Special purpose vehicles (SPVs)

Frequently asked questions

• What is an SPV?

  A special purpose vehicle (SPV) is a legal entity set up for a specific purpose. Like vehicles on the road, there are many types of SPVs (in private equity financing alone). The kind you choose depends on what you need it for. 

• Is a syndicate the same as an SPV?

  When people refer to an SPV, they often mean syndicate. A syndicate is one type of SPV, though there are many other types used for different purposes.

• What is a syndicate?

  A syndicate is a group of investors investing together in one company, under some sort of SPV structure. They will usually involve at least three parties:
  

  • Syndicate lead: They will source the deal and communicate with the target company on behalf of the other investors. If it’s a regulated syndicate, they may be known as the fund manager.
  • Other investors: The beneficial owners of the shares invited to the deal by the lead
  • Nominee: The legal owner of the shares. Nominees are used to simplify a company’s cap table and investor management.

• How is a syndicate legally structured?

  A Vestd Syndicate is a SEIS and EIS-friendly way for investors to pool funds and invest together in a company, via a nominee.
  
  We use a UK bare trust structure to protect investors’ SEIS/EIS eligibility so they can easily manage their investments on Vestd without having to worry.
  
  Vestd Nominees is a subsidiary of Vestd which serves as the legal owner of the investors’ shares to simplify the target company’s cap table and stakeholder management. Read more. 
  
  The legal owner of shares just holds the title; so Vestd Nominees don’t get any economic or voting rights. That's for the beneficial owner.
  
  All other investors hold full beneficial rights to their shares.
  
  The Syndicate Lead is appointed as the voting proxy for the Syndicate, receiving all resolutions and other communications.
  
  All other investors hold full Beneficial rights to their shares.

• What is a pledge fund?

  A pledge fund is a series of syndicates with a key difference. 
  
  Investors pledge a certain amount per year to the fund to access a number of investment opportunities. Whether they actually invest is up to them. 
  
  The follow-on investors must then agree to each deal on an individual basis. 
  
  The benefit of the pledge fund structure is that the lead investor gets the information they need to source and negotiate multiple deals upfront without the additional complexity of a regulated managed fund structure.
  
  Note: a syndicate structure needs to be in place for each company.

• Who is a syndicate lead?

  Usually, syndicates have a lead investor, also known as the syndicate lead. They're the investor who arranges the deal and brings the other investors (follow-on investors) in on it.
  
  The syndicate lead represents the interests of the syndicate as a whole - hence why they're appointed as the voting proxy, receiving all resolutions and other communications. So they're the chief person the investee company will communicate with.
  
  A few things to note: unless it’s a managed fund, the lead must themselves materially invest in the company. 

• What are the benefits of joining a syndicate?

  • Enjoy access to more deal opportunities.
  • Grow and diversify your portfolio.
  • Draw on collective knowledge and experience.
  • Enhanced preemption and voting rights in many cases.
  • Maintain SEIS/EIS eligibility (so long as other criteria are met).

• What are the benefits of being a syndicate lead?

  You can monetise your network and invest in deals you may not be able to otherwise.
  
  Pooling funds with others enhances your preemption and voting rights, so you get more out of your investment. 
  
  Plus the lead typically receives a finder’s fee for negotiating the deal, carried interest, or both.

• What are the benefits for founders?

  Getting more investors on board means it’s easier to raise larger rounds.
  
  Without a syndicate, managing multiple investors individually can be an administrative nightmare.  It’s much easier to get resolutions signed off by a single syndicate representative than by lots of separate investors. The same goes for negotiations. 
  
  Plus, founders can tap into a network of investors and draw on all of their knowledge, skills and experiences.

• Who owns the shares in a syndicate?

  If you adopt the Vestd structure for your syndicate, then you’ll make use of split legal and beneficial ownership.
  
  Under this structure, Vestd serves as the legal owner of the investors’ shares. But that does not entitle Vestd to any rights to any of the funds resulting from any dividends, transfer, or sale of the shares. This is purely to streamline your cap table - so it shows just one name instead of many.
  
  All investors hold full beneficial rights to their shares. This means they still hold all the “benefits” associated with the shares, including rights to capital. They are the ones who benefit, not the legal owner (in this case, Vestd).
  
  Read more here.

• What’s so special about a Vestd syndicate?

  As well as seriously simplifying investment management for everybody, access to Vestd comes with many perks, including but not limited to:
  

  • Execute the entire funding round on the app
  • Instantly issue shares to investors
  • Syndicate formation and management
  • Essential legal document templates
  • Cap table health check and Companies House reconciliation
  • Digital sharing and signing
  • Secure data room (with custom access permissions)
  • Compliance by design
  • Real-time reporting
  • Scenario modelling