Share schemes & equity management for startups, scaleups and established UK companies.
Get started
Manage your portfolio with ease and evaluate potential investments.
Manage
Add your investments for complete visibility of your shareholdings. View cap tables and detailed share movements.
Model
Explore future value scenarios based on various growth trajectories, to figure out potential payouts.
SPVs
Set up and manage new SPVs without leaving the platform, then invite co-investors to fund and participate.
Platform
Use cases
Read more reviews >
Support
The Joy of Enterprise Management Incentives
Read our free guide to the UK's most tax-efficient share scheme.Get the guide
Special Purpose Vehicles (SPVs): everything you need to know
A guide for UK business owners and investors.
BOOK A VIDEO CALL
Free Consultation
Ask us about managed funds, pledge funds and syndicates.
Written by Yaz Kinebas
Yaz is a Consultant at Vestd.
Page last updated: 1 May 2024
Investors love Special Purpose Vehicles (SPVs) for their ability to collaborate investments through structures like syndicates and pledge funds.
Business owners can choose SPVs such as roll-up vehicles (RUVs) and subsidiary SPVs to simplify cap table management and establish distinct legal entities for specific projects.
There are numerous ways to deploy SPVs - though some are easier to understand than others! Here, we cover what they are, how they work, and why Vestd is the best way to set up and manage them.
Contents
- What are Special Purpose Vehicles?
- The investment side of SPVs
- Why would investors or fund managers use SPVs?
- The business side of SPVs
- The link between SPVs with SEIS and EIS
- Setting up an SPV with Vestd
What are Special Purpose Vehicles?
An SPV is a legal entity created for a specific business purpose or activity. It allows a company or group of investors to isolate assets, liabilities, and risks related to a particular project.
Think of it as a separate box where a company or investors can put all the bits and pieces – money, assets, and risks – of a particular project. This box stands apart from the main business or personal finances, keeping everything neat and tidy.
Depending on the venture, SPVs can be structured as limited companies, partnerships, or other legal forms. So, in essence:
SPVs are a clever way to manage the finances and risks of a project, making sure it's easy to handle without affecting the rest of your operations.
They also offer numerous strategic and practical uses for both business owners and investors, which we’ll explore below.
The investment side of SPVs
SPVs serve dual purposes for both companies and investors. Let’s begin by exploring the investment side, where SPVs can be used to create syndicates, pledge funds, and managed funds.
1. Syndicates: teaming up to invest
In the simplest possible terms, a syndicate does what it says on the tin, acting as a group of investors who come together to invest in a single target company.
Syndicate investing is a popular choice for angel investors looking to invest in fast-moving startups and typically involve a ‘lead investor’ with domain knowledge taking the helm and leading the syndicate’s investment.
SPVs form a dedicated legal entity for the syndicate – acting as a vehicle for those transactions. Syndicates involve several key parties that work together:
- The lead investor: This is the individual who sources the deal, negotiates terms, and rallies other investors to participate. The lead investor must contribute their own capital.*
- The follow-on investors: These are the other individuals the lead investor brings in on the deal. They usually pass on their voting rights to the lead investor as a proxy to simplify governance.
- The nominee: Nominees act as the legal owners of the syndicate's shares, while the individual investors remain the beneficial owners. This keeps the cap table clean.
- The target company: The company the syndicate is investing in.
*If the lead does not themselves invest "materially", they need to be regulated and this becomes a Managed Fund structure.
And here are some key criteria for a syndicate to satisfy if the lead investor is not a regulated fund manager:
- The lead investor must personally invest a material amount
- No up-front "deposits" may be collected from investors
- Each investor must retain a say in share voting and management
-
Syndicates on Vestd
Vestd simplifies setting up and managing the syndicate so investors can review deals, sign documents, monitor their investments and receive communications.
The lead also has flexibility in how much portfolio visibility to provide the other investors.
To keep the target company's cap table tidy and streamline stakeholder management, we've introduced Vestd Nominees, a subsidiary of Vestd that is the legal owner of the investors' shares.
But don't worry – as the legal owner, Vestd Nominees doesn't receive any economic or voting rights. Those belong to you, the beneficial owner.
Disclaimer: The Syndicate and Pledge Fund products are intended for Sophisticated Investors and High Net Worth Individuals, under the relevant legislation. Vestd acts only as the Platform Operator and Nominee Provider, and does not act as a Fund Manager in this arrangement.
2. Pledge funds: capital for multiple investments
A pledge fund allows investors to commit capital upfront to participate in a series of syndicate investments arranged by a lead investor.
It provides the lead investor with indicative interest to go out and source multiple investment opportunities. The key difference between this and a standard syndicate is that investors make a non-binding "pledge" of capital to the lead investor ahead of time.
Legally, separate syndicates must still be set up for each target company invested in. For each deal, the investors still retain the right to opt in or out. This means that individual participating investors don’t take on liability for deals they don’t opt into, but also don’t have to retrieve their capital from the fund.
