3 Benefits of an SPV or RUV
Disclaimer: This post discusses general legal issues, but it does not constitute legal advice in any respect. This post is not a substitute for legal advice and is intended to generate discussion of various issues. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel. Cara Stone, LLP and the author expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this post. The views expressed herein are personal opinion.
Setting up an SPV or RUV for a startup investment may involve extra considerations and costs. What are some benefits of an SPV or RUV?
From the company’s perspective, an SPV or RUV consolidates numerous small individual shareholders into one line item or shareholder on the cap table. Having one shareholder on the cap table makes it easier for the company to maintain the cap table. It also helps simplify getting shareholder approval or shareholder votes. Instead of going to each investor to receive approval, the company can go directly to the manager of the SPV to speak for all members in the vehicle. This is especially helpful when you have multiple small check writers.
Investors often use SPVs and RUVs when a lead investor goes out to their network of investors to syndicate investment for the deal or to generate follow-up capital. In this case, it may be easier for the capital to come into a single vehicle. If an investor has a relationship and background with the company and can work smoothly on significant decisions, working with that investor can lead to quicker action.
Finally, SPVs and RUVs can give companies and investors more flexibility in the exit transaction. For instance, in exit situations where the investors receive a combination of cash and stock, specific exemptions are often needed for compliance. Having one entity where the manager makes all the decisions and the individual investors make no decisions can alleviate potential issues. These regulations are why SPVs are common in crowdfunding and Reg A deals.
These are some common reasons people may want to set up SPVs or RUVs. Check out these other posts about SPVs and RUVs.
Disclaimer: This post discusses general legal issues, but it does not constitute legal advice in any respect. This post is not a substitute for legal advice and is intended to generate discussion of various issues. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel. Cara Stone, LLP and the author expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this post. The views expressed herein are personal opinion.
Setting up an SPV or RUV for a startup investment may involve extra considerations and costs. What are some benefits of an SPV or RUV?
From the company’s perspective, an SPV or RUV consolidates numerous small individual shareholders into one line item or shareholder on the cap table. Having one shareholder on the cap table makes it easier for the company to maintain the cap table. It also helps simplify getting shareholder approval or shareholder votes. Instead of going to each investor to receive approval, the company can go directly to the manager of the SPV to speak for all members in the vehicle. This is especially helpful when you have multiple small check writers.
Investors often use SPVs and RUVs when a lead investor goes out to their network of investors to syndicate investment for the deal or to generate follow-up capital. In this case, it may be easier for the capital to come into a single vehicle. If an investor has a relationship and background with the company and can work smoothly on significant decisions, working with that investor can lead to quicker action.
Finally, SPVs and RUVs can give companies and investors more flexibility in the exit transaction. For instance, in exit situations where the investors receive a combination of cash and stock, specific exemptions are often needed for compliance. Having one entity where the manager makes all the decisions and the individual investors make no decisions can alleviate potential issues. These regulations are why SPVs are common in crowdfunding and Reg A deals.
These are some common reasons people may want to set up SPVs or RUVs. Check out these other posts about SPVs and RUVs.
