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Can I invest in SPVs using my VC fund?

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May 14, 2024
Could my venture capital fund be utilized for investments in Special Purpose Vehicles (SPVs)? Could I invest in pass-through entities like Special Purpose Vehicles (SPVs) through my venture capital fund?
1 answer
Accepted Answer
May 14, 2024

Investing in Special Purpose Vehicles (SPVs) should generally be avoided due to several potential consequences:

  1. Tax extension for LPs: If you proceed with an SPV investment, you'll likely need to request that your Limited Partners (LPs) file an extension because the K-1s from the SPVs are likely to be delayed.
  2. Non-qualified investment: Such investments are considered non-qualified, and they will count towards your 20%, potentially affecting your overall portfolio balance.
  3. Creation of a Blocker: To mitigate potential risks of dividends flowing through to your LPs, it may be necessary to create a blocker entity.
  4. Poor Reporting from Portfolio Companies (PortCo): Investing through SPVs might result in inferior reporting from the Portfolio Company, which can hinder decision-making and performance evaluation.
  5. Limited Leverage during Transactions: Having investments structured via SPVs could result in reduced leverage during M&A transactions or secondaries, potentially impacting negotiation outcomes and overall investment strategy.


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