As with standard syndicates, the lead investor must materially invest their own capital into each deal. No upfront "deposits" can be collected from investors. These restrictions are necessary for the lead investor to avoid being considered a regulated fund manager.
3. Managed funds: for authorised fund managers
Managed funds are similar to pledge funds in that they involve a series of syndicate investments. The difference is that with a managed fund, the lead investor has obtained FCA authorisation to function as a regulated fund manager.
This means the fund manager can collect committed capital upfront from investors into a single vehicle. When the manager identifies an investment opportunity, they can deploy capital without returning to the individual investors for approval on that specific deal.
-
Funds on Vestd
Vestd makes it easy to set up and deploy compliant managed funds. However, Vestd doesn’t itself act as a regulated fund manager or provide the necessary regulatory permissions to the lead.
Disclaimer: This product is intended for those who themselves hold the authorisation necessary to operate such funds, under the relevant legislation. Vestd acts only as the Platform Operator and Nominee Provider, and does not act as a Fund Manager in this arrangement.
So, a quick recap:
- Syndicates allow group investing in individual opportunities
- Pledge funds let investors pre-commit to a series of investments
- Managed funds offer a fully managed solution through authorised managers
With the right structure and strong leadership from a lead investor, SPVs can be a powerful way to build a portfolio of innovative early-stage companies. Vestd provides the technology and support to make that process seamless.
Why would investors or fund managers use SPVs?
Venture capitalists, fund managers and investors - if you want to optimise your investments and add flexibility to your strategy, special purpose vehicles are a valuable tool.
Structuring investments through SPVs can help both fund managers and individual investors navigate the restrictions of traditional funds, allowing them to seize opportunities that might otherwise be out of reach.
SPVs also solve much of the admin headache involved in launching and managing multiple investments alongside other investors.
Why fund managers use SPVs
Fund managers can deploy SPVs for strategic fundraising objectives. Here are some scenarios where SPVs are especially useful for existing or budding fund managers:
1. Deals out of scope with an investment thesis
If you come across a promising startup that doesn't quite align with your fund's limited partnership agreement (LPA), setting up an SPV allows you to raise additional capital and invest in the company without using your main fund's resources.
2. When the deal exceeds certain limits
Some legal structures or investing regulations sometimes limit the amount of capital you can invest in a single company, sector, stage, or geography. SPV can offer a means to continue investing.
3. When you're a first-time investor
Launching your first venture capital (VC) fund can seem overwhelming. Some fund managers start by creating SPVs to invest in individual companies.
This allows them to build a portfolio of investments with concrete examples of their investment skills. When the time comes to raise their first VC fund, this track record can make it easier to gain the trust and financial backing of investors.
4. When your fund is running low on capital
If your fund has deployed most of its capital but an attractive investment opportunity arises, launching an SPV allows you to raise fresh capital and make the investment without being constrained by your fund's limitations.
Why angel investors use SPVs
Angel investors often choose to invest via SPVs as they enable them to expose their cash to asset classes or investment types they’re unfamiliar with, forming a community of like-minded investors with close relationships to the lead investor or fund manager.
By joining forces with other angels and forming what’s been known as an angel syndicate, you can pool your resources and actively pursue co-investments. Key benefits include:
1. Access to more deals
By banding together with other angels in an SPV, you can invest at larger amounts than you might be able to individually. This opens up a broader range of investment sizes, including later-stage deals that may have previously been out of reach.
2. Diversification made easier
With a wider variety of investment opportunities, SPVs make diversifying your portfolio easier. By allocating smaller amounts across different industries and stages, you can spread your risk and potentially optimise your returns.
3. Increased negotiating power
Investing as part of a syndicate SPV gives you more negotiating power. With a larger investment amount at stake, you can often secure better deal terms and more favourable conditions than you could as an individual investor.
4. Staying competitive in follow-on rounds
As your portfolio companies grow and raise subsequent rounds, it can be difficult to keep up as an individual investor. However, you can remain competitive in those larger follow-on deals by pooling your capital with other angels through an SPV.
The business side of SPVs
SPVs aren’t just for investors. There are numerous ways to wield them to your advantage as a founder or business owner, too. Fundamentally, SPVs act as a discreet legal business entity designed for specific projects or objectives.
Below, we explore how companies use SPVs to streamline operations, handle risks and drive growth.
1. Streamlining your cap table with SPVs
As a founder of an early-stage company, attracting investors is an exciting milestone. However, managing all those individual investors can quickly become an administrative nightmare as your shareholder list grows.
This is where roll-up vehicles (RUVs) - a type of SPV - step in to help.
