What is a Special Purpose Vehicle (SPV)?

A Brief Summary of Special Purpose Vehicles (SPVs)

Background

A Special Purpose Vehicle (SPV) is a legal entity created to pool capital from multiple investors to invest in a financial asset. SPVs have become increasingly popular in venture capital and other sectors due to their ability to streamline and simplify investments into startups, real estate, art, luxury assets, cryptocurrencies, funds, boats, football clubs, and aircraft.

Benefits

• Capital Pooling: Allows multiple investors to pool funds for collective investment opportunities.
• Legal Protection: Acts as a passive holding company, isolating financial and legal risks by safeguarding assets and liabilities.
• Defined Purpose: Investors appreciate the clarity of investing in SPVs as they typically focus on a single asset.
• Secondary Trading: Facilitates the transfer of membership interests, enabling the trading of shares among investors.

Structure

1. Deal Setup: Define the specifics of the deal, including closing date, asset details, management fees, carry fees, and minimum investment thresholds.
2. Entity Formation: Establish the SPV in jurisdictions such as Delaware, BVI, Cayman Islands, or the Marshall Islands.
3. Legal Documentation: Generate essential legal documents, including the subscription agreement, private placement memorandum, and operating agreement.
4. Bank Account Creation: Set up a bank account specifically for the SPV.
5. Investor Onboarding: Onboard investors into the deal, including conducting necessary KYC/AML checks.
6. Closing: Complete the transaction by wiring funds to the target investment.
7. Regulatory Compliance: Manage necessary regulatory filings, such as blue sky and Reg D filings, especially for U.S.-based offerings.
8. Taxes: Prepare annual tax filings for the SPV.
9. Post-Close Activities: Handle post-closure tasks, including the transfer of membership interests and distributions.

Conclusion

Special Purpose Vehicles have become essential tools for group investments, favored for their efficiency and effectiveness. As their use broadens, SPVs are expected to continue growing in popularity and adoption across multiple asset classes.