co-investment SPVs are the on-ramp.
Second, LP psychology has shifted. After two years of declining distributions and the DPI crisis, LPs want control. A blind-pool fund is a ten-year marriage. A co-investment is a date. LPs can test a GP's judgment on a single deal, evaluate execution, see a return, and then commit more capital. The SVB Family Office Report confirms that family offices now cite co-invest track records as their primary screen when evaluating GP relationships. Not fund returns. Co-invest returns. Because those demonstrate skill at the deal level, not portfolio construction.
Third, fee pressure is permanent. LPs have been pushing on fees for a decade. Co-investments give them exactly what they want: direct exposure to private equity deals at reduced or zero economics. For a pension fund with a $500M PE allocation, shifting 20% to co-invest at no fee/no carry saves $10M-$15M annually in fees. That's a line item that boards and CIOs track.
But the demand side is growing faster than the supply of quality co-invest deal flow. According to Chronograph's 2025 data, LPs report that their biggest challenge isn't finding co-invest capital to deploy. It's finding GPs with the operational infrastructure to run a professional co-invest process. The GP who builds that infrastructure has a structural advantage.
Deal-by-Deal as Deliberate Strategy
Managers are deliberately building permanent practices around deal-by-deal investing, with GP economics from three annual SPV deals comparable to a $75M fund with standard 2/20 terms.
The old framing was simple: raise a fund if you can, do deals one-off if you can't. That framing is dead.
Independent sponsors are winning deals in the lower middle market that traditional PE funds can't touch. They're faster to close, more flexible on structure, and more aligned with sellers who want a buyer who'll actually run the business. A $50M fund has investment committee approvals, mandate constraints, and deployment pressure. An independent sponsor with an SPV has a checkbook and a thesis.
Forbes 2025 documented the shift explicitly: managers are building practices around deal-by-deal investing as a permanent operating model, not a bridge to fund formation. Some will eventually raise a fund. Many won't bother. The economics work either way.
Consider the math. A GP doing three deals per year via SPV, each at $15M enterprise value with 1.5% management fee and 15% carry:
That's comparable to a $75M fund with standard 2/20 economics, without the two-year fundraise, the institutional infrastructure, or the LP advisory committee. The trade-off is execution intensity on each deal. But for operators who thrive on deal work rather than investor relations, it's a better model.
What GPs Need Before Running a Co-Invest Process
Before sending a single co-invest memo, GPs need a documented track record, a professional standalone memo, SPV legal templates, an administration partner, a communication cadence, and a co-investor CRM.
Running co-investment fundraising without preparation is how GPs burn LP relationships. Before you send a single co-invest memo, you need:
A real track record, even if it's thin. Two realized deals with documented returns beat ten unrealized markups. LPs co-investing at the deal level want to see that you can buy and sell, not just buy. If your track record is all unrealized, lead with the operating metrics: revenue growth, EBITDA margin expansion, customer retention. Something measurable.
A professional co-invest memo. Not your fund deck with "co-invest opportunity" pasted on the cover. A standalone document: investment thesis, company overview, financial model summary, deal terms, SPV economics, risk factors, and exit analysis. Eight to twelve pages. Clean.
Legal infrastructure. SPV formation docs, subscription agreements, and side letter templates reviewed by fund counsel. Not your corporate attorney. Fund counsel who knows ERISA, tax distribution provisions, and LP regulatory constraints.
An administration partner. Choose your fund admin before your first deal, not during it. Carta, AngelList, Allocations, or a traditional administrator who handles SPV structures. The onboarding process should take an LP thirty minutes, not three days.
A communication cadence. Quarterly updates to all co-investors, even when there's nothing exciting to report. Monthly updates if you're in an active value creation phase. The fastest way to kill your co-invest pipeline is to go silent between the close and the exit.
A co-investor CRM. Track every relationship: who they are, what sectors they like, what check sizes they write, how fast they move, who their decision-makers are, and what they passed on and why. This is your most valuable asset after your track record.
Co-Investments vs. Fund Commitments: A Comparison
Co-investments offer full deal transparency, lower fees, shorter commitments, and deal-level opt-in, while fund commitments offer diversification and a single front-loaded fundraise.
Deal visibility. Co-Investment: Full transparency into the specific asset, terms, and structure. Fund: Blind pool where LPs trust the GP to deploy wisely.
Fees. Co-Investment: 0-1.5% management fee, 0-20% carry (varies by LP relationship). Fund: 1.5-2% management fee, 20% carry (standard).
Commitment period. Co-Investment: Single deal with a 3-5 year hold typical. Fund: 10-year fund life, 5-year investment period.
LP decision timeline. Co-Investment: 2-4 weeks per deal. Fund: 6-18 months for fund commitment.
GP fundraising effort. Co-Investment: Per-deal, 4-8 weeks each time. Fund: Single raise, 12-24 months.
Minimum check size. Co-Investment: $100K-$2M typical for SPV. Fund: $5M-$25M typical for institutional fund.
LP control. Co-Investment: Full opt-in/opt-out per deal. Fund: Limited LPAC governance, no deal-level veto.
Track record building. Co-Investment: Deal-level attribution, clear and fast. Fund: Fund-level returns, blended across portfolio.
Access to private wealth. Co-Investment: High, fits family office and HNW allocation model. Fund: Low, minimums and lockups exclude most private wealth.
Operational burden on GP. Co-Investment: High per-deal with legal, admin, and fundraising each time. Fund: Front-loaded with one raise, then deploy.
The Capital Is There. The Process Is What's Missing.
LPs are reserving up to 30% of private markets capital for co-invest, but most GPs lack the systematic, repeatable process to capture it alongside their deal pipeline.
Preqin's 2025 data says most LPs plan to maintain or increase PE allocations. Chronograph says LPs are reserving up to 30% of private markets capital for co-invest. Family offices are actively screening GPs on co-invest track records. The $150T private wealth market is barely touched.
The capital exists. What most GPs lack is a systematic, repeatable process for co-investment fundraising that runs in parallel with their deal pipeline.
This isn't about choosing between a fund and deal-by-deal. Plenty of GPs run both. A traditional fund for core deployments. Co-invest SPVs for larger deals, club deals, or situations where LP demand exceeds the fund's allocation. The co-invest capability is additive, not competitive, to fund formation.
But building that capability takes infrastructure, relationships, and a willingness to do the work of raising capital one deal at a time. Deliberate. Systematic. Repeatable.
If you're a GP or independent sponsor building a co-investment program, or considering whether deal-by-deal makes sense for your next chapter, we work with managers on exactly this at Praxis Rock. Book a call and let's talk through where you are and what the path looks like.