SPV Spotlight: Q3 2024

SPV Spotlight: Q3 2024

Authors:

Kevin Dowd, Peter Walker, Michael Young, PhD, Ashley Neville

Read time:

10 minutes

Published date:

30 October 2024

The number of new SPVs exploded during the venture capital boom of 2021. While they have slowed down since then, it's clear the long-term trend is pointing upward.

As broader investment activity across the venture capital industry has increased over the past decade, the use of special purpose vehicles (SPVs) among institutional investors has expanded, too. The number of new SPVs exploded during the venture capital boom of 2021, rising 235% year over year. SPV formations have slowed down since then, but the long-term trend is clear. Compared to three years ago, the annual count of new SPVs formed on Carta is up 31%. Compared to five years ago, it’s up 116%.

Despite that growth, this segment of the private market can remain opaque. We aim to change that. How large do SPVs tend to be? How many investors do they have? What sort of fees do they charge?

This report offers our broadest and clearest look to date at the state of the SPV landscape. It relies on aggregated and anonymized data from 2,442 SPVs formed in the U.S. between the years 2016 and 2023. Each of these vehicles was either formed or managed (or both) with Carta Fund Administration, an all-in-one platform where investors can form, close, and manage their SPVs. Investors can use turnkey templates or customize their own SPV solutions while streamlining their LP communications and receiving ongoing support throughout an SPV’s lifespan.

In some ways, SPVs are similar to traditional venture capital funds: Both are mechanisms for investors to raise capital from limited partners and invest in startups. But SPVs are also quite different. SPVs typically invest in a single asset, compared to the large portfolios of traditional funds. SPVs serve bespoke purposes, are typically smaller than traditional VC funds, and often draw capital from a smaller group of LPs.

SPVs also present a different set of variables to consider for these LPs. SPVs tend to operate on shorter timelines than other private funds, meaning a successful investment can produce returns more quickly. Management fees are less common in SPVs than traditional funds. However, making one investment instead of many means that SPVs don’t provide the same diversification of risk that other fund varieties can offer.

Highlights

SPV structure

By far the busiest year in recent history for new SPV formation was 2021. Investors raised 838 new vehicles in the U.S. that year, nearly 600 more than the year prior. Since then, however, SPV formation has slowed. The number of new vehicles declined by 34% in 2022, then another 41% in 2023.

This recent history of SPV formation tracks closely with other recent trends in venture capital, such as annual totals for capital raised by startups through primary rounds, as you can see here. When investors are putting more capital to work, they also tend to utilize more SPVs for alternative deal structures.

Most SPVs are small: More than two-thirds of all SPVs raised on Carta between 2016 and 2023 had less than $5 million in assets under management. Many of these smaller SPVs are used to invest in early-stage companies. This segment includes most of the SPVs that are deployed by solo GPs who are seeking to establish a track record before raising their first institutional fund.

At the other end of the spectrum are SPVs that manage $50 million or more in assets. Just 2.6% of all SPVs on Carta meet this classification. Yet these supersized vehicles account for more than 30% of all capital raised—twice as much capital as is managed by all sub-$5 million SPVs combined.

As SPVs have grown more common in the venture ecosystem, they’ve also gotten bigger.

In 2017, for instance, a 25th percentile SPV had about $500,000 in assets under management. A median SPV that year claimed $1.5 million in AUM, and a 75th percentile vehicle managed $3.6 million. By 2023, the 25th percentile for SPV size had climbed to $800,000, the median to $2.2 million, and the 75th percentile to $6.5 million. Over that span, the 25th percentile figure increased by 60%, the median increased by 47%, and the 75th percentile by 81%.

SPV fees

Only about 44% of all SPVs on Carta charge any management fees at all. Among those that do, the management fee typically doesn’t vary too much depending on the size of the SPV. Across all sizes of SPVs, about 75% of all vehicles charge a management fee higher than 1.5%.

The median fee is 1.8% for SPVs smaller than $10 million, compared to 2% for SPVs larger than $10 million. In general, larger SPVs are more likely to charge a larger fee.

The typical management fees that SPV investors charge their LPs haven’t changed very much over the past eight years. But the needle has moved slightly to favor LPs: The median SPV charged a 1.9% management fee in 2023, down from 2% back in 2016 (and as recently as 2020).

SPV investment metrics

Below we dig into a few major performance metrics for institutional SPVs.

In general, SPVs have become more likely over the past several years to acquire common shares in the companies they back, as opposed to preferred shares or convertible notes. This could indicate an increase in SPVs being used for secondary transactions.

Internal rate of return (IRR) measures the annualized return on investment that an SPV has produced. It’s one of the main ways that investors track an SPV’s performance before the SPV has realized any liquid returns.

TVPI is another key metric used to measure the performance of active SPVs. It’s expressed as a multiple: A TVPI of 1x means that the current value of the investment is the same as the value of the initial investment. A TVPI of 1.5x means the value of the investment has increased one-and-a-half times over.