TRANSFORMING THE VENTURE INVESTMENT ECOSYSTEM

Successfully launching an investment entity has everything to do with properly structuring and administering the vehicles that are used to invest in private assets. This is true whether these private assets are start-up companies, real estate projects, secondary opportunities, farmland, art, films, opportunity zones, or almost any form of private asset with the potential of creating value.

Assure is the leading provider of SPVs, transforming of how venture investment vehicles are structured and administered. This trend continues to have a profound impact on investors and entrepreneurs in the private venture investment marketplace. Nowhere has this been more evident than in the process of setting up Special Purpose Vehicles (SPVs), a rapidly growing venture investment entity. It is now easier, faster, and less expensive to set up and manage an SPV than at any other time in history.

The phrase “special purpose vehicle” is an apt description – an SPV is an investment vehicle established for a special purpose. If we reduce an SPV down to its fundamental purpose, at its core it is a legal investment structure that enables the pooling of capital in order to invest in a particular private asset. For a capital-raising SPV, that purpose is almost always to raise capital that will be used to invest in or purchase an asset or stock in that asset.

A capital-raising SPV encompasses five primary service categories or areas of expertise that comprise the entity’s complete life cycle from start-up to shut-down:

In this series, we will drill deeper into all five of these areas of expertise and where they apply to the 17 stages of setting up and managing a capital-raising SPV throughout its lifecycle, devoting a separate page to each stage. The series will proceed in chronological order through all 17 steps, rather than ranking them in importance or by the time and resources required by each. The relative importance and resource demands of each step in the Anatomy of an SPV can vary from one SPV to another.

 

BROWSE THE ANATOMY OF A CAPITAL-RAISING SPV

Explore the 5 areas of expertise and 17 individual steps of the Anatomy of an SPV below:

Step 1: Create The SPV Entity

1 Create Entity

The first formal step in setting up your capital-raising SPV is to create the SPV entity, which falls squarely within the LEGAL administrative category. Your first and primary decision will be what legal structure to choose for the SPV. Although other structures are available, informed investors will set up their SPV either as an LLC or as an LP.

Read more about Entity Creation
2 Registered Agent
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Registered Agent
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Step 2: Hire A Registered Agent

2 Registered Agent

After you have legally created your capital-raising SPV entity, preferably in the form of an LLC or LP, your next step is to hire a registered agent. As part of our comprehensive and affordable SPV service, Assure manages every step of your entity throughout its life cycle. In this step, we hire and manage a registered agent on your behalf.

Read more about Registered Agents

Step 3: Documentation

3 Documentation

In the first two steps, you created a valid legal entity that is recognized by the U.S. state in which you set it up and throughout the world. The crucial next step: DOCUMENTATION, determines your SPV’s shape & direction, and determines much of its potential future success.

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Step 4: Obtain An EIN Number From The IRS

4 Obtain EIN

The first three steps established your SPV entity, set its structure & direction, and positioned it for success in the market. The fourth step: OBTAIN AN EIN FROM THE IRS, shifts our focus from the state in which we set up our SPV entity to the federal government. In this step, we help ensure that your capital-raising SPV doesn’t get on the wrong side of the IRS.

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5 Open Bank Account
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Step 5: Open A Bank Account

5 Open Bank Account

In the fourth step, we established our legal status with the federal government and its primary revenue entity. Having obtained our EIN, we can now move on to the fifth step: OPEN A BANK ACCOUNT. In this step, we pave the way to onboard investors, aggregate their capital and deploy their funds to acquire equity in potentially valuable assets.

Read more about opening a bank account

Step 6: Onboard Investors

6 Onboard Investors

In the fifth step, we put the entity in a position to aggregate investors and deploy the shareholders’ collective capital to obtain equity in deals with the potential to create value. With our bank account in place, we are now ready to take the entity to the next level by completing the sixth step: ONBOARD INVESTORS. In this step, we focus on bringing investors into the organization, and pooling their capital in the SPV.

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7 Sign Purchase Agreement
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Purchase Agreement
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Step 7: Signing The Purchase Agreement And Wiring Funds To The Company

7 Sign Purchase Agreement

In the sixth step, we dotted the necessary “i”s and crossed the requisite “t”s to assemble the investors for our newly minted entity and aggregated their funds into a shared bank account. Now, we are ready to fulfill the purpose for which we created our entity: SIGN THE PURCHASING AGREEMENT AND WIRE FUNDS TO THE TARGET COMPANY. In this step, we help ensure that your collective capital gets put to work.

