In the dynamic world of startup investments, a new star is rising: the Special Purpose Vehicle (SPV). Think of an SPV as a specialized investment vehicle, distinct from broad-spectrum investment funds. It pools funds from multiple investors to target specific startups, potentially at various growth stages, from pre-seed to more mature phases like Series A, B, C. For investors, this means becoming shareholders of the SPV, which in turn holds shares in the targeted startups. This indirect shareholding opens the door to potential gains if the startups flourish.
The beauty of SPVs lies in their simplicity and efficiency. Startups find fundraising less costly and more streamlined, dealing with just one entity – the SPV – rather than a multitude of small investors. This centralized approach not only saves time and money but also keeps the startup’s capitalization table more focused, with the SPV representing a single, consolidated investor voice.
For investors, SPVs offer a tantalizing buffet of opportunities. They enable collective investment in high-growth potential startups, often with significant funding rounds, yet require relatively modest individual contributions. This makes SPVs an accessible avenue for diversifying investment portfolios across several ventures, enhancing the chances of successful exits.
Venture capitalists sometimes use SPVs to invest in startups that fall outside their main funds' investment policies. This strategy also helps budding VCs build their track record, attracting future investors based on their performance in these SPVs.
But it's not all sunshine and roses. SPVs, acting as intermediaries between startups and investors, can introduce tax complexities. However, careful structuring can mitigate these issues, aligning with regimes like the mother-daughter or long-term capital gains frameworks. It's important to note that individual investors in startup SPVs lack direct decision-making power within the startup.
Enter Blockpulse, a game-changer in the SPV arena. Blockpulse revolutionizes fundraising and equity distribution for startups by leveraging blockchain technology for secure financial instrument creation and management. Their SPV service promises rapid setup (approximately ten days) and involves renowned legal professionals for utmost security and compliance. Blockpulse handles everything – from generating necessary documentation to administrative management and secure blockchain-based share issuance. They even offer a secondary market for share transfers, adding liquidity to the SPV shares.
In the kaleidoscope of startup investment, SPVs, particularly those facilitated by Blockpulse, emerge as a pragmatic, efficient, and potentially lucrative option, marrying the excitement of startup culture with the pragmatism of structured investment.
What about AngelList?
It just wouldn’t be right to make this list without mentioning one of the OG innovators in this space, AngelList. AngelList’s mission is pretty simple: “To increase the number of successful startups in the world”.
AngelList charges a flat setup fee for Standard SPVs - $8,000, plus a state regulatory filing fee of $2,000, capping the total fees at 10% of the raised amount. These SPVs need a minimum raise of $80,000. For Follow-On SPVs, which are additional investments in the same company via the same syndicate, the setup fee is reduced to $5,000, but the regulatory filing fee remains the same. The minimum raise for Follow-On SPVs is set at $50,000.
The SPV setup fees cover specific back-office operations for the SPV's lifespan as agreed in the fund administration agreement. Additionally, state and provincial regulatory filings, known as blue sky filing costs in the U.S., are necessary. AngelList collects these fees to cover required notice filings with state security regulators.
To keep the costs within bounds, AngelList caps the total of setup and regulatory fees at 10% of the total SPV size, provided it meets the minimum required size. If the fees exceed 10% of the capital raised, AngelList covers the excess.
Moreover, if funding is raised from AngelList Platform LPs, AngelList charges the GP a 5% carry on those LPs. There are also additional costs, termed add-ons, depending on the SPV's needs. These include charges for international investments, self-advised SPVs, non-standard investments like Fund of Funds, crypto investments, blocker setup, parallel funds, and financial statements, each carrying its own fee.
To illustrate, consider an SPV raising $100,000 for an international investment. The setup fee would be $8,000, state regulatory fees $2,000, and add-ons (for the international investment) another $1,000. The total incurred setup, regulatory fees, and add-ons would be $11,000, leaving $89,000 as the final investable amount.
These details illuminate the financial landscape of running an SPV on AngelList, highlighting the various costs and structural nuances that come into play. This information is essential for anyone considering using SPVs as an investment vehicle, particularly on platforms like AngelList.