f you’re an investor or entrepreneur, you’ve probably experienced the manual, time-consuming, and expensive process of setting up your own business entity. From choosingthe right business structure, filing your own articles of incorporation, writing your own corporate bylaws to working with accountants and lawyers, the process is loaded with inefficiencies.
Fund managers, angel groups, and syndicates regularly feel this pain when setting up a Special Purpose Vehicle.
What is a Special Purpose Vehicle (SPV)?
Special Purpose Vehicles (SPVs) are legal entities that are created for the purpose of a single investment. They are used to pool money from a group of investors to make aninvestment in a startup.
The typical legal forms of SPVs are Partnerships, Limited Partnerships, or Joint Ventures.
So how does an SPV differ from a VC fund?
The main difference is that an SPV makes a single investment into just one company, whereas a fund makes several investments into multiple companies.
How do SPVs Work?
As SPVs are so-called “pass-through vehicles,” essentially this means they're owned by their members and pass-through income (or losses) to those members in proportion to each member’s ownership percentage.
When an LP invests in an SPV they become a “member” of that SPV. In return for their capital, LPs receive “membership interest” in the SPV. That interest is usually expressed as a percentage. For example, an LP who invests $10k in an SPV that ends up raising a total of $100k will receive 10% membership interest in the SPV.
Once an SPV has finished raising capital, it makes a single investment in a startup, sending a single wire to the company. That SPV will appear as a single entry on that company’s cap table.
As such, the LP is an actual SPV investor, not the underlying portfolio company. It is the SPV that is technically an investor in the portfolio company.
Since SPVs are pass-through vehicles, income received by the SPV is passed through to its members. Coming back to our example, if the SPV receives $10M as proceeds in connection with an acquisition, then our LP who has 10% membership interest will receive $1M, subject to carried interest.
This might all sound pretty complex because well, it is complex.
Investment vehicles require consideration of and integration with compliance, formation certificates, contracts, tax laws, banking, and reporting.
Fragmented, inefficient, and costly processes seem to be the status quo in venture capital, which often creates a barrier to entry for many passionate and creative investors. New investors face a barrier to entry of having to unpack the complexities of legal structures and tax implications, all while juggling branding, operations, and investor relations.
But what if there was an on-ramp to private investing? A way to launch SPVs and funds instantaneously, track funding in real-time, and offer hassle-free opportunities for early liquidity?
Announcing GoingVC’s Partnership with Sydecar
If you’re familiar with the mission of GoingVC, you know our aim is to democratize the world of venture capital, to break down the barriers that make the VC world opaque and tough to break into.
Today, we’re making a significant step towards our vision by partnering with Sydecar, a company that we truly believe is the leading contender for creating and managing SPV entities. Most importantly, they share our vision for a VC ecosystem that is open, fair, and honest.
Sydecar has productized the manual, costly processes that have plagued investment managers for years. By applying a standards-driven approach, they’re enabling investment managers to accelerate through the fund formation process so thousands of new investors can launch investment vehicles instantaneously.
Their team takes the pressure off investors and syndicate organizers by handling back-office operations including banking, compliance, contracts, tax, and reporting so investors can focus on making deals and building relationships.
With GoingVC becoming an ever-expanding hub of unique, under-the-radar, early-stage deal flow, combined with Sydecar’s incredible deal execution infrastructure, our partnership will enable high-quality deals, meaningful relationships, and smart, sustainable progress in VC and in the world of private investing as a whole!
As you can tell, we’re extremely excited about this partnership and combining our resources to help make venture a more accessible and transparent experience for all types of investors.
You can learn more about Sydecar and set up a demo with their team here.
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