Apply
Founder Institute Image

On this July 2021 VC Lab video, Jeremy Neilson (Founder/Co-CEO, Assure) and Adeo Ressi (Founder/CEO, Founder Institute) discuss how emerging VCs can leverage a deal-by-deal investing strategy to break into the industry and build a portfolio.

By getting in and closing deals, investors develop an LP base, create relationships with founders, and strengthen their brand. This webinar addresses the strategies on how to structure and manage these deals, in a way that is compelling for both founders and LPs, and in a way that lets the investor direct their focus on finding and investing in good companies.

Watch the full video or see the highlights + Q&A below:


Key Topics:

  • Getting in the game & building credibility with LPs
  • SPV is like dating, venture fundraising is like marriage
  • SPVs are fast & affordable
  • Matchmaking with LPs
  • SPVs lack deployment pressure
  • Lower investment minimums attract more LPs
  • SPVs offer staircase for LPs to grow with you
  • Top benefit of SPVs: Deal-by-deal carry
  • Top selling points to LPs
  • Why SPVs are preferred by founders
  • How SPVs can help you break into the scene

Getting in the Game & Building Credibility with LPs

Neilson says that building a track record as an SPV organizer can give you the credibility to either raise a venture fund or join a venture fund. One of Assure’s clients started with one hundred SPVs, raised several small funds after that, then a larger one after that – eventually starting his own VC fund. Neilson says that SPVs are a great way to build credibility with LPs as an investor, making fundraising easier down the road.


SPV is Like Dating, Venture Fundraising is Like Marriage

Neilson says SPV is like dating, while fundraising for a venture fund is like a marriage:

An SPV is a particular deal. Let’s use SpaceX as an example. Let’s say you get access to some allocation into SpaceX. When you go out to your network, you’re basically asking, ‘Do you want allocation to SpaceX?’ That’s it. This is a yes/no conversation. When you’re raising for an SPV, you’re raising for that deal – for that particular opportunity. But when you’re raising a fund, it’s all about you and your team. It’s a very different conversation. If you say, ‘This is a space tech fund,’ they will ask what you can get into and if you can you find the next SpaceX.

In short, with SPVs, investors must do their due diligence on the deal itself, rather than on you and your team’s ability to access deals. If you’re doing it deal-by-deal, investors get exposure to you, your thesis, and your ability to get into deals. When you want to start a venture fund, they’re more likely to hop onboard because of your track record.


SPVs Are Fast & Affordable

Neilson says SPVs are now faster and more affordable than ever before:

10-15 years ago, an SPV cost the same as a venture fund, so it made no sense to do SPVs. They were expensive, slow-moving, and used pretty infrequently. Today, SPVs are super affordable, very easy, quick, and transparent. You can do as many deals in 6 months that VCs may do in a 10-year venture fund because SPVs are so flexible, affordable and easy to use.

Matchmaking with LPs

If SPVs are like dating, then cherry-picking deals for LPs is like the courting phase. Neilson says that SPVs are a great opportunity to prove your ability to bring them what they’re looking for:

You can match a deal to an LPs preference. You can find deals but you need to turn around and find LPs, and SPVs continue to be a great way to find them and introduce things – it’s non-threatening, it’s easy conversation. It’s like, ‘Hey, what kind of deals do you like?’ Then I can come back with potential deals that resonate.

No Deployment Pressure

Unlike raising a fund, SPVs lack the deployment pressure of needing to invest a certain amount of money in a certain amount of time. Neilson says:

When doing SPVs, you don’t have that pressure. When you find the deal, you reach out and say, ‘Is anybody interested?’ You can raise the right amount of money for the allocation into this deal and you don’t have to have this pressure. It gives you this flexibility with regards to raising the money and putting it into the deal. You can match those two precisely.

Lower Investment Minimums Attract More LPs

Lower investment minimums attract a more diverse pool of LPs – allowing new or lower net worth LPs to test the waters with you on a deal-by-deal basis:

When you go out with an SPV, the investors are different. You can touch a larger group of LPs because you can take a thousand-dollar check because this is one deal, one raise, going into this one company. It’s not a venture fund that needs to hit millions, so you can take smaller checks, and this allows for more people to be interested.

SPVs Offer Staircase for LPs to Grow with You

Neilson shares a testimonial from an angel investor who describes SPVs as a staircase for LPs to build trust before becoming a full-fledged LP in a fund:

LPs stepping into the investment world can write smaller checks, see how it goes, and come back around – this stairstep ability to becoming a full-fledged LP in a fund. If your goal is to ultimately raise a fund, you could be grooming a number of your future LPs by giving them deal-by-deal access so they can try it out both on them committing their capital and trying you out with regards to your thesis, experience, and management.

