Historically, venture capital investing has been an exclusive doorway into private markets reserved for those with the funds to make a splash.
While public interest in investing, in part propelled by consumerised digital brokerages such as Robinhood, is booming, individuals find themselves disconnected from the more lucrative and personal opportunities available in Venture Capital – global private equity valuation has outpaced public-market equities, growing twice as fast.
Meanwhile, online movements are manifesting in consumers seeking out alternative investment opportunities and banding together to vote with their wallets. This is evidenced by the buzz around Blockchain and DAOs, alongside community investment clubs popping up across social media platforms. Investing has become mainstream and the rise of alternative assets has enabled the financialisation of virtually anything, enabling people to invest in what they believe in.
This trend is expected to only accelerate further, penetrating private markets, as SPVs go mainstream and new regulation gives leeway for a broader category of participants.
What are SPVs?
SPV stands for Special Purpose Vehicle and, as the name suggests, it's a legal entity created and managed for a specific purpose. Think of it as a Venture Fund Lite – an easy-to-setup, low-cost investment vehicle intended to invest in a specific startup deal.
An SPV can take various legal forms but is always a tax-transparent entity with minimal maintenance requirements. Their speed, cost-efficiency, and modern infrastructure make it elementary to start and manage angel funds, syndicates, and other co-investment initiatives of various sizes, enabling more people to participate in private markets.
To illustrate – you can create an SPV to participate in a funding round of a startup. After securing an allocation from the founder, create an SPV, raise the funds, invest them into the startup, and, upon exit, divvy up the funds as per the structure of your waterfall.
Participating in the fundraising part is the individual investor's gateway into venture capital investing, but there are ample benefits for established investors, too – control over where your money goes, less opacity and bureaucracy compared to traditional VC funds, and extremely low running costs.
The gateway into private markets
SPVs are a particularly helpful tool to give the most enthusiastic members of a community a way to invest. Social support easily translates into financial support. For instance, one of the world's top YouTubers, MrBeast, monetized his following by launching a 300-strong burger restaurant chain across the U.S. to a resounding success. Other creators and influencers looking to follow his example with projects of their own can leverage SPVs to crowdsource capital from their communities, giving their fans the opportunity to not only support initiatives they believe in but also reap the rewards of smart investments.
Not just for influencers, SPVs enable virtually anyone to leverage and monetize their network for a particular goal.
Startup founders can set up an SPV to raise capital and keep a clean cap table. Friends and family can band together to financially support an aspiring founder. By making use of SPVs, angel investors can get a larger allocation or meet minimum threshold requirements, while sharing deals with their network, building personal credibility, and, of course, charging carry.
Launching your own private investment club has never been easier
SPV creation has been made simple by end-to-end online platforms such as Vauban. By following accessible step-by-step walkthroughs, an SPV can be fully up and running, bank account included, in a week.
Vauban is built for global investors and is multi-currency and multi-jurisdiction – perfect for UK and EU investors transacting across borders. Learn more about Vauban here.