EM Pro Tips: Forming SPVs
Special purpose vehicles have become a core tool for emerging managers, particularly in high-growth sectors like AI where access to coveted companies is scarce. SPVs give managers a way to pool capital quickly and secure allocations in competitive deals. One recent example is the OpenAI Start Fund, a venture pool sponsored by San Francisco-based OpenAI, developer of ChatGPT, which has launched a series of SPVs to ride the current AI investment wave. But OpenAI’s August 30, 2025 announcement voiding any unauthorized equity transfers of its own interests underscores the real point: these transactions may look simple, but they are riddled with traps. Sponsors who approach SPVs thoughtfully can execute efficiently, protect investors and position themselves for long-term success.
What is an SPV?
“SPV” or special purpose vehicle is a flexible term that can describe subsidiaries, tax blockers or liability blockers, among other things. In the investment context, however, it almost always refers to a single-asset vehicle where a sponsor pools investor capital to acquire one specific asset. By contrast, a private investment fund, such as venture fund or private equity fund, is typically a blind pool vehicle where investors commit capital for deployment across a portfolio of yet-to-be-identified assets.
Form, Raise, Invest, Exit and Done?
SPVs may look straightforward: form an entity, raise capital, make the investment and exit. In practice, structuring a sound SPV requires anticipating regulatory, operational, tax and relationship issues. Secondary transactions illustrate many of these challenges. When interests are acquired from an existing holder, including the sponsor, rather than directly from the company, consent is often required because beneficial ownership changes even if the legal entity remains the same. Follow-on rights create additional complexity: do existing SPV investors participate, or is a new SPV formed for the next round? Exit mechanics also raise questions. Who decides to sell if an offer arises that is not a marquee exit like an IPO? Would investors prefer a distribution in kind so they can continue holding shares post-IPO? Addressing these consent and governance issues upfront keeps transactions on track, avoids unnecessary delays, and builds trust with both portfolio companies and investors.
When to Leverage Platforms and When Not To
Technology-enabled platforms have made forming an SPV faster and more cost effective, particularly for plain vanilla transactions such as a single asset investment with a simple capital structure and no special terms or fees. They are efficient for what they are designed to do and are often the right choice for straightforward small raises. Many managers find that pairing these platforms with a lawyer for a quick scan provides important protection, since these platforms generally do not provide legal advice. If a lawyer is offered through the platform, it is important to understand that the lawyer typically represents the platform, not the sponsor, meaning the advice provided is not independent and may not fully address the sponsor’s specific needs.
For more complex structures or larger capital raises, such as multi-asset portfolios, side letters, multiple closings or follow-on or special exit rights, moving away from a standardized platform can actually be more cost effective. Fixing an inflexible structure after the fact often takes more time and creates higher costs, while starting with a customized structure that integrates legal counsel with a dedicated administrator creates efficiencies and reduces risk.
Navigating the Regulatory Maze
SPVs implicate several core regulatory regimes that shape private capital markets. These include the Securities Act of 1933, the Investment Company Act of 1940, the Investment Advisers Act of 1940 and the Securities Exchange Act of 1934. Each imposes specific obligations and offers valuable exemptions that sponsors must understand from the outset. Some of these exemptions operate as one-way doors. Once a choice is made it cannot be reversed. While sponsors may attempt creative approaches to structuring or compliance, regulators are well versed in these strategies, and the rules are intentionally complex, built over decades to prevent circumvention. A thoughtful approach to these frameworks reduces legal risk and strengthens credibility with sophisticated investors and portfolio companies.
Key Legal Considerations
Here are the key legal considerations every sponsor should keep in mind when forming and managing an SPV to acquire interests in a start-up.
1. Review the portfolio company documents
Before structuring the SPV, review the portfolio company’s governing documents carefully. Even if the legal entity holding the interest does not change, a transfer that alters the beneficial ownership of the interest, as happens when investors participate through an SPV, can trigger consent requirements or other rights such as tag along or right of first refusal provisions. An unlawful transfer can be deemed void “ab initio,” leaving the SPV without the intended interest and potentially creating liability to both the investors and the underlying portfolio company. Addressing these issues early helps avoid delays, ensures a smooth closing and reduces the risk of disputes with the portfolio company or other stakeholders, including the SPV’s investors.
