Private Markets Investment
Investing via a Special Purpose Vehicle (SPV)
Investors have many things to consider when evaluating investment opportunities available in private markets, but one that may not be top of mind is how the investment itself is structured. A common structure that Asyaf Investments is adopting is to invest via a special purpose vehicle (sometimes structured as a limited liability company [LLC]) to fund up-and-coming companies or to acquire stakes in larger, private companies through secondary transactions.
How does an investment via an SPV work?
The SPV allows multiple investors to pool their money to invest in a company. For an LLC, each investor buys a membership into the LLC rather than investing directly into the Target Company. Whereas traditional private equity or venture capital fund diversifies and invests in several companies, restricting investors from selecting a specific company in which to invest, a single-entity investment vehicle invests in one specific issuer.
Why do issuers like SPVs?
This single-entity investment vehicle can simplify a company’s cap table. Rather than listing each investor with the amount invested and supplying regular updates to each investor, the company in this case would only need to add one entity to the cap table. By selling shares to a pool of investors, the target company may also be able to limit how active those investors can be in the target company’s day-to-day operations.
What are the downsides?
Investors who invest via an SPV don’t have individual rights in the private (target) company and are subject to the SPV terms and agreements. Additionally, because the investments are managed by Tamouh Ventures , investors will not have direct access to the target company.
This becomes very important if investors express concerns to the managers of the SPV, putting their investment in the hands of the managers and requiring the managers to work with the target company on their behalf. investors can be in the target company’s day-to-day operations.