Syndicates Masterclass: What is an SPV?

A special purpose vehicle, or SPV, is the legal entity that powers a syndicate. For each deal a syndicate runs, a Special Purpose Vehicle is created in the form of a Delaware LLC.

“Vehicle” refers to the legal entity, or structure, created for raising money in order to invest. The “Special Purpose” is the investment. This investment could be into a startup, a private company, a real estate project, or other assets like art or films.

A Special Purpose Vehicle/Entity (“SPV”) is a business entity that has a special limited purpose. SPVs are often created to protect assets and separate liabilities of a parent or subsidiary company. Each SPV, which may share the same managing and sponsoring entity (an “SPV Organizer”), has its own operating structure, ownership structure, balance sheet, and is financially independent of any other SPV with the same SPV Organizer. While an SPV can be any entity type, they are usually either a limited liability company (LLC) or a limited partnership (LP).

All capital is usually called upfront, eliminating the need for capital calls through the life of the fund. 

SPVs are so-called “pass-through vehicles”—they’re owned by their members and pass through income (or losses) to those members in proportion to each member’s ownership.

When an LP invests in an SPV they become a “member” of the SPV. In return for their capital, LPs receive “membership interest” in the SPV. That interest is usually expressed as a percentage. For example, an LP who invests $10k into an SPV that ends up raising a total of $100k will receive 10% membership interest in the SPV.

Once an SPV has finished raising capital, it makes a single investment in a startup, sending a single wire to the company. The SPV will appear as a single entry on the company’s cap table.

Put another way, the LP is an investor in the SPV (not in the underlying portfolio company), and the SPV is an investor in the company.

Since SPVs are pass-through vehicles, income received by the SPV is passed through to its members. Coming back to our example, if the SPV receives $10M as proceeds in connection with an acquisition, then our LP who has 10% membership interest will receive $1M, subject to carried interest.

Like traditional venture funds, SPVs can charge carried interest and management fees. But unlike funds, all capital is usually called upfront, instead of multiple times throughout the life of the fund (a feature called “capital calls”). Keep in mind that no two SPVs are the same. GPs can structure an SPV to include unique waterfall provisions, hurdle rates, redemption rights, distribution timings, and more.

Depending on how much capital the SPV raises, there are limits to how many investors can invest in the SPV. For SPVs raising $10M or less, the SEC permits a maximum of 250 accredited investors. For SPVs raising over $10M, the limit is 100 investors.

Other key features include:

  • Removing audit and financial statement obligations
  • Allowing for unique waterfall provisions and economics specific to an investment
  • Giving investors the opportunity to choose specific investments
  • Allowing investors to pool capital to meet minimum investment requirements
  • Providing the SPV sponsor with carried interest or other performance fees
  • Ability to follow-on. GPs often create SPVs to follow-on to earlier investments when their fund doesn’t have enough capital left to deploy. This allows investors to double-down on companies.
  • Networking opportunities. With Syndicates, you can spin up SPVs and invite LPs on a deal-by-deal basis. LPs have the option of subscribing to your Syndicate, seeing your dealflow, and then choosing the investments they want to be a part of. This allows GPs to build a network of LPs through their syndicate community efforts.