The Real Definition of ‘Skin in the Game’
The phrase comes from the simple idea that if someone is asking you to take a risk with your money, they should be taking that same risk with their own. In investing, especially in private markets like real estate syndications or private equity funds, it means that the sponsor or general partner commits their own capital alongside yours.
But here’s the nuance: not all “skin” is the same. A token investment can be symbolic, while a meaningful stake—say, 5 to 20 percent of the total equity—signals real alignment between the sponsor and investors.
Why It’s More Than Symbolism
Imagine two scenarios:
- Sponsor A invests $50,000 in a $10 million deal.
- Sponsor B invests $1 million in the same $10 million deal.
Which sponsor is more motivated to ensure the project’s success? Which will think twice before taking on unnecessary risk? The scale of the sponsor’s investment changes the dynamics entirely.
Infinity⁹’s philosophy is clear: when we put institutional-quality real estate opportunities in front of our investors, we also put our own capital into the deal. It’s not marketing language—it’s a commitment.
The Risk-Return Connection
When sponsors have meaningful capital invested, they stand to lose alongside you if the project underperforms. This alignment does two things:
- It incentivizes careful underwriting, conservative assumptions, and strategic planning.
- It fosters decision-making that protects long-term investor value instead of chasing short-term optics.
As we often say, there are no bad markets, just bad strategies. A sponsor with skin in the game has a built-in filter against bad strategies.
How Much Is Enough?
There’s no universal percentage that defines adequate skin in the game. Some institutional investors expect 10 percent or more. In private deals, 5 to 10 percent from the sponsor is often considered healthy. The key is proportionality—enough to be meaningful relative to the sponsor’s net worth and to the deal size.
Be wary of sponsors who won’t disclose their own investment amount or who count “sweat equity” as their skin in the game. Time and effort matter, but they don’t replace actual financial risk.
Why It Matters to You as an Investor
If you invest in a deal where the sponsor has little to no capital at stake, you’re carrying most of the financial risk. In that case, their incentives may skew toward earning fees rather than maximizing long-term returns. On the other hand, when both parties are equally exposed to potential downside, the relationship shifts from vendor-client to true partnership.
This is a cornerstone of Infinity⁹’s Building Capital Framework: your money doesn’t need a visa, and it shouldn’t travel alone.
A Checklist for Evaluating Skin in the Game
- Ask the sponsor how much of their own capital they’ve invested.
- Look for proportionality relative to their net worth and deal size.
- Beware of vague answers or reliance solely on sweat equity.
- Align your risk profile with theirs before committing funds.
The Infinity⁹ Perspective
We view skin in the game not as a marketing point, but as a safeguard for investor trust and deal integrity. It’s why our own capital is at work in every opportunity we offer. It ensures we’re making decisions with the same discipline we’d demand if all the money were ours—because, in part, it is.
