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Assure SPV/Syndicate 101

2 min read

Sep 27, 2022 9:53:02 AM | Assure

Carried interest, or carry, is a profits interest form of compensation for fund organizers based on their work in providing a return on investment for the fund’s members. Regarding venture capital funds (the most common fund managed by Assure), the typical operating agreement provides the assumption that all unrealized investments will generate proceeds equal to the book value with carry being calculated on the overall return. 

A Special Purpose Vehicle Entity (“SPV”) is a business entity that has a special limited purpose. SPVs/Syndicates are often created to protect assets and separate liabilities of a parent or subsidiary company. Each SPV/Syndicate, which may share the same managing and sponsoring entity (an “SPV Organizer”), has its own operating structure, ownership structure, balance sheet, and is financially independent of any other SPV/Syndicate with the same SPV/Syndicate Organizer. While an SPV/Syndicate can be any entity type, they are usually either a limited liability company (LLC) or a limited partnership (LP).

An Assure SPV/Syndicate allows investors to pool funds into an SPV/Syndicate, allowing this investment vehicle to acquire and manage a specific asset (or multiple assets). Assure’s SPV/Syndicate product is a simple and flexible way to structure an investment fund.

Assure’s SPV/Syndicate in many ways mirrors the structure of SPV’s/Syndicates used by venture funds. They fill an allocation by finding additional investors and pooling them in a separate entity from the venture fund’s core fund. All capital is usually called upfront, eliminating the need for capital calls through the life of the fund. Other key features include:

• Removing audit and financial statement obligations;
• Allowing for unique waterfall provisions and economics specific to an investment;
• Giving investors the opportunity to choose specific investments;
• Allowing investors to pool capital to meet minimum investment requirements; and
• Providing the SPV/Syndicate sponsor with carried interest or other performance fees.

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SPV/SYNDICATE STRUCTURE PROVIDES SIMPLICITY

The SPV/Syndicate structure simplifies an SPV/Syndicate Organizer’s investment strategy by providing straightforward entity set-up, concise and clear management/operational procedures, and comprehensive post-closing processing for each SPV/Syndicate Organizer’s investment fund.

a. Simplicity Through the Series Limited Liability Company Structure

Using a Series LLC saves time and money. Several states have made it possible to create series LLCs. Delaware was the first to allow series LLCs. Other states followed, including Illinois, Iowa, Nevada, Oklahoma, Tennessee, Texas, Utah, Wisconsin, Washington D.C. and Puerto Rico. A series LLC is a type of limited liability company in which the certificate of formation for the “master” company provides for the establishment of one or more designated “series” entities, with each series’ assets, operations, debts, liabilities, and obligations segregated and accounted for independently from the master and from other series formed pursuant to the master.

b. Easy and Economical Entity Set-up Process

As part of Assure’s fund administration, an SPV organizer receives professional and high-quality assistance in setting up an investment structure designed for volume. Assure provides experience and expertise in setting up and maintaining the administrative obligations of investment funds. Through Glassboard, Assure streamlines the entity set-up process by:

(1) filing a certificate of incorporation with the applicable state agencies;
(2) providing off-the-shelf operating agreements for regular or series LLCs;
(3) handling the administrative filings for the master, including maintenance of the registered agent, franchise tax fees, dissolution, and final tax reporting;
(4) providing off-the-shelf operating agreements for each series entity set-up under the master, specifying that each series is designed to invest in one or more portfolio company securities (each subsequent series becomes effective upon the creation of the series operating agreement through Glassboard).

Once the structure is set-up, Assure, through Glassboard, is equipped to facilitate the creation of series investment entities at volume with a management structure that is efficient and cost-effective. If an SPV has unique needs, Assure is fully capable of working with the SPV/Syndicate Organizer and its counsel to modify the structure and documents, as necessary. Assure's SPV Fund Documents provide our clients with a structure that is flexible, easy to scale, and cost-effective.

SPV/SYNDICATE STRUCTURE PROVIDES FLEXIBILITY

SPVs can be used to facilitate investments into various types of assets and the SPV/Syndicate structure can be modified to meet specific needs. For example, an SPV/Syndicate can be used to invest into startups, real estate, private funds, or other assets.

a. Asset Types

SPV/Syndicates are used to invest in various asset types, from startups raising seed capital, to the purchase of secondary shares in pre-IPO companies. Assure can administer SPV/Syndicates for various assets and asset classes, and the SPV/Syndicate structure is flexible to accommodate different investments.

b. SPV/Syndicate Structure

SPV/Syndicate organizers can have unique needs, and an SPV/Syndicate provides the SPV/Syndicate organizers to tailor the structure and economics to meet those needs. These include:

  • Simple or complex waterfall provisions accounting for preferred returns, hurdles, and other profit allocations
  • Providing members with specific rights, such as redemption, voting, and pro-rata rights
  • Timing of distributions, and
  • Regulatory requirements.

Assure has helped SPV/Syndicate Organizers form thousands of SPV/Syndicates, and we have seen almost every variation and asset class. The use of SPV/Syndicates is only growing. Assure is equipped to help you in every phase of the life of an SPV/Syndicate. Structure and close deals with more transparency with our all in one comprehensive funding platform for organizers.