Using a Special Purpose Vehicle (SPV) as an Equity Option for Capital Raising
Updated: Oct 6, 2022
As a business owner, you need to raise capital to grow and scale your business. I always believe there are many different ways to raise capital. However, it is easy to get lost because of the various options. If you want to raise capital and get the flexibility to control outcomes, a special purpose vehicle (SPV) may be your answer.
Today on Her CEO Journey, Katie Neilson discusses capital raising using a special purpose vehicle. She helps us understand this investment vehicle and the benefits this presents for founders and investors. Katie also shares some options you can explore if you’re thinking of using SPV to raise capital.
If you are a mission-driven founder who is looking for a different method of raising capital, this episode on SPV is for you.
Here are three reasons why you should listen to the full episode:
Determine the difference between a special purpose vehicle (SPV) and venture capital.
Learn how a special purpose vehicle (SPV) can help founders raise capital.
Find out the benefits of a special purpose vehicle in capital raising.
Resources on SPV Investment Equity:
Visit Christina Sjahli’s website for more stories on entrepreneurial journeys to success on the Her CEO Journey podcast.
Chat with Christina about how you can use a special purpose vehicle in capital raising!
Download this Action Guide to help you understand the value of an SPV in raising capital.
Getting ready for capital raising? Identify your financial gaps first by addressing these five business finance misconceptions. Download this quiz!
Interested in setting up an SPV or working with Assure? Check out these options:
[05:47] Katie's Journey in Co-Founding Assure
Katie started Assure with her husband in 2012. They were doing investor relations and due diligence for the SBA.
In 2013, they received a call from AngelList, asking them to set up funds in bulk.
The request included structuring and administering a special purpose vehicle (SPV) on a volume basis.
AngelList saw the demand for a quick, affordable one-stop-shop for capital raising administration.
Assure offers decreased cost in administering funds. They also provide the in-house expertise to manage the structured vehicles.
[08:19] Katie and Her Co-Founder's Background
Katie's background was in operations.
Meanwhile, her husband worked in private equity and had managed a $300 million fund.
Katie focuses on the day-to-day operation, while her husband prioritizes vision and strategy.
[08:57] What Is a Special Purpose Vehicle (SPV)?
An SPV is a legal structure that is set up for managing an investment into an asset.
“An SPV is a special purpose vehicle. And basically what that is, is the legal structure that is set up for managing an investment into an asset, a startup company or some type of object that gains value.”
It’s also usually a limited liability company (LLC).
Assure can pull investors together and manage them into a structure.
An SPV has two transactions. The first is when investors put in funds, while the second is when the company ends.
An SPV investment can be used for different types of financing.
[11:50] What Is an Organizer?
An organizer maintains the relationships of the investors and portfolio company.
“An organizer is someone that has the relationship of the investors and the company or the asset that they want to purchase.”
They collect the investors who want to invest in a company.
They can also be an investor.
[12:41] The Difference Between SPV and Venture Capital
Venture capital uses blind pool investing. A general partner decides where to put the money you give them.
Conversely, SVP provides flexibility, wherein you can invest in different assets.
This is called deal-by-deal investing.
“An SPV gives flexibility to investors, where they can invest deal by deal, they can choose to invest into different assets that appeal to them.”
SVPs allow investors to invest comparatively smaller amounts and grow their portfolios.
“This ability to invest smaller amounts gives the ability for more companies to get funding to be able to raise capital.”
With Assure, the costs in SVPs investment are smaller compared to eight years ago.
[15:42] How Assure Managed to Lower the Cost of SPV
They placed tax, legal, accounting, balance, and administration in one place. Through this, the administration and management of SPVs are more convenient.
Assure also decreased their expenses.
They do not need to work with different service providers.
Assure provides document templates to the investors so they can save time and money. They don't need to create a document from scratch.
[18:03] Hybrid Fund: A Combination of SPV and Venture Capital
The hybrid fund provides more options to founders and investors to be more strategic.
There are two options for founders to use SPV.
They can pull all their family, friends, and family investors into an SPV.
Another option is cleaning up your cap table. Most investors think more about the money upfront and not how and who will be investing in them.
[23:51] The Benefits of Special Purpose Vehicle (SPV) for Founders
You have better control over outcomes.
“SPVs give that flexibility to control the outcome. So you can choose who you want to invest into your company, you can choose the pathway you want to go if you want to do well.”
The founder can strategically select who will invest in the company and what pathway to take for success.
SPVs allow the founders to have different varieties of investors.
For example, the people who were supportive of you and your company can have partial ownership of the company.
[26:32] Preparation for Fundraising
The founder needs to be networking. This process can take up a lot of time and energy.
Assure can help founders decrease the time it takes to network. They do this through syndication.
Upon building relationships, the founder can choose which investor or which syndication.
[28:34] What Is a Syndication?
A syndicate is a group of people that invest based on what the head of the syndication is investing in.
The head of the syndication brings in deals to the investors, and the investors can decide if they want to put in their money.
This is different from venture capital because it’s a deal-by-deal investment.
[30:34] Key Takeaways in Fundraising through SVP
You need to structure your company and have your financials in order if you’re thinking of capital raising through SVP.
Make sure that the team you have is appealing to investors.
Valuation helps in determining the terms for investment.
You need to have excellent marketing to attract investors.
SVP does not have additional costs on the founder side. But keep in mind that an attorney must handle the legalities.
[33:00] How to Set Up an SVP or Work with Assure
The first option is through Boom StartUp, which helps accelerate early-stage businesses.
The next option is Assure Syndicate, which will match the founders with the investors.
The final option is to have a founder SVP for those who want to be the organizer and run the SVP themselves.
Katie Neilson is the co-founder and CRO of Assure. Before she joined Assure, she worked in the operation industry. She was a marketing coordinator for Fortune 500 company Sara Lee, where she handled the day-to-day process of the production.
Katie also helped in developing marketing campaigns. She started as an office manager at an angel-backed startup. She has a degree from Brigham Young University.
“SPVs provide the ability for investors to invest smaller check sizes, which oftentimes means that they can have a larger portfolio. They can have more companies that they have invested in, which for an investor's point of view, it gives them the bigger chance for winning a winning company.”
“The SPV holds many investors, but it's just one line item on the cap data table, which is more simple for the founder and looks more clean.”
“When a founder is working with investors, and determining who is going to be an investor in their company, this is a relationship that is going to be ongoing for the next 10 years. They need to be strategic in who they let in because they're going to have that relationship forever.”
“Syndication is basically a group of individuals that agree to invest into what the head of that syndication is investing into or to look at the options.”
“There's no additional cost when it comes to the SPV for the founder side. But for the founder themselves, they do need to have, you know, an attorney in place and take care of some of these aspects before that we talked about. The structure of the company, the marketing materials, the financials in order, all of those do take money.”
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As you grow and scale your business, you need to look into raising capital. Katie Neilson shares how capital raising through a special purpose vehicle can help you as a founder. If you enjoyed today's episode of Her CEO Journey Podcast, then hit subscribe and share it!
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