Roll-up vehicles simplify shareholder management
An RUV is an SPV designed to consolidate multiple small investors into a single entry on your cap table. By streamlining your shareholder list, RUVs offer several impactful benefits and uses:
Efficient communication | Reduced admin | Swift decision-making | Improved investor relations |
---|---|---|---|
With an RUV, you have a single point of contact for all the consolidated investors, making sharing important information and updates much easier and faster. |
Minimise the time spent managing shareholder information. By grouping investors, you can focus on running your business instead of getting bogged down in admin. |
Work with a single representative with the authority to make decisions on behalf of the consolidated investors, making the process much smoother. |
Appointing a lead investor to manage the RUV creates a crystal-clear line of communication, building trust and transparency between the company and its investors. |
2. SPVs for company secretarial and legal matters
SPVs aren’t limited to investment management - they can also be highly useful for isolating assets and risk for individual projects. One key application is the creation of subsidiaries.
Creating subsidiaries with SPVs
A subsidiary is a separate legal entity owned and controlled by a parent company. By establishing subsidiaries through SPVs, you can unlock several practical uses and benefits:
Asset protection | Operational autonomy | Regulatory compliance |
---|---|---|
Subsidiaries provide a layer of protection for the parent company. Any liabilities or risks associated with the subsidiary are typically isolated within that entity, safeguarding the parent company's assets. |
Subsidiaries allow you to separate different business units or operations - providing greater flexibility in terms of management and decision-making - while still being under the parent company's control. |
SPVs can help you steer complex requirements. By isolating specific business activities within a subsidiary, you can ensure that you meet all the necessary legal obligations without impacting the parent company. |
-
Subsidiaries with Vestd
You can incorporate your UK limited company through Vestd, create subsidiaries and lay solid foundations for effective cap table and equity management in preparation for investment.
Benefits of SPVs for company owners/founders
We know that it’s a lot to take in! Such is the flexibility of SPVs. But if we had to sum up the benefits for business owners:
- Simplified cap table management
- Better investor communication
- Efficient decision-making
- Asset protection
The link between SPVs, SEIS and EIS
The UK government offers several incentives to stimulate investment into early-stage and growing businesses, notably through the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS).
These schemes are designed to encourage investments by offering attractive tax reliefs to investors.
For instance, SEIS provides up to 50% income tax relief on investments up to £100,000 per tax year, alongside other benefits such as Capital Gains Tax (CGT) exemption and loss relief.
Similarly, EIS offers up to 30% income tax relief on investments up to £1 million annually, with CGT deferral and loss relief provisions.
SPVs with SEIS/EIS
SPVs themselves aren’t the recipients of SEIS or EIS tax reliefs, as these reliefs are directly linked to individual investors.
So, in the case of Limited Liability Partnerships (LLP) or Limited Partnerships (LP), shares aren’t considered held directly by the investors, disqualifying them from the EIS and SEIS tax reliefs.
However, Vestd Syndicates use a UK bare trust structure, which safeguards your SEIS/EIS eligibility. This means you can manage your investments on the Vestd platform without worrying about jeopardising your tax benefits.
-
What's a bare trust?
A bare trust is a basic legal agreement where beneficiaries (that's you, the investors) have immediate rights to both the assets invested in and any income those assets generate.
Assets like shares are held by a Nominee, either controlled by Vestd or your lead investor, but here's the catch - while the nominee holds these assets, they're obligated to act on the investors' instructions.
Each deal on Vestd is treated like a separate agreement between the person leading the investment (e.g. the lead investor) and the investors, all under the umbrella of the Bare Trust structure.
Although these syndicates aren't separate legal entities, they’re binding agreements focused on the specific asset being bought.
Setting up an SPV with Vestd
Looking to unlock new business opportunities with SPVs? Excellent, but you need a quick and efficient way of setting and managing them.
Vestd offers exactly that. A user-friendly platform for creating and managing SPVs for a range of uses, whether you’re a founder, business owner, investor or fund manager.
Investors: tap into new opportunities
- Syndicates: Collaborate with like-minded investors to invest in high-potential startups, while Vestd handles the legal complexities.
- Pledge funds: As a lead investor, raise capital from other investors using our streamlined pledge fund solution.
- Managed funds: Professional fund managers can create and manage a series of syndicates, with a robust framework for regulatory compliance.
Companies: simplify your structure for different projects
- Roll-up vehicles: Consolidate multiple small investors into a single entity and simplify your shareholding structure.
- Easily incorporate subsidiaries: Easily set up SPVs as subsidiaries with Vestd, protecting assets and controlling risks in the process.
Let's discuss SPVs!
Book a free call today to see how Vestd makes setting up and managing SPVs a breeze. There's no obligation to use Vestd afterwards. Unlock the power of SPVs and take your investments to the next level.
1 min read
Vestd breaks the mould with cost-effective funding rounds
Nov 12, 2024 by Jemma King
9 min read
The Global Investment Report 2024: A deep dive into global funding activity
Nov 11, 2024 by Jemma King
Vestd for
© 2024 Vestd Ltd. Company number 09302265. Registered in England and Wales.
Vestd Ltd is authorised and regulated by the Financial Conduct Authority (685992).
Registered office: Suite LU.231, The Light Bulb, 1 Filament Walk, Wandsworth, SW18 4GQ.