Why do Investors Use SPVs or 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 disclaim all liability with respect to any actions taken or not taken based on any content of this post. The views expressed herein are personal opinion.
From an investor’s perspective, there are several reasons to consider an SPV or RUV. Some investors bring friends, family, or co-investors into a deal. An SPV or RUV can help consolidate communications and manage multiple parties. For investors consolidating capital in this way, there are two benefits.
First, as mentioned above, it allows the lead investor to consolidate communications about the company and to the company. In these scenarios, the lead investor will often have the primary relationship with the company and disseminate updates to the investors. The lead investor can also discuss their opinion on company matters and gather feedback from the SPV to pass along to the company rather than having each investor act independently. Because all the investors are acting together, the SPV or RUV has more sway than any investor would have individually. The vehicle may be able to influence the company, hold a board seat, or take other actions that individual investors cannot do on their own.
The second benefit is that an SPV or RUV may allow a group of angel investors or venture capital investors to consolidate enough capital and voting power to negotiate specific terms directly with the company. Negotiations can occur in the term sheet or if the SPV or RUV has enough power in matters that require a shareholder vote.
Investors should also consider the burdens of forming an SPV. The primary “burden” of an SPV or RUV is the administration that goes with maintaining the vehicle. Maintenance includes:
- Paying taxes associated with the entity.
- Distributing K-1s to investors.
- Maintaining accounting records.
- Keeping up with administrative filing requirements.
Depending on the vehicle’s infrastructure, maintenance may not be a heavy lift, but these are critical functions, and missing deadlines or filings can be damaging.
We’ve compiled more resources on when SPVs are appropriate, the steps to start an SPV, carried interested for managers and more. Check it out here.
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 disclaim all liability with respect to any actions taken or not taken based on any content of this post. The views expressed herein are personal opinion.
From an investor’s perspective, there are several reasons to consider an SPV or RUV. Some investors bring friends, family, or co-investors into a deal. An SPV or RUV can help consolidate communications and manage multiple parties. For investors consolidating capital in this way, there are two benefits.
First, as mentioned above, it allows the lead investor to consolidate communications about the company and to the company. In these scenarios, the lead investor will often have the primary relationship with the company and disseminate updates to the investors. The lead investor can also discuss their opinion on company matters and gather feedback from the SPV to pass along to the company rather than having each investor act independently. Because all the investors are acting together, the SPV or RUV has more sway than any investor would have individually. The vehicle may be able to influence the company, hold a board seat, or take other actions that individual investors cannot do on their own.
The second benefit is that an SPV or RUV may allow a group of angel investors or venture capital investors to consolidate enough capital and voting power to negotiate specific terms directly with the company. Negotiations can occur in the term sheet or if the SPV or RUV has enough power in matters that require a shareholder vote.
Investors should also consider the burdens of forming an SPV. The primary “burden” of an SPV or RUV is the administration that goes with maintaining the vehicle. Maintenance includes:
- Paying taxes associated with the entity.
- Distributing K-1s to investors.
- Maintaining accounting records.
- Keeping up with administrative filing requirements.
Depending on the vehicle’s infrastructure, maintenance may not be a heavy lift, but these are critical functions, and missing deadlines or filings can be damaging.
We’ve compiled more resources on when SPVs are appropriate, the steps to start an SPV, carried interested for managers and more. Check it out here.
