Who Can Invest in SPVs?
Who Can Invest in SPVs?
Special Purpose Vehicles (SPVs) offer a flexible way to pool capital for targeted investments. While SPVs are often used in private markets for high-growth opportunities, not everyone qualifies to invest. In this guide, we’ll explore who can invest in SPVs, typical investor profiles, and key considerations for potential investors.
Understanding SPV Investor Eligibility Requirements
SPVs are primarily available to accredited investors, a designation intended to protect investors by ensuring they meet certain financial criteria. Here’s an overview of the key eligibility requirements for those looking to invest in SPVs.
- Accredited Investor Requirement
Most SPVs require investors to be accredited, meaning they meet specific income or net worth criteria defined by the SEC. Typically, this includes individuals with an annual income of $200,000 (or $300,000 jointly with a spouse) or a net worth exceeding $1 million, excluding their primary residence. This restriction helps ensure that investors have the financial resilience to participate in high-risk opportunities.
- Qualified Purchasers
For certain SPVs, particularly those involving larger investment amounts, investors may also need to qualify as “qualified purchasers.” This designation generally requires an individual or entity to have at least $5 million in investments. Qualified purchaser status is intended for more sophisticated investors who can take on the additional risk and complexity associated with larger deals.
- Institutional Investors and Sophisticated Entities
For large-scale or complex SPVs, fund managers may open eligibility to institutional investors like family offices, trusts, or private wealth funds that manage substantial assets. These entities may qualify based on their assets under management or investment experience, allowing them to participate even if they don’t meet the typical accredited investor or qualified purchaser criteria. This flexibility helps SPVs secure significant capital from experienced organizations suited to high-value, high-risk investments
Who Typically Invests in SPVs?
SPVs attract a variety of investors, primarily those looking for targeted, flexible opportunities outside of traditional fund structures. Here are some of the most common investor profiles found in SPVs:
- Existing Fund LPs Seeking Additional Exposure
When an SPV offers co-investment in a portfolio company or project within a larger fund, targeting existing LPs can be a strategic approach. Fund LPs may want deeper exposure to specific assets they feel strongly about or that align with their investment goals. By using an SPV, managers can satisfy demand for additional exposure to these high-conviction investments without diluting the broader fund.
- High-Net-Worth Individuals and Angel Investors
High-net-worth individuals (HNWIs) and angel investors are well-suited for SPVs centered around high-growth, early-stage opportunities, such as a promising startup or specialized real estate project. These investors are often comfortable with concentrated risk and are drawn to SPVs as a way to access specific opportunities, typically those led by managers with a strong track record. HNWIs might be particularly interested in SPVs with a finite timeline and clear exit strategy, allowing them to see returns without a long-term commitment.
- Institutional Investors
Institutional investors, like venture capital firms, private equity funds, and family offices, are ideal for SPVs that require large capital commitments and have a clear strategic fit with institutional mandates. For example, if the SPV is set up to acquire a late-stage company or large real estate asset, institutional investors can provide the substantial funding needed and often appreciate the SPV’s focused exposure within their broader portfolio strategy.
Key Considerations for SPV Investors
SPVs can be established in several different legal structures, each offering unique benefits suited to specific types of investments and goals. Here’s an overview of the most common SPV structures:
- Understand investment minimums and structure requirements before committing to an SPV. Many SPVs have minimum investment thresholds that vary widely, depending on the opportunity and scope of the project. Investors should evaluate whether these minimums align with their capital allocation strategy and risk tolerance.
- Be prepared for illiquidity and a fixed investment horizon with most SPVs. Unlike public investments, SPVs generally do not offer early exit options, meaning that capital is often tied up until the investment goal is achieved, such as an acquisition or IPO.
- Evaluate the risk associated with a concentrated investment in a single asset. SPVs tend to focus on a specific project or company, which means returns are highly dependent on the success of that particular investment. Investors should assess if they’re comfortable with this level of concentrated exposure.
- Review fees and carried interest structures carefully to understand their impact on net returns. SPVs can include management fees and carried interest, similar to traditional funds, but terms can vary. Understanding these fees helps investors gauge the net return potential of the SPV.
- Ensure alignment with the general partner’s (GP) goals and approach. Strong alignment with the GP’s investment thesis, exit strategy, and management priorities is essential. Investors should seek transparency from the GP to ensure mutual interests are prioritized throughout the SPV’s lifecycle.
Managing SPVs on Flow
If you're considering an SPV for your next investment - or if you need guidance on how to start - Flow can help. Flow provides an end-to-end SPV solution that combines intuitive software with integrated administration services. From entity creation to digital onboarding and ongoing administration, Flow’s platform simplifies every stage of the SPV lifecycle to be more efficient and cost-effective.
Schedule a call with a Flow product expert to learn how we can support your SPV investments with a comprehensive, scalable solution.