We’re seeing things move faster than ever in today’s market. One topic that is coming up daily with the funds and investors we work with are SPVs. SPV’s (special purpose vehicles) are often used to increase a fund’s investment in a company that is of high conviction for the investor.
Why is there the “SPV Need for Speed?” The fastest growing, most attractive early-stage companies are able to raise capital more quickly than ever before. If an investor has a relationship with that company, he/she is often able to invest, but better be ready to invest quickly. A SPV allows said investor to quickly raise the capital needed to invest in that company.
We’re often getting some version of the following question from funds we work with: “What should we be thinking about regarding my SPV investment strategy?”
Our typical response:
- Plan: What is your SPV strategy? Is this one-time or recurring?
- Team & Process: Do you have the resources and processes to support, both internal and/or external?
- Look Ahead: What are your requirements around reporting, administration, tax, and exit?
Reporting Has Challenges (But is Getting Easier)
When the market is moving this fast, we think it’s helpful to take a breath and a step back. What have investors said and written about this previously? How can we use that to avoid future challenges? We found Ali Hamed’s 2018 post (still very relevant today) titled 8 Things People Don’t Tell You About Investing Via SPV’s insightful, specifically the following:
“When managing a fund, it’s easy to report on a quarterly (or monthly) cadence to all of your investors, who all have the same exposure to the same companies. But if you are managing 20 different SPV’s, with 20 different varieties of investors, you need to put together a huge set of different reports/email lists/cadences etc. This starts off manageable and then becomes insane to deal with.”
Here’s the good news: the market has improved since 2018 and there are service providers and technologies in SPV administration, legal, tax, and finance to provide support (we’ve listed many good ones on our blog). However, it’s not perfect, and increased SPV volume leads to increased complexity.
We’re working daily to streamline these processes for funds and investors, and will continue to share thoughts, tools, templates, and resources to support!
