There are many types of investment vehicles, but not all of them might be right for you (or your business or other legal entity for that matter). You have likely found that there are many investment vehicles that are too restrictive for your goals, or perhaps you want to put together a team of investment partners for a particular goal, but certain structures won’t allow this. One such investment vehicle that provides such flexibilities is a special purpose vehicle, also known as an SPV or SPV investing.
As a person who has a say in the financial decisions pertaining to your business, partnership, or other entity, you likely understand some of the ins and outs of a special purpose vehicle. However, a special purpose vehicle is not a uniform investment vehicle. It is customizable and can be structured to meet your needs. This can make the SPV investment ideal for your purposes, but it also means there is a great deal of information to consider.
However, considering the benefits of a special purpose vehicle should not be overwhelming. And there are SPV companies willing to assist with the formation and the life-cycle management as well. But before getting into that, here are a few things to know about SPV investing.
SPV investments allow investors a more attainable approach to an investment they might not be able to participate in otherwise. This is because of its pooled structure, investors can participate with lower starting dollar amounts. This model has been gaining popularity, especially in the startup world, since there is less financial risk from the outset, and the SPV itself can accumulate and grow through a variety of investors.
Specifically, raising capital through an SPV investment allows for up to 250 accredited investors to pool their investment capital together for a common goal or milestone. Simply put, this is a clean and effective way to pool significant funds into a shared legal structure.
Another reason an SPV investment is attractive to investors is because of the control they have over their funds. Not only are SPVs accessible in ways that other investment funds are not, but an SPV investment is typically set up for a single purpose, or to benefit a single startup or entity. Traditional investment funds, or venture capitalist investing, is a scenario where investors provide funding to a pool, but this pool of capital is distributed to a diverse portfolio of entities over time. This means an investor doesn’t immediately know where their particular dollars are going.
And speaking of clean and effective, the structure of a special purpose vehicle enables the fundraising entity to keep its cap table organized and tidy in real time. As you are no doubt aware, a cap table (capitalization table) is a list of all the entity’s participating investors and their relevant information. This is not merely information needed for the formation of a special purpose vehicle, but will be used and referred to frequently throughout the lifecycle of the SPV investment.
The cap table plays an important role, in that it is in fact a requirement to ensure proper record-keeping. It also enables an SPV company or manager to make distributions to participating investors, pay necessary taxes, or complete other activities that are needed as they arise.
When partnering with an SPV company, you will find that the tedious nature of maintaining a cap table can be streamlined through the use of technology and a modern SPV platform (Assure’s Glassboard, for example, is designed for this purpose, among others). With an SPV platform, and an SPV company tailoring the structure to meet your needs, the cap table process is streamlined and automated, alleviating potential mistakes and keeping information up to date in real time.
There are many benefits affiliated with forming a special purpose vehicle and the functionality of an SPV investment. Specifically, the flexibility and tailored approach that it allows investors makes it an ideal investment vehicle for whatever needs might arise.
Naturally, there are a significant number of things to know about SPV investing, more than can be mentioned in this article, but Assure is ready to answer the questions you have and help you get started on the road to forming your own SPV investment strategy. Learn more about how an SPV can benefit you and your organization, and click here to get started on beginning your SPV today.