Special Purpose Vehicles (SPVs): Driving Innovation in Venture Capital

The world of investing is moving at lightning speeds and it can often feel like a lot to keep up with. But, as the well-known phrase goes, if you want to go far, go together. That’s never been more true in investing as it is today, especially in venture capital. That’s why we’re seeing Special Purpose Vehicles (SPVs) becoming such important tools to shape investment strategy, foster innovation, and help get some really cool ideas out into the world! 

What is a Special Purpose Vehicle? 

SPVs, also known as special purpose entities, are entities created solely for a specific, often short-term purpose. In the venture capital context, SPVs are commonly formed to pool funds from multiple investors for a single investment opportunity. SPVs have become very popular in recent years, largely because of their flexibility and short-term nature. Traditionally, venture capital funds have a predefined timeline and investment strategy, and not every great investment opportunity fits those. However, an SPV opens the door for investors to participate in an investment for a shorter timeframe and take advantage of an interesting investment opportunity with the collective force of a group. 

The Power of a Team

SPVs allow investors to access deals that normally would not be an option. Similar to venture capital, you can participate in a collective investment, making some enticing investment opportunities attainable for smaller investors. These are great opportunities for individual investors to learn and familiarize themselves with due diligence, the investment process, and the venture capital ecosystem at large. They allow LPs additional access to deals the fund is doing. SPVs are also a nice way to consolidate and streamline the process administratively. 

Win for Startups

SPVs are opening the doors for many startups to raise capital in an innovative way. They offer an efficient way to raise capital from a diverse group of investors, bridge funding gaps, or even finance specific initiatives. SPVs are also a great way for startups to gain access to funds when traditional investment models might be hesitant to dive in. In the world of tech, we’re seeing SPVs being a huge vehicle to support new ideas and innovation that don’t fit into a nice little box like previous investment opportunities did. For startups, the primary benefit is that all of the investors in the SPV are counted as a single investor in the company.  So, if you get 20 angels to write $10k checks into an SPV you get one $200k investor instead of 20 investors.

SPVs are opening doors on both sides of investment and allowing people to think about investment in a new, slightly different way. They’re empowering some amazing ideas, encouraging new investors to get involved, and ultimately driving some amazing economic growth along the way!