2. SPV governance
Governance is a central consideration in structuring an SPV. In practice, investors in these vehicles are typically passive, with the sponsor retaining primary control over follow-on financings, exit decisions, and responses to material events affecting the SPV or the underlying company. The governing documents should clearly define the scope of investor rights, and where those rights are limited, the sponsor should disclose the limitations expressly, including the risks associated with a passive role. This approach not only mitigates the risk of disputes but also promotes transparency, manages investor expectations and fosters stronger long-term relationships with investors.
3. Ensure compliance with the Securities Act of 1933
Every offering of SPV interests must rely on a valid exemption from registration. Rule 506(b) of Regulation D is the most common path and requires that all investors are accredited investors, typically individuals with annual income of at least $200,000, or $300,000 jointly with a spouse, or a net worth of at least $1,000,000 excluding a primary residence.
For managers who plan to market opportunities publicly, Rule 506(c) is usually the better option, as it allows for general solicitation. Under 506(c), sponsors must take reasonable steps to verify accredited status, although certain check sizes can sometimes qualify for streamlined verification under recent SEC guidance.
Regardless of the exemption relied on, careful review of marketing materials and communications is critical to avoid inadvertent general solicitation. A misstep can jeopardize not only the SPV’s offering exemption but also the exemption relied on by the underlying portfolio company.
4. Monitor status under the Investment Company Act of 1940
SPVs are generally considered investment companies under the Investment Company Act because they are organized primarily to invest in the securities of other companies. As such, these SPVs must rely on an exemption to avoid full registration as an investment company under U.S. rules.
Section 3(c)(1) is the most common exemption; however, it limits the SPV to 100 beneficial owners, making it well suited for emerging managers targeting a smaller raise and working with a mix of institutional and individual investors. Section 3(c)(7) is another commonly used exemption and unlike “3(c)(1) SPVs”, “3(c)(7) SPVs” allows for an unlimited number of investors but only if all are “qualified purchasers,” a designation typically reserved for institutional and ultra-high-net-worth investors. Accurate tracking of beneficial owners, including look-through counts for fund-of-funds participants, is critical to maintaining compliance and avoiding the need to restructure the vehicle midstream.
5. Understand the Investment Advisers Act implications
Charging a management fee or carried interest generally causes the sponsor to be viewed as an investment adviser, which can trigger federal or state registration obligations. Many managers rely on the venture capital adviser exemption and register as exempt reporting advisers, an efficient approach for smaller funds. The exemption, however, has limits. A venture capital fund cannot hold more than 20 percent of its capital in non-qualifying assets, and qualifying assets generally must be acquired directly from the portfolio company. SPVs that acquire portfolio company interests in secondary transactions often fall outside this definition, creating registration and compliance obligations. Sponsors must also take care when charging performance fees. Unless the SPV qualifies as a venture capital fund, all investors must be “qualified clients” under the Advisers Act. Knowing where your SPV fits within these rules is essential for staying in regulatory good standing.
6. Review compensation structures for broker-dealer compliance
Any transaction-based compensation tied to the size or success of an investment can trigger broker-dealer registration requirements under the Securities Exchange Act of 1934. Many emerging sponsors wish to charge a flat fee because they believe it avoids adviser registration and because it is administratively convenient and easier to explain to investors. This assumption is incorrect and can lead to significant complications. Charging a flat fee does not automatically avoid adviser registration and, depending on how the fee is structured, may result in the sponsor being treated as a broker-dealer. If the flat fee is tied, even indirectly, to the size or success of a raise, the likelihood of triggering broker-dealer status increases considerably. Sponsors should work with experienced counsel to evaluate their compensation structures carefully, as mistakes in this area can lead to enforcement actions, rescission rights and substantial financial penalties.
A Disciplined, Market-aligned Approach
SPVs remain one of the most effective tools for emerging managers. They allow managers to quickly build a track record, provide investors with targeted opportunities and deepen relationships. The key to success lies in disciplined execution. By planning ahead, aligning with regulatory frameworks and integrating efficient technology with experienced legal support, sponsors can create SPVs that are both efficient and compliant. This thoughtful approach allows managers to stay focused on what matters most: sourcing high-quality opportunities, managing investor relationships and building long-term performance.
