Given the continued and growing interest in special purpose vehicles (“SPVs”) as a means of accessing private market investments, we are publishing a series of posts that examine different aspects of these structures. This post is the first in that series and focuses on how a single-investment SPV is structured.
An SPV allows investors to gain economic exposure to private, pre-IPO companies through indirect ownership. Consider a hypothetical company, TechCo. Twenty years ago, a company with TechCo’s profile would likely already be public. It has substantial revenue, millions of daily active users, global brand recognition and a valuation exceeding $1 billion. Today, companies like TechCo often remain private for longer periods with ownership concentrated among founders, employees, venture capital firms, private equity sponsors and other institutional investors. Although there is no public market for TechCo’s securities, interests may trade on a limited basis in private secondary transactions. However, investors without access to those markets still seek investment exposure. A single-asset vehicle SPV provides such an investment opportunity.
At its most basic, a sponsor forms an entity that acquires shares of TechCo or creates synthetic exposure to its performance and then offers interests in that entity to investors. The vehicle does not pursue other investments. Investors do not directly own TechCo stock but they participate in the economic results of an investment. From a structuring perspective, key considerations include how control, economics and legal risk are allocated.