What is an SPV? A Plain Guide for People Being Invited Into Rounds

An SPV, or special purpose vehicle, lets a group of investors support a startup together. One person finds the deal, everyone pools their money, and the company ends up with one shareholder instead of many. If you've been invited to join a round, this is likely how it works.

But some disadvantages often aren't clear at first. Your money could be tied up for years with no way to exit early. Depending on the structure, you may protect your S/EIS relief or lose it. And when it's time to sell, you might need approval from most of your co-investors before anything can happen.

What Does SPV Mean, and Which Version Applies to Your Deal?

SPV stands for special purpose vehicle, a term lawyers use for a company created for a single task and a short lifespan. That's the special purpose vehicle meaning.

Let's break down the term "SPV".

Special means single, purpose refers to the transaction, and vehicle is the company or trust created for that transaction. The vehicle closes when the transaction is done. The main question is which transaction, and that's where the three industries differ.

Banking was the first to use SPVs. In securitization, loans are moved to a bankruptcy-remote vehicle that issues bonds backed by those loans, so bondholders are repaid by the borrowers, not the original bank.

HMRC's Corporate Finance Manual gives these companies special tax treatment as note-issuing companies. This is the SPV meaning in finance, and it's also why the term can sound negative to those who lived through 2008 or know about Enron hiding debt.

British landlords started using SPVs next. A buy-to-let SPV is a limited company with a property SIC code, owned by the landlord, which buys the building and collects the rent. The main benefit is paying Corporation Tax on rental profit instead of income tax.

Angel investing was the last to adopt SPVs and uses them in the simplest way. A lead finds a startup, a group of investors wants to join, and the startup prefers a single shareholder instead of 40. So, they set up one vehicle for that round and close it when the company is sold. No bonds, no rent, and no hidden debt.

How Does an SPV Work?

Most angels first hear about a special purpose vehicle when they're invited to join a round. The easiest way to understand how it works is to follow one deal from invitation to exit.

First, the lead and the founder agree on an allocation, for example, £250,000 out of a £2m round. Instead of having forty people each invest about £6,000 and appear separately on the share register, the founder prefers just one name. So, the lead sets up a vehicle for this round, decides the minimum investment, the fee, and the carry, and then shares the deal details with the syndicate.

For you, the SPV investment includes three steps:

1. Self-certify that you qualify 2. Sign the subscription documents 3. Send your money to the vehicle's account

Note: The lead never handles your funds.

When the round closes, the company receives a single payment and only one entry appears on its register. After that, it's mostly administrative work like annual filings, investor reports, share certificates, and tax paperwork.

After that, you wait, sometimes, even for years. If the company is sold, the proceeds go to the vehicle. Fees and carry are taken as agreed, and the rest is shared out to investors based on their share. Once everyone is paid, the vehicle is closed.

That's how an SPV structure works in practice. It's a step-by-step process from allocation to signing to exit.

Why Do Investors Use SPVs?

There are three main reasons for creating an SPV:

1. Sometimes, a fund finds a deal its rules don't allow. 2. Other times, a manager without a fund is building a track record by doing deals one at a time. 3. Or, a shareholder in a private company wants to sell, and buyers join forces to purchase the shares.

Early English overseas trading used a similar approach. Investors would fund a single voyage, settle the accounts when the ships returned, and then raise new money for the next trip from anyone interested. Permanent capital only came later. Venture investing has partly gone back to this older model, and SPVs are the tool for doing so.

The Deal the Fund Cannot Do

A fund's mandate is a set of promises to its investors about things like stage, sector, location, and investment size. Sometimes, deals that do not fit these rules still appear, and they are often the most attractive ones. In these cases, the deal is done through an SPV.

Only interested parties invest, and the fund's rules stay the same, so nobody has to ask 60 investors to amend anything; we have already covered this in this blog: The SPV is Dead, Long Live the SPV.

The Manager Who Has No Fund Yet

First-time managers don't get a pool of money based on judgment alone. They need to prove themselves by doing deals one at a time. For example, twenty investors might back one company because they trust both the company and the person leading the deal. After several deals, there is a track record with real dates and entry prices. This is why people start an angel syndicate before raising a fund.

The Company That Never Listed

Today, companies often remain private for 10-15 years. Early investors and employees usually want to cash out before there is an official exit. Buyers come together in one SPV to purchase these shares. This is where SPV finance handles its biggest deals, and Odin has managed secondaries in SpaceX, Anthropic, OpenAI, Anduril, and Stripe.

Is the Deal Primary or Secondary?

In a primary deal, the company issues new shares, and the money goes to the company. In a secondary deal, an existing shareholder sells shares they already own, and the money goes to that person instead. From where you are standing, the vehicle looks identical. What differs is who receives the payment.

If you buy a new home from a developer, your money goes to the developer, who uses it for construction. If you buy the flat next door from your neighbor, your money goes to your neighbor, who might spend it on something else. The building itself doesn't change. And share purchases work the same way.

The Primary Version

A company raises £2 million at an £8 million pre-money valuation, making it worth £10 million after the investment. A group invests £250,000 through one vehicle and buys 2.5% of the company. The company creates new shares for this 2.5%, and the money goes into the company's bank account.

