What is an SPV?
An SPV is a single-purpose legal entity (usually an LLC) created to make one investment. Multiple investors pool capital into the SPV, and the SPV makes a single investment into your company. On your cap table, it shows up as one line item instead of twenty.
Why SPVs Exist
Angels and smaller investors often can't write big enough checks individually. An SPV lets a lead investor aggregate demand from their network into one clean allocation. The lead manages the SPV; the individual investors are passive.
For founders, SPVs simplify cap table management. Instead of dealing with 15 individual investors, you deal with one entity and one point of contact.
Why Founders Should Care
SPVs are everywhere in seed and pre-seed rounds. If an angel says "I'll put together a vehicle," they're forming an SPV. Key things to watch:
- Cap table cleanliness. One SPV = one line. Much better than 15 individual entries.
- Decision-making. The SPV manager speaks for all investors in it. Fewer signatures needed for consents.
- Fees. SPV managers typically charge their investors (not you) a management fee and carry. But confirm this.
- Pro-rata rights. The SPV may request pro-rata rights as a single entity. Understand the aggregate dollar amount this represents.
How SPVs Are Structured
A typical SPV has:
- Manager (GP). The lead investor who sources the deal and manages the entity.
- Members (LPs). The individual investors who contribute capital.
- Carry. The manager usually takes 10-20% of profits.
- Management fee. Often 0-2%, sometimes a flat fee.
The SPV has a limited life. It holds the investment until exit, distributes proceeds, then dissolves.
Example
An angel investor wants to invest in your $3M seed round. They can personally commit $100K but have a network eager to participate.
They form an SPV:
- 12 investors contribute a total of $500K
- The SPV invests $500K into your round
- Your cap table shows one entity: "Seed SPV LLC"
- The angel manages the SPV and takes 20% carry on profits
At exit, the SPV receives its share of proceeds, the manager takes carry, and remaining profits distribute to the 12 members. You never interact with the individual investors directly.