Setting up and operating an SPV may appear to be a simple process; however, small mistakes in any part of the process can lead to big headaches.
To understand where investors most often go wrong, we asked industry experts: What is the biggest mistake investors make when creating or managing an SPV, and how can they avoid it?
Their answers offer practical insights into the pitfalls investors should watch for; and the habits that can make SPV management more efficient and effective.
1. Abhishek Pareek
Founder & Director, Coders.dev
The main errors made by people in the investment field is that they see the SPV being inactive rather than a financial entity that needs close supervision. In my position as the person in charge, I have been able to see that SPVs often become inefficient businesses since there is a focus on the initial asset acquisition; however, the ongoing compliance needs are ignored and therefore the whole investment process does not work. This false understanding creates misunderstanding between the lead investor and the limited partners.
To prevent such mistakes, investors must deal with SPV in a manner that is similar to the way they manage primary funds meaning they have to set up all the governance protocols and automated mechanisms from the very beginning, while the operating agreement needs to contain very detailed requirements regarding exit mechanisms along with the communication cycles.
2. Rory Keel
Owner, Equipoise Coffee
I’m the operator at Equipoise Coffee, the specialty coffee brand Craig Keel established in 2021 around the idea of true balance. The biggest mistake investors make when creating or managing an SPV is launching without crystal-clear alignment on purpose, economics, and communication rules. People jump in excited about the deal and skip the hard work of spelling out every tradeoff, so later everyone argues about what was “obvious.”
We’ve lived a parallel version of this every week. When we source beans or lock a roast profile, we don’t hide the compromises. We explain why one origin costs more, why a lighter roast needs tighter timing, and what the customer actually gets. That same habit saves SPVs. If the lead doesn’t research the underlying asset, fee stack, and exit path before inviting capital, the vehicle starts bitter and never recovers. I’ve watched groups collapse simply because no one wrote plain-language reporting deadlines or voting thresholds.
Avoid it by forcing the conversation early. Draft a one-page purpose statement everyone signs. List the exact risks and who carries them. Prioritize ruthlessly when resources are tight: first clarity, then capital, then speed.
Keep communication open the way we educate home brewers on our blog, no jargon walls, just honest updates. Do that research and over-communicate the structure, and the SPV stays balanced instead of turning into a fight over leftovers. That discipline protects returns and relationships better than any fancy term sheet.
3. Ronald Hoplamazian
Managing Member, Pluribus Capital LLC
The biggest mistake is treating the SPV as a legal wrapper instead of a key governance structure that needs to be actively managed. Investors letting the entity run on autopilot will ultimately run into problems. The failure is not the formation; it is the drift between the underwritten deal thesis and the implemented operating decisions twelve quarters later, with no one checking the original underwriting.
In one middle-market transaction I oversaw at GE Capital, the SPV holding the investment skipped its quarterly reforecast for eighteen months post-close. By the time the divergence from the base case surfaced in the annual audit, three separate operating decisions had already compounded. The legal structure was fine. The governance calendar had been quietly deferred.
Avoid it by appointing an independent director whose fiduciary duty runs to the SPV itself, requiring documented quarterly reforecasts against the base case, pre-committing to a written escalation trigger for any variance beyond a defined threshold and “springing” operating controls.
Ronald Hoplamazian — Managing Member, Pluribus Capital LLC; 20+ years in structured finance and board oversight, including 13 years at GE Capital.
4. Runbo Li
CEO, Magic Hour AI
I’m Runbo Li, Co-founder & CEO at Magic Hour, Y Combinator W24 alum, and former Senior Data Scientist at Meta. I’ve spent years navigating fundraising, cap tables, and investor structures firsthand.
The biggest mistake investors make with SPVs is treating the legal structure as an afterthought and the alignment of incentives as a given. They rush to pool capital around a hot deal, paper it quickly, and assume everyone’s on the same page. They’re not.
I’ve seen SPVs where the lead didn’t clearly define decision rights around follow-on investments or pro-rata. Six months later, the portfolio company raises a bridge round, and suddenly LPs are arguing about whether new capital calls are mandatory or optional. The whole vehicle stalls at the worst possible moment.
The fix is simple but requires discipline: nail the operating agreement before a single dollar moves. Spell out follow-on authority, carry waterfall, information rights, and exit mechanics in plain language. Run a tabletop scenario with your LPs. “What happens if this company needs more money in 90 days?” If you can’t answer that cleanly, your docs aren’t done.