As a result, each existing shareholder owns a slightly smaller percentage than before. This is expected, since the goal is to bring in new capital.

The Odin SPV can handle deals like this, and if the money comes from a founder's own investors instead of a group, the founder rollup does the same thing with one vehicle.

The Secondary Version

The same company is still worth £10 million. An angel investor who bought 3% in 2019 sells a third of their shares, so they sell 1% for £100,000. No new shares are made, and no one's ownership is reduced. The company's bank balance stays the same, since the £100,000 goes to the selling investor.

Two things happen as a result:

• First, the buyer and seller set the price, not a funding round, so it can differ from the last round's price.
• Second, the company must approve the transfer because private companies have rules about who can buy shares. If the board doesn't approve, the sale can't go through.

UK Bare Trust or Delaware Series?

Odin builds deals in two ways:

• A UK bare trust, where a nominee is the registered legal owner and each investor is the beneficial owner of their own portion of the shares.
• A Delaware Series LP, where each deal is a new Series under one master partnership, and investors own an interest in that Series rather than the shares themselves.

The difference between legal title and beneficial ownership has been around for centuries. This distinction affects key details, like who signs when you exit, what you receive for taxes, and which tax reliefs you can claim.

The UK Bare Trust

In this structure, Odin Investments Limited acts as the nominee, so the company's register lists it. Your share is recorded as your beneficial interest. There's no need to set up a new company or open a separate bank account, since the deal's funds are held in a client money account managed by Thompson Taraz.

Since you directly own your beneficial interest, S/EIS relief applies to you, which is why this is the standard approach for early-stage SPV UK deals. The trade happens at the end, and selling requires a majority vote from investors, so the lead investor cannot accept an offer alone. Pricing starts at £4,000, and US investors are eligible. The structure is set out in Bare Trust SPV Structures for UK Angel Syndicates.

The Delaware Series LP

With this option, each deal is set up as its own Series under a single master LP, not an LLC. The Series owns the shares, and you own an interest in the Series, which is different from owning shares directly.

The sponsor decides when to sell, and no investor vote is needed. Funds for each Series are kept in the master partnership's multi-currency account and are tracked separately, so they are not considered client money.

Each investor gets a Schedule K-1 from the Series' Form 1065 instead of a share certificate. Investors must be Accredited or Qualified Purchasers, and the sponsor must have the right permissions, such as RIA or ERA status in the US, or AIFM cover in the UK or EU.

S/EIS relief is not available because partnerships do not qualify. Pricing starts at $6,000. More details are on our Delaware LP page.

Are SPVs on Companies House?

Property SPVs are always listed on Companies House. They are UK limited companies, registered and searchable by name from the day they are formed. Investment SPVs depend on their structure.

• A UK bare trust might not appear as a separate company on Companies House, because Odin manages it as a nominee instead of creating a new company for each deal.
• A Delaware Series LP won't appear either, since it is a US structure under Delaware law and does not have to file anything in the UK.

SPV can also mean something else, though you usually only see this in structured finance. In that world, banks put loans or receivables into a separate entity to issue securities, like mortgage bonds. This is a completely different use of SPVs and follows different rules. From here on, this guide is for investors joining a deal, not landlords or finance lawyers.

Why Does an Exit Need a Vote?

In a UK bare trust, a sale requires a majority vote from the investors, and the lead cannot accept an offer alone. In a Delaware Series, the sponsor makes the decision, and there's no vote.

Choosing when to sell someone else's investment without asking them is called discretionary investment management. In the UK, this requires FCA permission, and getting approved can take six to twelve months. Most syndicate leads doing their third deal do not have these permissions or the time to wait, so the bare trust lets investors decide instead. It is their money, so it is their choice. When that line is crossed is covered in FCA Rules and Angel Syndicates.

The Delaware Series is faster because it works differently. The sponsor takes on the regulatory responsibilities, either as an RIA or ERA in the US, or with AIFM cover for UK or EU sponsors. In return, the sponsor makes the decisions. You pay for their judgment when you invest and rely on it when it is time to exit.

There is one more thing for leads to consider. Leads who do deals often and charge fees without investing themselves may need to become Appointed Representatives.

Leading a few deals as an investor is different from running a business that manages other people's money. It is better to check where you stand before your fourth or fifth deal, not after.

Should You Choose an SPV, a Fund, or Invest Directly?

There are three main ways to own a part of a startup:

1. You can put your own name on the company's register 2. Join an SPV with others in a single company 3. Or, commit to a fund that will pick 20 or 30 companies for you over the next 10 years.

The decision is if you want to back a specific company or trust a manager to choose for you.

With a fund, you are backing a manager for ten years before knowing which companies they will select. An SPV lets you invest in one specific company, with the details and price already set. Direct investing means you handle everything on your own.

What Each Option Requires From You

Direct investing lists your name on the company's register. You handle your own research, hire your own lawyers, and make your own decisions when it's time to exit. There's no manager fee, but getting access can be tough because the round must accept your investment and the founder has to want you involved.