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8 Capital Account Statements
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Step 8: Get All Of The SPV Investors Their Capital Account Statement

8 Capital Account Statements

In the seventh step, we performed the task for which we created our entity. We invested the money we had collected and aggregated from our member investors in order to purchase an equity share in an entrepreneurial start-up. Now in STEP 8: GET ALL OF THE SPV INVESTORS THEIR CAPITAL ACCOUNT STATEMENTS, we ensure that your investors receive the required statements acknowledging their investment.

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9 Cap Table
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Ledger/ Cap Table
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Step 9: Build And Save The Cap Table Ledger For The SPV

9 Cap Table

In the eighth step, we provided the required receipt of their participation/investment in our SPV to each of our investors. Now in STEP 9: BUILD AND SAVE THE CAP TABLE (LEDGER) FOR THE SPV, we embark on the process of cataloguing all of our investors and their pertinent detailed information.

Read more about cap tables

Anatomy of an SPV

A Capital-Raising Special Purpose Vehicle (SPV) is comprised of these 17 fundamental steps. Hover over any of these steps to learn more.

10 Security Filings
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Shut Down Entity
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Step 17: Shutting Down The SPV Is Usually Called A Wind-Down

17 Shut Down Entity

In the sixteenth step, we shared the wealth that our successful investment had created among our SPV’s participating investors. Now in STEP 17: SHUT DOWN THE SPV: OFTEN CALLED A WIND-DOWN, we shutter our entity--bidding it a hopefully fond farewell. In this final step, we ensure that we shut everything down correctly to remove the risk of harassment by the IRS, other state regulatory bodies or private parties.

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11 Finalize Investment
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Distributions
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Step 16: Collect And Send Out Distributions To Your Investors

16 Distributions

In the fifteenth step, we kept the doors open for yet another year. Now in STEP 16: COLLECT AND SEND OUT DISTRIBUTIONS TO YOUR INVESTORS, we share the wealth that our successful investment has created. In this step, we make sure that all distributions are pulled together and sent, in the right amounts, to the right people.

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12 Taxes
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Maintain Entity
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Step 15: Maintain The Entity Each Year So It Doesn't Get Cancelled

15 Maintain Entity

In the fourteenth step, we addressed pro-rata rights, membership transfers and a range of required corporate actions. Now we move to STEP 15: MAINTAIN THE ENTITY EACH YEAR SO IT DOESN’T GET CANCELLED. This title is highly descriptive; if we don’t take discrete steps, our entity will actually be shut down. In this step, we ensure the continuous operation and validity of the entity by paying various fees and making filings annually.

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13 Financials
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Post Close Activities
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Step 14: Post-Close Activities

14 Post Close Activities

In the thirteenth step, we filed the required taxes and sent out K1 forms to all investors on behalf of our clients. Now in STEP 14: POST CLOSE ACTIVITIES, we address three key sets of activities that must be performed in the aftermath of our investment into our target startup company. In this step, we address pro-rata rights, membership transfers and a range of required corporate actions.

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14 Post Close Activities
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Financials
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Step 13: Prepare And Distribute Financials For The SPV

13 Financials

In the twelveth step, we took care of the tax requirements of the happy contingency of a taxable event—a byproduct of value creation. Now in STEP 13, PREPARE AND DISTRIBUTE FINANCIALS FOR THE SPV we walk through the if and when of Financials.

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15 Maintain Entity
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Taxes
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Step 12: Prepare And File Taxes And Deliver K1's To Your Investors

12 Taxes

In the eleventh step, we performed the “good housekeeping” required to keep our SPV on track and avoid unpleasant surprises that can send our entity off the rails. Now, in the case of a taxable event--we move on to STEP 12: PREPARE AND FILE TAXES AND DELIVER K1 FORMS TO YOUR INVESTORS (WHEN NEEDED). In this step, we file taxes and send out K1 forms to all investors on behalf of our clients.

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16 Distributions
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Finalize Investment
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Step 11: Circle Back And Make Sure Everything Is Finalized For The Investment

11 Finalize Investment

In the tenth step, we ensured compliance with all federal and state securities regulatory requirements with regard to our entity. STEP 11: CIRCLE BACK AND MAKE SURE EVERYTHING IS FINALIZED FOR THE INVESTMENT, is an oft overlooked step. It should not be. If we neglect this step a lot of things can fall down. In this step, we protect your entity from the costs and delays that can result from inadvertent mistakes we may have made in prior steps.

