How to get started with SPVs
To create an SPV, several components need to be aligned. First off, you need to have an opportunity to invest – that you are reasonably confident in closing – so that you can begin the SPV process. Not every opportunity ends up in a successful investment, and you should be aware of this potential sunk cost.
The SPV process can be confusing and opaque and the consequences of getting it wrong may be expensive. When you have an opportunity to invest on the table, energy spent figuring out the optimal process is a burden on both constrained resources and time.
These components need to work together to properly form and manage an SPV:
- Legal - fund documents, side letter terms, and coordination with service providers for SPV and/or general partnership/management company structuring.
- Bank - you need a bank account for each SPV you form. Opening the account requires signed documents for the fund. Navigating custody and compliance requirements also comes into play, as well as potential asset holding requirements for your account.
- Entity Formation - usually a Delaware LLC or LP, and any additional entities needed such as a management company and a General Partnership entity.
- Tax - 3rd party providers to create K-1s for your investors and 1065s as needed.
- Reporting - ongoing calculations on the performance and updated valuations for your General Partnership and for your Limited Partners. Additional reporting might be on specific verticals, stages, geographies and more if you have multiple SPVs.
- Accounting - annual financial statements and capital account statements, calculations of ownership at subsequent rounds, reconciliation of wires and bank transfers alongside fund expenses.
- Compliance - SEC and regulatory filings, ongoing updates in the shifting landscape of investing, additional disclosures or actions needed based on these updates.
SPVs can be straightforward but the underlying work related to forming and administering them can be complicated depending on the individual needs of your fund. We built Flow to solve this problem.
Flow is a central hub for whatever you are trying to accomplish with your SPV strategy. We take care of everything from fund formation to post-close activities, and can connect you with the right resources you need, so that you can focus on raising and deploying capital.
Our solution scales with you – we work with investors doing their first SPV and investors pursuing complex strategies across multiple funds and organizations. If you would like to learn more, please reach out by filling out the form on our homepage here.