Raising Startup Capital with SPVs

2 min read

Sep 27, 2022 9:52:04 AM | Assure

Here's why you should consider raising startup capital with SPVs.

Launching a startup is notoriously challenging. Not only do you have to be 100% confident that there are customers with pain and money in the industry you’re trying to wade into, but you also need certainty that that market is large and growing. 

And those are just two considerations of many. 

However, if your startup idea has passed muster, you’re most likely looking for ways to fund your newest endeavor. 

Here, we explore why you should consider raising startup capital with SPVs

3 Reasons to Raise Capital for Your Startup

If you’re in a situation where you can fund your startup without raising any capital, you still may want to consider looking beyond your own wallet for equity. 

Here’s why:

1. Gain Credibility

If a venture capitalist is willing to bolster your startup with funding, it demonstrates that they see potential in your startup, not risk. 

This backing translates into instantaneous goodwill from stakeholders. What’s more, venture capitalist funding often attracts media coverage, earning you more visibility and spreading the word that an investor believes in the ability--and profitability--of your startup. 

2. Scale Quickly

If you’re using small loans and cobbling together the necessary funds to launch your startup, your actual start date may be years in the future. This slow path makes you vulnerable to competitors who may be able to launch more quickly. 

When you operate with a large cash sum from the beginning, you can scale much more quickly. As a result, you can beat your would-be competitors to the market, establishing yourself and best in your respective sphere.

3. Receive Risk Assistance

If you’re a stranger to risk, you’re going to want to have seasoned financial experts on your side who understand strategy and risk. Given that their money is on the line, venture capitalists are willing to step in and offer guidance and assistance as needed.

Benefits of Raising Startup Capital With SPVs

Before we delve further into the benefits of raising startup capital with SPVs, let’s define these unique models. SPV stands for special purpose vehicle (SPV), a subsidiary designed by a parent company to mitigate financial risk.

Since these subsidiaries are designated legally as a separate company, SPV obligations will remain secure, even if the parent company experiences bankruptcy.

An SPV is created by its parent company to safeguard or silo assets in a different company that, more often than not, is not represented on the parent company’s balance sheet. In this way, the assets attributed to the subsidiary company are protected. Across the board, SPVs help companies build joining ventures, ensure asset security assets, protect specific corporate assets, or enact other financial transactions, like investing in startups.

Investors can use these structures to invest in your startup with little risk to their existing company. 

Here are the three reasons why you should raise capital for your startup with SPVs.

1. Smaller Investors

Rather than managing a handful of smaller investors, an SPV allows you to create a single investment block that is easier to manage. 

2. Growth

As your startup takes off, you may grow very quickly and need more capital to complete an acquisition or another undertaking. An SPV gives you the ability to raise money at the speed of growth, rather than going through the logistical red tape of the traditional process.

3. Foreign Market

If you have an eye toward foreign investors, they may be limited by international policies focused on when and how they can invest. With an SPV, you can avoid these investment limitations.

Startups & SPVs

SPVs can also help you attract more risk-averse investors to your startup. If investors are reluctant to take on a lot of risks, they can opt to fund the SPV, rather than the parent company given the lower fee associated with the SPV.

Just starting your company formation? Using an SPV offers risk-averse investors a less risky way to put their capital behind your startup. 

As an entrepreneur, you know how important it is to have supporters who believe in your startup. To learn more about SPVs and startups, complete this form and add Assure to your list of committed supporters.