Post close activities for SPVs
As a first-time SPV manager, there are a few key post-close activities to keep in mind when managing an SPV investment. These activities include the transfer of ownership from the original investors to the SPV’s members and the allocation of pro-rata rights.
SPV fund managers: know how to manage pro-rata rights for maximum impact
Pro-rata rights give investors the option to increase their investment in a company’s future rounds of financing, allowing them to maintain their ownership stake.
Allocation of pro-rata rights typically involves the SPV manager determining the percentage of a company’s financing round that can be allocated to each investor, taking into consideration their total amount of the initial investment and any subsequent investments made in the company.
Managing pro-rata rights for maximum impact requires understanding the three main strategies available—pre-arranged deals, participation rights, and oversubscription rights.
Pre-arranged deals
Involve the determination of the amount of each investor’s stake in the company for future rounds of financing.
Participation rights
Give investors the option to maintain their stake in the company.
Oversubscription rights
Allow investors to increase their investment if the company grows. Additionally, SPV managers should ensure that the subscription agreement includes all relevant legal and regulatory requirements. By understanding and properly executing these strategies, SPV managers can maximize the potential of the pro-rata rights for their investors.
Transferring ownership from original investors to SPV: a must-know process for SPV managers
In most cases, the original investors will transfer their ownership of the company to the SPV in exchange for a share in the SPV. The SPV’s members, typically other investors, will then receive a share of the company’s equity as part of their investment.
This transfer of ownership is typically managed through a legal document known as a subscription agreement. By understanding and properly executing the transfer of ownership from the original investors to the SPV’s members, an SPV manager can ensure the process is completed successfully.
By understanding and properly managing these activities, a fund SPV manager can help ensure their investors are able to take full advantage of the investment opportunity.
