Some of my best investments have come through SPVs. But SPV’s can also get you burned. Here’s how to invest in SPVs the right way…

(Note: I am not a lawyer. If you need specific legal advice on an SPV, contact an attorney.)

A Special Purpose Vehicle (SPV) is a company that gathers a bunch of checks from investors to invest in a company. Typically, SPVs are a Delaware LLC. 

SPV’s have a lead, usually a more experienced investor who is managing the investment.

Before you invest a dime in an SPV, ask the lead these two questions:

1. Is the SPV buying stock directly from the company? Buying stock straight from the company is critical.
   
   Many companies restrict transfer of shares. Right of First Refusal and other restrictions can invalidate the transfer of shares from another investor into an SPV.
   
   This happened recently to some Anthropic investors. Just as they were probably shopping for beach houses, they found out that their investment was ruled invalid.
   
   They won’t make a dime.
   
2. Does the SPV sit directly on the cap table? If you’re direct on the cap table (list of company owners), your SPV definitely owns part of the company. If you’re not direct on the cap table, your SPV may just own shares in another SPV.
   
   Did that SPV buy the shares properly? Who knows?
   
   This is why I never touch layered SPVs. 

Wrap-Up

SPVs are a great way for smaller angels like me to get access to awesome startups.

But if we don’t handle things correctly, the purchase can be overruled. Our gains vaporize before our eyes. 

Don’t let that happen to you. 

These little details seem wonky. But when a company becomes a huge success and there’s millions of dollars at stake, they make all the difference.

More from the blog:

How My Teeny Tiny Venture Fund Is Beating Almost Everyone

Meet My Latest Investment: Brick

My Three Early Favorites in YC F26

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

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