An SPV should be the simplest possible structure that removes ambiguity, not a speed hack that creates it later.
5. Cem Oner
Founder / Finance & Public Data Publisher, Hesap Cebimde
The biggest mistake is treating the SPV as a convenient bank account for one investment instead of a separate governance structure.
Before investors contribute money, the documents should answer who controls the vehicle, which decisions require investor approval, how additional capital calls work, which expenses the SPV can charge, how distributions are calculated, what happens when an investor wants to transfer an interest, and how conflicts involving the sponsor are handled.
The underlying investment can perform well while the investor experience becomes poor because fees, voting rights, liquidity and reporting were never examined carefully.
I would also keep the SPV’s banking, accounting and records clearly separate from the sponsor’s ordinary business. A structure created for transparency loses much of its purpose when transactions cannot be reconciled independently.
With around 15 years in finance and operations, my decision rule is that investors should understand the downside governance before discussing the upside return. If nobody can explain what happens after a disagreement, capital call or delayed exit, the structure is not finished.
6. Wayne Lowry
Marketing Coordinator, Local SEO Boost
he biggest mistake investors make with an SPV is launching without locked-in, plain-language alignment on decision rights, fees, reporting, and exits. I’ve spent 14 years on staff at Sunny Glen Children’s Home in San Benito, Texas, and that same gap sinks more plans than any market swing. When resources get tight across our build care, residential services, Allen House SIL program for youth 18-21, and Poenisch Counseling Center, we don’t move until every tradeoff is explained out loud to the people who count on us. Assumptions kill trust faster than anything else.
I’ve watched groups pour energy into the legal wrapper and forget the human side. Partners then invent their own story about what the vehicle is for, and friction shows up right when you need speed.
We avoid that here by researching hard before we ever give public guidance to the Rio Grande Valley families we serve. Same discipline works for an SPV: write the operating rules so a newcomer can read them once and know exactly who decides what, how capital moves, and how everyone gets out clean. Share the updates on a fixed cadence instead of waiting for questions. We’ve kept that habit for over 90 years and more than 25,000 children while staying CARF Accredited, because foggy communication never rebuilds hope.
Treat your co-investors the way we treat kids who’ve been abused or forgotten: consistent, honest, no surprises. Do the alignment work first and the SPV stays a clean tool instead of a distraction. That single habit is the one I’d bet on every time.
7. Ydette Macaraeg
Marketing coordinator, Santa Cruz Properties
I’m the marketing coordinator at Santa Cruz Properties and over years working land deals across South Texas I’ve watched investors trip on the same SPV mistake every time: they rush the structure without locking crystal-clear communication on roles, risks, and tradeoffs. They file the paperwork, drop capital in, then discover half the partners never really understood who services the assets or how exits work when cash gets tight.
That gap kills trust faster than any market dip. We’ve built our whole approach around owner-financing residential lots and acreage in places like Edinburg, Hidalgo County, and Cameron County for families who can’t clear bank hurdles. The lesson transfers straight over.
When we close a deal we don’t hand someone keys and walk away. We walk them through in-house loan servicing step by step so they know exactly what happens after the sale. Same discipline belongs inside an SPV. Spell out management duties, fee flows, and decision rights in plain language before anyone wires money. Research the entity rules thoroughly and prioritize the must-have controls first when bandwidth is limited.
I’ve seen real-world land plays stall because one investor assumed the SPV would auto-handle taxes and another expected active oversight. No one had written it down. Avoid that by treating every partner conversation like a buyer meeting: lead with the upsides, name the limits out loud, and confirm understanding. Don’t bury the hard parts. Regular short check-ins keep everyone aligned without drama. Keep the vehicle simple, keep the talk honest, and you’ll protect both the capital and the relationships that make the investment work.
Conclusion
An SPV is more than a vehicle for completing an investment. The SPV requires proper planning, monitoring, and communication at every stage of its life cycle.
Although the experts identified various mistakes, there was a common message conveyed by all of them. This message is that effective SPV Fund management begins with the proper foundation. Through proper planning, communication, and processes, investors will be able to stay away from errors and concentrate on the investment.
I’m the Co-Founder of SPV Hub, where I help investors create and manage Master and Series LLCs efficiently. With years of experience as an angel investor, board member, and startup mentor, I guide founders and investors through complex early-stage deals, providing expert insights to make investment structures clear, practical, and effective.