An SPV requires you to make one decision about one company. The minimum investment is often low, so even a few thousand pounds can get you into rounds that might otherwise be closed. In exchange, somebody else finds the deal and gets paid once at close and again through carried interest if the company is sold at a profit.

A fund asks you to commit before the portfolio is built, and it charges a management fee each year. In exchange, you get diversification that would be hard to achieve on your own, plus a manager whose full-time job is to find investment opportunities.

Is an SPV a Limited Company?

Sometimes an SPV can be a limited company, but that's not the case with Odin. Some people do use limited companies for SPVs, which is why this question comes up. Odin uses a bare trust in the UK and a Series of a partnership in the US, so neither is a company.

The main differentiator is what the vehicle owns and how that affects your tax relief. A limited company is its own legal entity. It owns assets in its own name, files accounts at Companies House, and pays Corporation Tax. If you use a company for an early-stage round, the company owns the shares and is the subscriber. This means your S/EIS relief does not pass through to you.

There is another issue for the startup. If a company SPV owns more than 51%, it fails the startup's independence test. This can cause the startup to lose its qualifying status, not just affect your relief.

When it comes to SPV vs limited company, a limited company is not the best fit for a single venture round in the UK. The trust structure exists because it is not a company. However, for property SPVs, a limited company is usually the right choice.

What Does an SPV Cost to Set Up?

At Odin, setting up a UK bare trust starts at £4,000, while a Delaware Series starts at $6,000. Both fees are one-time charges, paid at closing, and are based on a percentage of the amount raised, with set minimums and maximums. There are no setup or recurring fees. The lead investor, the investors, or the company can pay the fee.

As the amount raised increases, the percentage fee decreases, moving through tiers of 1.5%, 1%, and 0.5%. The maximum fee is £40,000 for the bare trust and $60,000 for the Series. This means a £200,000 syndicate deal and a £3 million secondary will pay different fees for the same administration. This pricing structure is intentional.

You set up an SPV after the deal is agreed, not before. The lead investor decides on the allocation, picks the structure, sets the minimum investment, and chooses their own fee and carry on the deal sheet.

They then invite others to join the round. Investors self-certify, sign, and send their funds. Once the allocation is filled, the SPV closes. After that, the administrator handles all filings, reporting, certificates, or K-1s.

Two main factors affect the cost: the currency and structure you choose, since each has its own price list, and the size of your raise, as the percentage tiers only apply to that amount.

The Regulatory Trade-off, Honestly

Imagine 12 investors each put £25,000 into the same bare trust SPV to back one company. Two years later, a buyer wants to buy the company. Everyone could make a good profit, but nine out of twelve investors must agree to sell, as UK trust law requires a majority vote.

If a few people refuse, getting everyone to agree at the same time can be tough. The sale might stall because of paperwork or missed phone calls. One investor might need the money quickly due to personal reasons, while another might think the offer is too low. Either situation can delay everyone else's money.

It is possible to avoid the group vote. A sponsor with full FCA discretionary permissions could make the decision alone, with no need for ballots or signatures. However, almost no one does this. Getting the license takes six to twelve months, and keeping it costs £50,000 to £100,000 each year, even if the sponsor never uses it. For platforms handling deals worth only a few hundred thousand pounds, the license costs more than most deals are worth.

Delaware avoids this problem completely. In a Series LP, the sponsor alone decides when to exit. If an offer comes in, the sponsor signs and the deal can close within a week, not a quarter. There's no need for an FCA-style license, because Delaware's rules are different from UK trust law.

In the UK, 12 investors need to coordinate nine signatures, while in Delaware, one sponsor can sign alone. These two systems developed separately. For example, in a $500,000 secondary sale, a UK bare trust needs everyone's approval, but a Delaware Series LP can close as soon as the sponsor signs.

FAQs

What is an SPV in business?

An SPV is a company or trust set up for a single transaction and closed once that deal is done. In business, you'll see SPVs used in angel and venture rounds, property purchases through a limited company, and in securitisations where loans are put into their own vehicle.

What does SPV stand for?

SPV stands for special purpose vehicle. In documents, you might see both the abbreviation and the full phrase used. Sometimes, both are written together in one sentence to make the meaning clear for first-time readers.

What is the difference between an SPV and a limited company?

A limited company can act as the SPV, and this is usually the case in property deals. In venture rounds, though, this setup can cause issues because the company owns the shares itself, so S/EIS relief goes to the company, not to you. That's why Odin's UK vehicle uses a bare trust instead.

What are the downsides of using an SPV?

With just one company, you don't get diversification, and your money is tied up for years with no early exit option. There's a closing fee and a carry on any profit. When it's time to exit, the decision is made by a vote of investors or the sponsor, so you don't control the timing.

Why use an SPV to buy property?

A limited company pays Corporation Tax on rental profits, instead of the landlord paying income tax on rent. Mortgage interest also counts as a business expense. This setup is different from the venture SPVs mentioned earlier, with its own tax rules and advisers.

Are SPVs on Companies House?

If a limited company is used as an SPV, it's registered at Companies House like any other company, with its own accounts and filings. A bare trust isn't registered, since no company is set up for the deal. Instead, the nominee's name appears on the startup's share register.