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By Opalesque Geneva:

The tough fundraising market has pushed emerging venture capital managers toward the special purpose vehicle - or SPV - structure to better compete with large funds and for LP commitments.

An SPV is a separate company with its own balance sheet, created by a parent company to isolate financial risk. Within the VC universe, according to JD Supra, "an SPV is a very simple idea. It is a separate legal entity, usually an LLC, created to make a single investment. Investors put money into the SPV, which then invests in the startup. The startup sees exactly one investor on its cap table, even though that investor may economically represent dozens or hundreds of people. When the investment pays off (or doesn't), the proceeds flow back through the SPV to the underlying investors." Moreover, thanks to automated platforms, creating an SPV has become standardised and cost-efficient.

Whereas the traditional way to start a VC was to launch a first fund, raise capital from limited partners (LPs), and then wait for potential returns, now, a lot of managers are going deal-by-deal. "SPVs allow them to showcase judgment, generate returns, and build relationships with LPs who p......................

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