What is a Special Purpose Vehicle (SPV)?

Ajey Bhasker
VC Stack Expert
What is a Special Purpose Vehicle (SPV)?
Max Fleitmann
Founder of VC Stack

Definition of SPV

In venture capital, Special Purpose Vehicles (SPVs) or Special Purpose Entities (SPEs) enable investors to pool their money to make a single, large, investment in a company. SPVs are structured as limited liability companies (LLCs) or limited partnerships. Both protect investors from personal liability in the event the invested entity is sued.

SPV vs. VC Fund

Investing in an SPV is fundamentally different to investing in a VC fund. The General Partners (GPs) of a VC fund raise capital to invest in multiple start-ups over the course of several years. By investing in the fund, investors (known as Limited Partners or “LPs” ) get exposure to a basket of different companies that comprise the fund’s portfolio.

The main difference between an SPV and a VC fund is that an SPV makes a single investment into just one company, while a fund makes several investments into multiple companies.

How do SPVs work?

When an LP invests in an SPV, they become a member of the SPV and receive membership interest in the SPV. Income or losses are shared with members in proportion to each member’s ownership. This means that the LP is an investor in the SPV and the SPV is an investor in the company. 

SPV Example

  • An investor who invests $20k into an SPV that raises a total of $100k will receive 20% membership interest in the SPV. 
  • The SPV then makes a single investment in the target company. 
  • The investment will appear as a single line item on the company’s cap table (despite multiple investors contributing to the $100k investment). 
  • If the SPV receives $1M as proceeds in connection with a successful exit, then the investor who has 20% membership interest will receive $200k, subject to carried interest. Carried interest is the share of profits from an investment paid to the SPV Manager or Syndicate Lead.

Why do Investors use SPVs?

Syndicate Lead

  • Carry: Share startup deals with other backers and earn a percentage of the exit value as carried interest on successful deals. 
  • Deal flow: By bringing in other investors who are experts and/or influencers, Syndicate Leads can strategically add value to the start-ups they invest in. This positions them to receive consistent, proprietary deal flow. 
  • Credibility: A series of successful investments via SPVs builds an investment track record that can be a catalyst for opening a VC fund.
  • Access to capital: This is from a wide range of investors including angel investors, crowdsource participants and LPs.
  • Lack of capital: A VC fund that doesn’t have enough capital left to deploy can invest in a promising company through an SPV.
  • Alternate investment opportunity: If the company falls outside the VC fund’s usual investment philosophy, the fund can provide an investment opportunity in that company via an SPV to LPs to self select participation. 

Investor in SPV

  • Lower thresholds: members can participate with investments as low as $1k - much less than a VC fund or direct investment.
  • Specific investment: in one company rather than a portfolio.
  • Visibility: members know where the money will be invested. With a VC fund, this is not known in advance.
  • Choice: With visibility, comes choice. Unlike a VC fund where LPs don’t have a say in the specific investments the GP makes, LPs can choose whether they want to be part of an investment made through an SPV. 
  • Lower fees than VC: VCs typically charge 2% management fees annually (totaling 20% over the life of a ten-year fund) whereas SPVs charge varying amounts of management fees but rarely close to 20%.
  • Vehicle for follow-on investment: LPs participating in a VC fund can exercise pro-rata rights through follow-on investment in well-performing companies’ later funding rounds by co-investing alongside the VC.
  • Deal quality: By backing experienced lead investors, investors get access to high-quality deals.
  • No limit: There is no limit to the number of SPVs one can invest in. This means one can consistently have new startups presented as investment opportunities.

What are some challenges to using SPVs?

Syndicate Lead

  • Time to build credibility: It can take several years for people to care that the syndicate lead was in on the deal as a deciding factor for their investment. 
  • Social proof: Related to the above, deals need to have social proof through involvement of known Angels or VCs to attract further capital.