The Top Benefit of SPVs: Deal-by-Deal Carry

Neilson cites deal-by-carry as one of the best benefits of SPVs:

Deal-by-deal carry is one of the best benefits of SPVs. When you do an SPV, it is self-contained. When that deal is successful, you get carry on that deal. And so, if you look at a venture fund, it’s typically fund carry. Let’s say you have 10 deals; one is amazing and the other 9 are less amazing. You may get zero carry because your overall fund didn’t perform sufficiently. But if you did those 10 deals in SPVs, then you would get carry on each and every deal.

Selling Points to Your LPs

LPs can get access to very attractive deals with lower fees:

LPs are highly appreciative of any GPs willing to share direct investment opportunities and recommend a 1/10 fee structure for single-asset SPVs. This gives GPs the opportunity to leverage their platform and LPs the chance to lower their average cost of fees, thus representing a win-win on both sides.

He also cites greater flexibility in management fees and carried interest as a way to tailor the deal to your LPs, thus strengthening your reputation as a trusted curator.


SPVs Preferred by Founders

Neilson says that SPVs make you more valuable to founders because it saves them the time of vetting out prospects:

You’re selling value – you’re finding great deals and adding value to these founders; they want great investors, they obviously want money, and they don’t want you to send them your entire individual network to deal with – they would prefer that you do an SPV, pool everyone together, and bring them a large check. SPVs are the full gamut of sophistication and size, and your founders love it when you use an SPV rather than just sending them a bunch of introductions.

SPVs Can Help You Break Into the Scene

Neilson says that having a small network doesn’t mean you can’t get any skin in the game:

You can start with 50k; it’s really about getting started and growing that track record. The more deal that you do, the more investors you have exposure to. You can do these small SPVs and start to build that track record and get the experience. You can say, ‘This is what I’ve done, here’s the deals I’ve gotten into in the past, and that just makes that conversation even more smooth.

LEARN HOW TO SIMPLIFY YOUR SPV


Browse the full Q&A below:

27:33: Assure can do SPVs as small as $30k. Can you walk us through the fees for a manager looking to set up an SPV?

29:04: Is there an optimal size for an SPV?

30:55: For those who aren’t familiar with the regulator limits, can you outline the regulator limits that keep you within the Blue-Sky laws?

32:53: How much money do people put into SPVs? What’s a practical amount that an investor who is forming an SPV should think about with respect to bringing LPs into the SPV itself?

35:34: Do you have the ability with Assure to set the limits per state or region so you can intelligently manage SPVs?

37:00: Do you provide any services after the SPV is formed to help you track and manage it over time?

39:10: How long does it take to start an SPV and be ready to fund?

40:36: What is a practical timeline after everything is set up to get wires from LPs?

42:00: Do you support the 506(c) style offering where you can publicly discuss the SPV? What size limit do you recommend for 506(c)?

43:04: What are some of the innovative uses that you can do with SPVs that you might not know?

45:17: Do you have any best practices on how to convert LPs in an SPV to a fund?

47:09: Can crypto be accepted into an SPV? If so, any special considerations?

48:31: Can an SPV invest into more than one company at a time?

51:00: Can LP commitments be obtained before you set up the SPV. If so, how?

52:30: What happens to the fees when an SPV fails?

53:03: What defines a deal as “closed?”

54:09: Do you review the documents for your customers on the investment that they’re making or do you leave that up to them?

55:03: If you’re a startup, can you use an SPV to bundle investors or raise capital?

57:37: You’re primarily focused on the US. Are there any exceptions?


If you have a specific investment in mind and would like to create an SPV, fill out the Tell Us About Your SPV form for an Assure representative to contact you.

* * *

This content is provided by VC Lab (https://GoVCLab.com), the venture capital accelerator.

The free 14 week VC Lab program provides guidance, structure and a network to complete a fund closing in 6 months or less. Since mid 2020, VC Lab has helped launch over 100 venture capital firms around the world.

Apply to Cohort 8 of VC Lab here (https://FI.co/apply/vc). The Final Admissions Deadline is Sunday, August 14th, 2022.

Follow VC Lab on LinkedIn and on Twitter to learn more.

* * *

Related Insights

More insights
Founder Institute Image
VC Lab

Launch a venture capital firm with VC Lab Cohort X

By VC Lab on Jan 05, 2023
Founder Institute Image
VC Lab

Free Limited Partnership Agreement for venture capital funds

By VC Lab on Jan 05, 2023
Founder Institute Image
VC Lab

Creating Standards for Venture Partner Compensation at VC Firms

By Jonathan Greechan on Mar 11, 2022

Are you ready to apply to the world's largest pre-seed accelerator?

Apply to the Program