SPVs and Venture Investing

by Ross Andrews

SPVs or Special Purpose Vehicles are a fantastic tool when a deal manager is looking to combine the most efficient method of acquisition and the best tax situation for the deal. SPVs help organizations act more nimbly and be adaptable to the ever-changing environment that organizations face today. SPVs can be used to facilitate a wide variety of transactions and are often seen as advantageous to traditional business structures.

Some benefits of SPVs include:

-Reduced costs and improved margins

-Asset-backed financing

-Increased flexibility

In venture investing, SPVs allow a series of smaller investor to pool capital and make a single, larger investment or meet a larger investment minimum (say the minimum to invest is $250k you can get 10 $25k checks together).

For founders it also helps keep their cap table clean as the SPV will show up as a single line item on the cap table instead of 10 separate entries.

For deal managers, you can configure SPVs to capture management fees and carried interest just like a VC or PE fund if you are looking to be compensated for your work in pulling together then deal. Each SPV is an LLC and can hav its own operating agreement where you can write these terms in.

At Syndicately our SPV formation and management platform makes it easy to create SPVs and set these terms. Once setup, you can onboard investors and connect the founder or operator that is raising from you and we will handle the flow of funds through the SPV entity into the startup at close. We can track each transaction for tax and account purposes and updating the ownership table of the SPV entity itself.

Remember that investors in an SPV are now owners of the SPV entity itself, not the asset that the SPV is purchasing. If the asset the SPV purchases produces income or a return, that return is passed through the LLC to each investor similar to how profits are shared in a partnership. 

The advantage of the SPV structure is that it allows the asset to be purchased without the complexity and high fees of setting up a traditional partnership or fund and you can conduct business on a deal-by-deal basis.

At Syndicately, our SPV automation tools and deal portal gives you everything you need to start building a portfolio of SPVs and even includes simple tools to help customize deal terms on an SPV-by-SPV basis, track valuation changes over time and communicate portfolio progress with your investors. Book a demo today or feel free to get started yourself, our team is always available as questions come up.

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