SPV's Demystified

WTF is an SPV??

A Special Purpose Vehicle (SPV) is a company that is formed for the purpose of pooling money from a group of investors to then invest into a single company. SPVs are typically organized by syndicate leads who want to pool together money from a group of angels or other individual investors to invest in a pre-selected company. The syndicate lead is responsible for identifying a company to invest in, securing allocation in the round, performing due diligence, and finding other investors to fill their allocation. Syndicate leads will also provide ongoing support to the portfolio company and may also coordinate between the company and individual investors in the SPV who may want to get more involved in supporting the company.

How are they structured??

Rather than investing directly into a company, investors will invest into the SPV, which will in turn conduct the investment into the company. This allows multiple investors to combine their money into a larger investment while acting as one line on the target company’s cap table.?

Most SPVs are formed as?Delaware?LLCs. Delaware is often treated as the default given its cost-effective, fast, and business-friendly process. Through Delaware, Sydecar uses the?Series LLC structure?for its SPVs. Series LLCs are part of a master series structure in which a master LLC is registered, allowing for a large number of series LLCs to be established under the master LLC without additional registration.

Do SPVs invest as part of a round??

Once an SPV is formed, it can make an investment into a company via a SAFE or as part of a priced round.?

When accepting an SPV as part of a priced round, the founder will have to decide how much of their fundraising they are willing to allocate to the SPV. Typically, the SPV lead will give the founder an estimate of how much they will be able to raise from their investor network. Be aware that the syndicate lead may not be able to commit a solid number until they start fundraising for the SPV.

Founders can also accept SPVs independent of a price round. This would be on a SAFE and can act as a bridge between rounds.?

Do I have to have a lead for an SPV??

An SPV is typically organized or “led” by an angel investor, syndicate lead, or VC who is an established investor looking to bring in more capital than they are able to deploy as an individual. Founders with their own strong network of angel investors may choose to act as the lead for their company’s SPV, but this requires them to bear the brunt of the fundraising work.?

Where do I find a qualified person to lead an SPV on my company's behalf?

Finding an SPV lead?is much like the rest of fundraising. It involves finding intros, networking, and pitching. However, since SPVs do not require the buy-in of an entire VC firm, you can find potential leads in individuals like active angel investors, syndicate leads, or investors with a strong network of accredited investors.?

Do you have to be an accredited investor to invest in an SPV??

Investors into the SPV have to be accredited, as the SPV is usually formed under Regulation D. The deal lead, however, does not have to be accredited and can still invest money into their own SPV, as they are considered “knowledgeable employees”. Often, the deal lead will invest in the SPV as a signal of their conviction in the investment, and thus will be accredited.