Investor in SPV

  • Lack of diversification: SPVs make one investment in a single company 
  • Restrictions on number of investors: For SPVs incorporated in the US and raising over $10m, the limit is 100 investors. A popular investment can meet this threshold quickly, leading to investors making a rash decision in order to be a part of the 100 investors in the SPV.
  • Limited rights: As the SPV is the official shareholder, its members don’t have voting or information rights (e.g. periodic, performance reports) that direct shareholders or LPs in a VC fund generally have. Any concerns need to be raised with the owner of the SPV to manage it on their behalf with the company.
  • Incentive misalignments: if a VC uses an SPV, a VC may earn carried interest of 10% to 20%. However, the VC does not have any downside if it doesn’t put fund money into the SPV. That is, the risks are borne by the LP in terms of fees paid and investment potentially lost if the company is not successful.
  • Preferential treatment:. SPVs provide LPs access to deal flow but not all deals may be shared with all LPs. GPs may open it up to a specific group of LPs they know and trust. 
  • Capital calls: While GPs in a fund draw down capital committed by LPs over time as new investments are made; when investing in an SPV, the capital is immediately due at the time of commitment. 


Syndicate Lead

What does it cost to set up an SPV?

Setup fees vary based on the services selected. As a minimum, AngelList has a setup fee for most deals at $8k plus variable state regulatory fees ($1k - $4k). Each deal is set up as a separate SPV, so each deal incurs this cost.

What is the minimum I have to invest in each deal?

At least 2% of the allocation (or $10k, whichever is lower) to show skin-in-the-game to other investors. However, you are only required to invest $1k. The exception here is if you'd like to raise money from Canadian LPs, you must invest at least $10k or 2% of the allocation (whichever is lower).

You can invest directly into the SPV, or you can make an investment alongside (i.e. separate from) the SPV.

How many investors can participate in a SPV?

  • For SPVs incorporated in the US, raising $10m or less, the SEC permits a maximum of 250 accredited investors. 
  • For SPVs raising over $10m, the limit is 100 investors. 

Are the deals private?

Each time you set up a deal, you can decide whether you'd like it to be private to your investor network. If you do, your deal will only be viewable to the investors you directly invite or those who back your SPV.

Who can invest in an SPV?

The requirements on who can invest in a SPV depend on the jurisdiction you are running your SPV in and the country of the target company.

For the US:

For Accredited investors. While it is possible to allow non-accredited investors to participate in an SPV, the reality is that the target investment company usually requires all potential investors to be accredited. This means that they require the SPV as a whole to be an accredited investor and the easiest way to achieve this is by having only accredited investors in the SPV. 

For Other Countries:

For countries like UK or Germany there are different regulations on who who can invest in an SPV. You should check them before setting up an SPV.

Who is an accredited investor?

For the US:

An accredited investor is an individual or business that can trade securities but may not be registered with financial authorities. The SEC defines an accredited investor as either:

  • Earning > $200k in gross income in each of the two most recent years or joint income with a partner > $300k for those years and a reasonable expectation of the same income level in the current year; or 
  • > $1m individual net worth, or joint net worth with that person's partner, exceeds $1m, excluding the person's primary residence; or 
  • Under certain circumstances, a company’s general partners if that company is the target investment.

More on what an accredited investor is can be found on the SECs website.

Side Note: Just recently the SEC updated their requirements and added a new qualification option: "The amendments allow investors to qualify as accredited investors based on defined measures of professional knowledge, experience or certifications in addition to the existing tests for income or net worth."

For Other Countries:

For countries like UK or Germany there are different regulations on being an accredited investor. Make sure to check them before setting up the SPV.

How is pay distributed in relation to carried interest of a Syndicate Lead?

If $2m was raised with 20% carry and the company exits for $15m.

($15m-$2m) * 20% = $2.6m

So, $2.6m goes to the Syndicate Lead and the remaining $12.4m is sorted throughout the investors according to their membership interest.

How is membership interest determined?

Membership interest depends on the amount of capital raised collectively by the SPV and the capital you individually contributed.

What fees are associated with investing in an SPV?

