Special Purpose Vehicle is a legal entity created for a specific, well-defined and narrow financial purpose. An SPV is used for various purposes, including isolating financial risk, securitization, joint ventures, or real-estate deals. Here, we will understand the role of the Special Purpose Vehicle and how it helps in the Venture arena.
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.
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.