SPV is often created by the parent company or a Fund Manager for funding of a limited and a particular task. Investors use such legal structures as a powerful financial tool to undertake a specific business project. An SPV act as a passive company which means the entity doesn’t take part in business operations and doesn’t hire employees. The Fund Manager creates an SPV and gets investors onboard. Further, the SPV invests the collected fund into a Startup. Through SPV, the participating investors receive ownership in the form of equity in the Startup company based on their investment proportion. 

SPV Hub is renowned for creating Special Purpose Vehicles/Entities, empowering investors to pool their money for a specific purpose and isolate financial risk. If you are not familiar with SPVs or not sure how Special Purpose Vehicles operate, then hang in there. By the end of this page, you will find the answer to all of your questions. 

Benefits of creating Special Purpose Vehicles

SPV in the venture was a new name till 2013. To promote innovation and democratization of the investment in Startups, SPVs came into existence. This financial tool empowers Investors to enter into an agreement with the high-growth startups to co-invest and share risk. Through SPVs, a group of investors benefit by pooling their money and gaining access to limited liability at the same time. Every party involved – the Investors, Fund Managers and Startup Founders enjoy unique benefits through SPVs.

For Fund Managers

Special Purpose Vehicles can help novice fund managers to enter into venture investing. SPVs are instant, not as complicated as Fund to set up and generate faster returns. SPV also acts as a way for new GPs to build their networking with LPs, portfolios, and AUM. Unlike Fund, an SPV invests in a single company which gives it a defined goal. While pitching a Fund, the GPs pitch the investors with an Investment Thesis that provides a rough idea. But an SPV presents a specific investment opportunity and a clearer picture.

For Investors

SPVs unlock better investment opportunities for Investors and grants them access to better deal flow. As discussed unlike a VC fund, an SPV puts all the accumulated funds in a single deal which gives better access and rights to the investors. An SPV is a short-term investment and comes up with the benefit of transparency.

How SPVs work?

The legal compliance of an SPV depends on the state in which the entity is registered. Presently, Delaware offers the most simple and flexible SPV structure. At SPV Hub, our SPV Specialists suggest forming a Delaware Master Series LLC in consideration of its benefits. As SPVs are intended to be used as pass-through vehicles, it is better to have a flexible structure.

Once the SPV is created and Investors get on board by making the investment in the SPV, they gain the title of the member. These members are entitled to receive ‘membership interest’. The interest is calculated based on the investment ratio. On behalf of Investors, the created SPV deploys the investment in the startup company. In the capitalization table of the startup company, the SPV appears as a single entry.

In other words, an Investor invests in an SPV which further invests in a Startup Company. This way, Special Purpose Vehicle serves as a pass-through vehicle and plays this role throughout its lifecycle.