A Special Purpose Vehicle (SPV) is a legal entity created for a specific purpose. In the context of raising capital, a SPV (usually structured as LLC) can be used as a funding structure, by which all investors (or investors under a given investment threshold) are pooled together into a single entity.
Special Purpose Vehicles – Pros & Cons:
Why are the SPV costs variable?
The Special Purpose Vehicle costs $2,110 to set up. The variability arises because the SPV Manager passes through the costs of making the applicable Blue Sky filings, described below. Some states, like New York, do not have a Blue Sky filing fee. Other states, like Arizona and California do have filing fees. The SPV manager passes through the associated costs of filing in those states.
SPV with 10 investors, all of whom are from NY would cost $2,110. This is because New York does not charge any Blue Sky filing fees. Therefore, there are no Blue Sky pass through costs added to the base SPV fee.
Special Purpose Vehicles with 10 investors who are from NY, CA, and AZ would cost ~$2,385. Here, CA and AZ
What are Blue Sky Filings?
Although the Security Exchange Commission (the “SEC”) is the main enforcer of securities laws in the United States, every state also has its own set of securities laws. Those state laws are commonly referred to as “Blue Sky Laws”, and are designed to protect investors against fraud. Requirements vary state-by-state. Typically, however, “Blue Sky Filings” refer to a company’s obligations under state law to file notice of their offerings if offering their securities in a particular state.
Who takes care of Blue Sky Filings?
For investors investing through the SPV, the fund manager takes care of the applicable Blue Sky filings. For investors investing directly, the Company has the obligation to do so, and you should consult with your lawyers on your obligations.
What if we set up an SPV, but only one or two investors invest in it?
We get it – you can’t read the future, and we aren’t going to force you to keep an Special Purpose Vehicle if only one or two investors come in through the SPV. If that happens, we’ll talk to you toward the end of your campaign, and work with your investors to instead invest directly and re-execute their offering documents.
Does SeedInvest have a preference as to whether we use an SPV for our raise?
No – SeedInvest is SPV-agnostic. We view the decision to use or not use an Special Purpose Vehicle in your raise as a business decision that the company should make based on their circumstances. You may wish to consult with your lawyer to determine which route would work best for you.
Can I use a Special Purpose Vehicle for a Regulation CF or Regulation A+ raise?
No. Per regulatory restrictions, only Regulation D raises can utilize SPVs at this time.
This post was written by AnMaree Williams on October 27, 2016
Special Purpose Vehicle (SPV) | Examples and How It Works