Who should receive a referral reward: the GP, the management company or the individual?

Which routing option should a sponsor choose?

Set the rule before the first introduction, and default to the option your fund documents and LPs would expect to see disclosed. There are three routing choices: the individual professional, the management company, or an offset that passes the benefit to the fund. None is right for every sponsor, and the choice belongs to your general counsel and chief compliance officer, not to the deal team. This is general information, not legal, tax or financial advice. Confirm with your own counsel and compliance officer before acting.

The reason to decide early is practical. A sponsor with ten portfolio companies that could qualify will make several introductions in a year. If the first reward arrives with no policy in place, the firm ends up inventing one under pressure, usually while a partner is waiting to be paid.

What are the three routing options?

The SEC scrutiny of private fund fees and conflicts is worth reading before you choose, because an unusual routing choice invites the questions an examiner asks.

How do you decide? The 4-question routing rule

Answer these in order. The first clear answer usually settles it.

1. Does the limited partnership agreement say anything about adviser or affiliate income from portfolio companies? If it requires an offset or consent, follow it.
2. Does the reward come from the portfolio company or from SourceX? It comes from SourceX's own fee, so it is a different animal from a monitoring fee or vendor rebate. The page on distinguishing a referral reward from the company's licensing proceeds explains the line, and the guide on portfolio vendor payments to sponsors shows where the comparison with rebates breaks down.
3. Who actually made the introduction, and could they be said to owe a duty to the portfolio company? A director who sits on the company's board has a different position from an operating partner who runs a screen.
4. Would you be comfortable showing the routing to your investors on the next annual meeting slide? If not, change the routing.

What do you need to write into policy before the first introduction?

• The permitted recipient: individual, management company or fund offset
• A named approver, usually the chief compliance officer or general counsel
• A rule on whether the portfolio company's CEO must be told that the sponsor may receive a reward
• A rule that the introduction is made on the company's merits, never because a reward is available
• A record-keeping step: who was introduced, when, and who approved
• A tax step: whoever is paid will need to provide tax documentation, so check with your adviser
• A review date, since fee and conflict policies should be revisited each year

When in the fund calendar do the routing questions come up?

Does any securities exemption change the routing question?

Do not assume one does. The SEC's 2020 proposed exemptive order for finders was a proposal and was never adopted, and the M&A broker exemption concerns facilitating the sale of a privately held company, not data-licensing introductions. Nothing here says that either covers SourceX referral partners. Sponsors whose professionals hold securities licenses should also ask their compliance team about outside-activity rules, since the reward goes to someone, and that someone's registrations may matter. This is general information, not legal, tax or financial advice.

How does the choice look from the portfolio CEO's side?

The CEO usually cares about one thing: whether the introduction is being made for the company's benefit. Three habits protect that trust.

• Say in the first email that the sponsor may receive a reward from SourceX, paid from SourceX's own fee.
• Make clear that the company decides whether to proceed, and that declining carries no consequence.
• Keep the operating partner out of the pricing conversation, which the company has with SourceX directly.

Illustrative scenario

Illustrative and fictional: a lower-middle-market sponsor, Harbor Lane Partners, has six portfolio companies with 50+ full-time employees at peak (contractors excluded). Its operating partner wants to introduce three of them. The general counsel finds that the fund agreement is silent on this kind of income, so she writes a policy that routes any reward to the management company, requires a compliance sign-off per introduction, and adds a line to the annual investor letter. The operating partner is not paid personally, so the introductions stay focused on fit.

How the introduction works without anyone handling data

The partner makes the introduction and gives basic fit information only. The portfolio company completes its own inventory with SourceX, approves its own scope and price, and signs only if the terms work. Nobody at the sponsor exports or describes confidential records. The company fit checker gives a preliminary, non-binding screen without contact details.

How partner rewards work for a sponsor

Partners earn 25% of the eligible platform fees SourceX actually collects from the referred company's licensing deals, capped at $100,000 per referred company. The reward is paid only after the buyer pays and SourceX receives its fee; an introduction, meeting or signed agreement alone does not trigger payment, and no reward is guaranteed. The reward is a share of SourceX's fee and is never deducted from what the portfolio company receives. Read the program terms before deciding who registers.

When is this the wrong question?

Do not spend time on routing when:

• The portfolio company is under 50 full-time employees at peak (contractors excluded).
• Nobody at the sponsor can reach an authorized sponsor at the company.
• The company's records mostly belong to its clients, who have not agreed.
• Your investors have asked the sponsor not to take any income from portfolio relationships.

Independent sponsors and search funds face a version of this question without a fund agreement; see the guide on disclosing referral income to investors. A related question for advisers who also sit on the other side of a company relationship is on the page about whether a management consultant can accept a referral fee from a vendor. For the accountant's version of the person-versus-firm problem, see whether CPA rules apply to the partner or the firm.

Next step

Draft the four-question rule with your general counsel, then register as a partner in whichever name the policy chooses. The role-specific context is on the operating partners page.