SPVs explained
Special purpose vehicles are the most common structure for retail access to private companies. Here's how they work, what you're actually buying, and what the fees look like.
What is an SPV?
A special purpose vehicle (SPV) — also called a special purpose entity (SPE) — is a legally separate entity created for a single, defined investment purpose. In the context of pre-IPO investing, an SPV is typically structured as a limited liability company (LLC) or limited partnership (LP) that pools capital from multiple investors to make one investment in a single private company.
The SPV itself becomes the shareholder of record on the private company's cap table. Individual investors in the SPV own interests in the SPV — not direct shares in the company. This distinction has significant implications for your rights, your voting power, and your information access.
How an SPV works
What you actually own inside an SPV
As an SPV investor, you own a membership interest or limited partnership interest in the SPV entity. You are a beneficial owner of the underlying shares — but you are not listed on the company's cap table. The SPV's general partner (GP) holds all direct decision-making authority over the shares.
This means that in most SPV structures:
- You have no direct voting rights in the portfolio company
- You have no independent information rights from the portfolio company
- You are dependent on the GP to relay information, exercise voting rights on your behalf, and manage any exit event
- The GP has broad discretionary authority over the SPV's affairs, including the timing of any sale
SPV fee structure
SPVs typically carry multiple layers of fees. Always request the complete fee schedule in writing before committing capital.
Common SPV risks
GP has full control
The general partner makes all decisions about the underlying shares. If the GP fails to exercise rights appropriately — or acts in their own interest — you have limited recourse.
No information rights guarantee
Unless explicitly negotiated, you may receive only what the GP chooses to share. The private company has no obligation to communicate directly with SPV limited partners.
Markup risk
SPVs formed to access secondary shares may do so at a significant markup to last-round pricing. If the company's next round is a down round or flat, your entry point may be deeply underwater immediately.
Unverified share access
FINRA has flagged cases where SPV promoters claimed to have access to shares they did not actually hold. Always ask for third-party verification that the SPV holds the shares it claims.
Questions to ask before investing in an SPV
- Does the SPV currently hold the shares, or does it have a forward contract to purchase them? What is the difference in your legal position?
- What is the total fee burden — setup, management, carry, and administrative — expressed as an estimated percentage of your investment?
- When and how will you receive updates about the portfolio company's performance?
- What is the minimum hold period, and under what conditions can the GP sell the shares?
- Is the GP registered with the SEC or any state securities regulator?
- Has the GP successfully managed and exited prior SPVs? Can you review their track record?