Read more about finalizing the investment

Step 10: Complete And File Your Security Filings To The SEC And Relevant States

10 Security Filings

In the ninth step, we built the cap table, which is often a crucial element in follow-on financing rounds. Now in STEP 10: COMPLETE AND FILE YOUR SECURITY FILINGS TO THE SEC AND RELEVANT STATES, we turn our attention back to federal and state tax and regulatory affairs. In this step, we ensure compliance with all federal and state securities regulatory requirements with regard to our entity.

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Registered Agent
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THE EMERGENCE OF THE SPV AS THE STRUCTURE OF CHOICE

In recent years, the entrepreneurial venture economy has seen the emergence of a new generation of investors with a penchant for rapid action. Many of these investors are “super angels,” predominantly leaders with entrepreneurial experience who want to invest in the next generation of products and services without having to endure delays or get bogged down in minutiae that consumes their time, energy and cash.

This need for speed rapidly mushroomed throughout the entrepreneurial investment ecosystem, creating a demand for flexible capital formation services without the structural and administrative demands typically associated with venture fund formation.

These developments have increased the demand for the capital-raising SPV.

ENABLING LARGE-SCALE SPVs

Capital-raising SPVs offer entirely unique benefits for investors. Some of the most notable include deal-by-deal carry and the empowerment of high-volume investment syndicates.

However, prior to the advent of Assure, the widespread adoption of capital-raising SPVs had been hampered by high set-up costs and slow, onerous administrative processes. Consequently, many deals that would otherwise have been best set up as SPVs were instead structured as venture capital funds. In addition, many high-volume syndicate deals that lend themselves perfectly to the SPV structure simply didn’t get done.

For Assure’s clients, a capital-raising SPV is far more than a simple legal structure. It’s the lifeblood of the quick deal. We created the “Assure SPV” to be everything an SPV organizer will need -- with all the legal, tax, compliance, administration, banking and if needed, accounting -- to set up, close and manage an investment vehicle.

With an Assure SPV, investors pay one minimal flat fee. Though investors are involved in strategic decisions, the Assure team manages every aspect of the entity throughout its life cycle, from set-up to shut down. This expedites fund set-up and frees investors to focus on their high-value areas of expertise -- finding and supporting quality deals.

In addition to its own SPV products and services, Assure created and provided the backend for prominent investment platforms such as SeedInvest and AngelList. A growing host of SPV deal organizers and syndicates have taken full advantage of Assure’s game-changing service offerings, anchored by the company’s innovative Glassboard technology platform, which simplifies and automates a growing number of structuring and administrative processes.

SPV SET-UP AND MANAGEMENT

Setting up and managing a capital-raising SPV can be compared with the process of building a house. In both cases, there are risk factors, structuring decisions, administrative fees and requirements, and governing rules and regulations.

SPV-House

Risk - Potential homebuyers weigh such risk factors as size, quality of design and materials, neighborhood and location within that neighborhood in deciding whether to buy and how much to pay. Likewise, investors weigh risk factors such as leadership team quality, market size, product/market fit and intellectual property.

Structure - The cost of a home’s structure depends on the size, quality of materials (brick or stucco, sheetrock, windows, wiring/pipes, etc.), labor and features. SPV structure cost variants include entity type, legal and administrative fees, among others.

Administration - For homeowners, administration expenses include the costs to maintain the home, such as annual taxes, water, gas and electricity, lawn care and perhaps HOA fees. SPV administrative costs include entity maintenance fees, taxes, K1s, distributions, exits, shutdowns, etc.

Rules - These are imposed by the government in order to protect consumers. They include elements such as plumbing and electrical code requirements, building permit requirements, how far back the house needs to be from the street and how tall it can be. SPVs are governed by an array of analogous rules set up to protect investors, entrepreneurs and the public.

Again, a capital-raising SPV requires these five areas of expertise or service categories:

The Assure team has performed all of these functions managing transactions for hundreds of SPV clients, more than anyone else in the industry. We have invested a great deal of time and resources in the often counter-intuitive process of figuring out and executing every aspect of capital-raising SPVs.

Legal Disclaimer: Please consult your attorney; this article is not meant to be legal advice.