Once you have on boarded your investors, the SPV can fulfill its purpose by investing in the asset through the purchase agreement and wiring funds towards the target company.
This is the main reason why you created your capital-raising SPV. It culminates with purchasing ownership in a particular asset. This is why you hired a registered agent to help you create all necessary documents to register as a legal entity.
Once all investors have been onboarded, with all the documents signed and funds wired, it is time to use the funds to purchase the asset or portion of the asset for your aggregated investors.
Quick Recap on the Anatomy of an SPV
It may be worth summarizing your progress in capital-raising SPV at this point in its life cycle. What lies ahead? This is what you have accomplished so far:
- The entity was legally established, and a registered agent has been put in place.
- The foundational documents have been signed.
- Investor Funds have been wired and aggregated.
- The asset or shares have been purchased.
- The capital has been transferred to the startup company, i.e. The investment has been completed.
The entity has been created. Now we need to purchase the asset. The first crucial step in making the investment has been completed. Two steps are needed to complete the capital-raising SPV as a bona fide entity.
STEP 8: Preparing individual capital account statements for all your investments
STEP 9 Building an Cap Table
Types of assets that can be purchased through an SPV
Special purpose vehicles (SPVs) can be used to invest in a wide variety of assets, including but not limited to:
- Real estate properties, such as commercial or residential buildings, land, and development projects
- Infrastructure projects, such as transportation, energy, and telecommunications assets
- Private equity and venture capital investments, such as stakes in privately held companies
- Credit assets, such as loans and bonds issued by companies or governments
- Natural resources, such as minerals, oil and gas reserves
- Artworks, collectibles and antiques
- Distressed assets, such as non-performing loans or bankrupt companies
- Intellectual property, such as patents, trademarks and copyrights
- Cryptocurrencies and digital assets
- Derivatives and other financial products that derive their value from underlying assets
Comparison of SPVs vs direct investment
An SPV (Special Purpose Vehicle) and a direct investment are two different ways of investing in assets. The main difference between the two is the level of control and involvement an investor has over the investment.
With a direct investment, an investor purchases an asset outright and has direct control and ownership of that asset. This means that the investor is responsible for managing the asset and making decisions about how to use it. Direct investments also typically require a larger amount of capital than investing through an SPV.
An SPV, on the other hand, is a separate legal entity created for the purpose of owning a specific asset or group of assets. The investors in an SPV do not have direct control over the assets, but instead, rely on the management of the SPV to make decisions and manage the assets on their behalf. An SPV allows for a pooling of capital from multiple investors, enabling them to invest in an asset that would be too expensive to purchase individually.
Another key difference is that an SPV is a separate legal entity from its investors, meaning that in case of legal action, its investors will be insulated from the liability of the SPV. Additionally, its investors can also be more diverse, and come from different jurisdictions which makes it easier to raise capital.
In summary, direct investments give the investor more control over the asset, but require a larger capital commitment and provide no insulation from liability. An SPV allows investors to pool capital and share risk, but gives them less control over the asset and rely on the management of the SPV.
How to handle conflicts of interest in an SPV investment
Handling conflicts of interest in an SPV (Special Purpose Vehicle) investment can be a complex task, as it involves ensuring that the interests of the SPV and its investors are aligned, and that the management of the SPV is acting in the best interests of the investors. Some ways to handle conflicts of interest in an SPV investment include:
Clear governance structure: Having a clear governance structure in place, such as an independent board of directors or a committee, can help to ensure that the management of the SPV is acting in the best interests of the investors, and can help to resolve any conflicts that may arise.
Disclosure of conflicts: Requiring the management of the SPV to disclose any potential conflicts of interest can help to ensure that the investors are aware of any potential issues and can make informed decisions about the investment.
Prohibiting self-dealing: Prohibiting the management of the SPV from engaging in self-dealing or other activities that could be seen as a conflict of interest can help to ensure that the interests of the investors are protected.
Clearly defined roles and responsibilities: Creating clear roles and responsibilities for all parties involved can also help to minimize conflicts of interest and ensure that the management of the SPV is acting in the best interests of the investors.
Monitoring: Regularly monitoring the activities of the management, the assets and the performance of the SPV can help to identify any potential conflicts of interest early on, and make sure they are addressed appropriately.
Use of Independent Advisors: Use of independent financial advisor or legal counsel can help the management and investors to understand the complexity and nuances of any potential conflicts of interest and take actions to minimize them.