Syndication and Deal Terms

by Ross Andrews

If you are a manager or deal maker that regularly syndicates investment vehicles, then setting deal terms is an important part of how you setup each SPV.

An SPV or Special Purpose Vehicle is a LLC setup as a passthrough entity for the purposes of pooling investor capital contributions to purchase or invest in an asset such as startup equity or a debt instrument.

The LLC is managed by a managing member who is often the individual or entity that is responsible for the deal and often times will collect a fee such as management fees or carried interest. So how do we establish those terms?

When you form your SPV, you will have to complete and sign an Operating Agreement which is a simple document that governs how the SPV LLC will operate and the terms that the managing member will be entitled to throughout the lifecycle of the SPV.

The first important term is the management fee, this is a fee that is collected as income by the manager for their work on organizing and managing the SPV and deal. Often times in SPVs this fee is collected upfront on the closing of the SPV but you can structure when and how you are paid management fees how ever you want. If you have questions about how management fees will impact you and your income you should always consult a tax professional to make sure you have the correct information.

The second most common term is carried interest. Carried interest is a percentage of the profits interest that the manager is entitled upon the maturity of a SPV. AS capital is being distributed back to the investors, each investor is paid back their investment principal first. Then a percentage of the profits (typically 5-20%) are shared with the manager and the balance going back to each investor.

There are a few other terms such as preferred interest that sometimes can factor in but the above two are the most common terms that shape a syndicated vehicle. For managers it is important to make sure you set these terms correctly as the impact how you are financial compensated when you bring these opportunities to investors.

At Syndicately our SPV management platform makes it simple and easy to set these terms on a deal-by-deal basis and and the write them directly into your SPVs Operating Agreement to share with prospective investors. If you want to see this in action for yourself fee free to book a demo with our team and we are happy to show you our platform in action or if you want to get started you can signup today.

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