Generally, fees can be grouped into the below buckets

  • Management fee: up to 2% per year for the first few years (rather than the life of the investment)
  • One-time admin fee: 2.5% to 4% of the investment
  • Carry: up to 20% of the profit made on exit (i.e. 20% of amount remaining once the contributed capital is returned to LPs and other investors in the SPV)

Do investors have voting rights within the startup?

No, the investor invests in the SPV while the Syndicate Lead will be the only one directly involved with the startup.

What fees are associated with investing in a SPV?

SPVs can charge carried interest and management fees. Each SPV is unique with different waterfall provisions, hurdle rates, redemption rights, distribution timings, and more.

What are the risks of using an SPV?

  • Investment risk from lack of diversification
  • Limited voting and information rights
  • Potential incentive misalignments and preferential treatment
  • Investments in SPVs may be subject to carry and management fees

List of SPV Providers

In the past, we have had some really good experiences setting up our SPVs with Vauban.

Vauban offer SPVs, co-investment and fund vehicles for GPs at all stages of the journey- from the first syndicate to operating a billion-dollar venture fund. They take care of all your back-office so you can focus on finding the right deals & building investor relationships. Investors have raised over $2.5bn in global investments for companies including Revolut, Bolt and SpaceX on Vauban.

NameFocus GeographiesPricingAdditional Information
VaubanUS, UK, EuropeAtom (UK & EU only): $2k + 2% (up to $200k raised)
Nano (international): $4.9 + 1% (fees capped at $10k)
Pro (international): $12,900
Since 2022 part of Carta

But here is also a list of other SPV providers that you can use for your deals.

NameFocus GeographiesPricingAdditional Information
AllocationsUSMicro APV: $3,500
Standard SPV: $8,000
Custom SPV: $16,000
AngellistUS$8k flat per syndicate (set up fee) + avg. $1.2k (state regulatory fees)
LevaEurope1% fee + 1% carrySPVs in Switzerland
RoundtableEurope1% of raised amount (5k€ min - 15k€ max)SPVs in Luxembourg & France
OdinEuropeFounder SPV: £1,000 ($1,400) + 1.9% of raised funds / deal. Capped at £2,000 ($2.5k)
Standard SPV: £1,100 ($1,500) + 1.8% of raised funds / deal. Capped at £4.5k ($5.1k)
Branded SPV: £2,000 ($3,000)+ 1.6% of raised funds / deal. Capped at £7k ($8k)
SPVs domiciled in UK
BunchGermanyFrom €1.5k to €7k per Year depending on the SPV TypeSPVs in Germany

You can find an overview of all the providers in our Infrastructure Category.

Process of Setting up an SPV

After covering all the basics of an SPV we also wanted to show you what it looks like to set up an SPV. This is what the process on Vauban looks like.

Setting up an SPV

You can easily start to setup a new deal from your personal Dashboard in which you can also see all the deals that you are running at the moment.

Choose your SPV Jurisdiction

In the next step you can decide in which jurisdiction you want to set up the SPV and if it should be a fund or a regular SPV. Depending on the deal you are running there are different products you can choose from. They mostly differ in the type of entity / structure that is used for the SPV.

Fill in all SPV details

After you have chosen the type of the SPV you need to fill in all information regarding the deal (e.g. deal terms, deal partners, deal constitution). The whole process of doing this only takes a few minutes.

Invite Limited Partners

After everything is set up you can start to invite investors by email, QR code, or a simple share link.

Track you co-investors

At any time you can track the status of your co-investors from the deal dashboard.

Deal Page SPV

And this is what the final deal page looks like. As you can see, setting up an SPV on Vauban is really easy and straightforward. So if you are thinking of running a deal soon just try it out for yourself.

Concluding thoughts

Despite limitations to investing through SPVs, they are a quick way to easily raise funds for a specific investment. They have low investment thresholds, making them more accessible to beginning angel investors and those with a lower net worth. SPVs keep the company cap table clean while ensuring that each investor gets the distributions they are entitled to, in case of a liquidation event. SPVs are versatile and their rising popularity reflects how useful they can be for investors.