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Raising a $500K to $1M SPV: Key Characteristics

Sep 27, 2022 11:10:33 AM | Assure Analytics

 

Special Purpose Vehicles (SPVs) exhibit different characteristics depending on whether they’re raising $100K or $100M. While Assure Analytics previously benchmarked broad SPV standards in the State of SPVs report, we know that investors want to better understand patterns within the size of SPVs they’re targeting. Understanding these patterns can help SPV organizers determine their strategies as well as assess how their pace, terms, and investor network compares to their peers.

In an article earlier this year, we explored sub-$250K SPVs. In this article, we move up the size spectrum and delve into market norms when raising $500K to $1M for an SPV. This $500K to $1M segment of SPVs is especially relevant for first-time organizers, given that nearly 73% of first-time SPVs collect $1M or less. 

SPVs are used to invest across all kinds of assets – from real estate to private credit to art, oil, and startup companies. But this segment – the $500K to $1M SPVs – are particularly focused on raising and deploying capital into startups, something we’ll unpack further in this article. 

Time Trends

SPVs raising $500K to $1M exploded in popularity following the onset of the pandemic.

Between 1H 2020 and 1H 2021, the number of SPVs in this category, as well as the total capital they raised, nearly tripled. However, like much across the private markets, they leveled out in the second half of last year and pulled back significantly in the first half of 2022. Despite this pull-back, there were still more SPVs raising $500K to $1M in the first six months of this year than in any pre-2021 period.

Time Trends of SPVs Raising $500k-$1MAs the following chart shows, much of the evolution in $500K to $1M SPVs resulted from trends in the broader SPV market. As a proportion of the SPV count in a given period, this category of vehicles has held fairly constant since 2020: over the last couple years, SPVs of this size have held steady at about 15% of all SPVs. They’ve also slightly declined as a proportion of total capital raised through SPVs – mostly a function of growth in the upper extremes of SPV size.

Time Trends of SPVs Raising $500k-$1M

 

Investor Participation

SPVs raising $500K to $1M typically raise from 20 to 35 investors.

This is a larger pool than is normal for SPVs of other sizes, where the average raises from 24 investors and the median from just 13. 

Number of Investors

SPVs in this half-million to million category tend to raise $30K to $70K per investor (the median and average, respectively). This falls in the middle of the distribution for SPVs of other sizes, where the median raises $18K per investor and the average $180K. Given SPVs in the $500K to $1M category generally sit in the middle of the SPV size spectrum, it’s logical that their investor checks do the same.

Capital Per Investor

About 43% of SPVs raising $500K to $1M have a large anchor investor (defined as one investor owning more than a quarter of the vehicle). This is a lower rate of anchors than other size categories, where about 54% raise with at least one anchor. Naturally, this corresponds well with the larger number of investors overall participating in these SPVs – meaning that fundraises in this range are more likely to have a highly distributed roster of investors.

Ownership Profiles

Deploying Capital

SPVs in this size category are frequently single-asset vehicles (about 63%), which is similar to other size categories. And they are more likely to invest via traditional startup funding documents (SAFEs, Convertible Notes, and Stock Purchases/Secondaries) – with nearly 90% of SPVs in this size category investing into startup companies. (This is well above the market average across SPVs.)

This makes sense, as $500K to $1M flexes well into a number of different startup financing stages and scenarios. A $750K SPV may be taking an entire pre-seed or seed financing round via a SAFE. It may be acquiring an employee’s stock options at a late-stage unicorn via a secondary sale. It may be a small participant in a larger Series A round alongside other check writers. Or it may be maintaining pro rata rights in subsequent financing rounds. 

Number of Assets Purchased

The median SPV in this class makes its first asset purchase just 36 days after forming, with 50% of SPVs doing so even more quickly. The average makes its first deployment within 78 days of forming. This is slightly faster than SPVs in other size classes, where a larger capital pool may result in slower diligence and deployment timelines.

Deployment Timeline

Management Fees

Fewer than 8% of SPVs in the $500K to $1M category charge a management fee. This is roughly in line with  management fee frequency for the SPV market overall. 

When charged, the median management fee is just 2% (across the lifetime of the vehicle), and the average is 2.7%. This makes this class of SPV one of the lower fee cohorts.

Management Fees

 

Management Fees When Charged

For SPVs raising $500K to $1M, the norm is to collect capital from 20 to 35 investors, each contributing an average of $30K to $70K, with the SPV ownership largely being distributed among the investors. These vehicles rarely charge management fees, tend to deploy capital within a month of forming, and frequently purchase a single asset (often, though not always, via traditional startup purchase documents). That said, SPVs are flexible by nature: here are a wide range of investment approaches, terms, and implementations. For organizers, think about what makes sense for your investor network, target deal, and personal situation – and proceed from there. 

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