The Deal That Changed Everything

The wire hit at 4:47 PM on a Friday. Just seventy-two hours earlier, the allocation didn’t even exist. There was no fund committee, no six-month diligence cycle, and no waiting for a GP to decide whether your check was large enough to matter. Instead, a lead investor with conviction assembled fourteen LPs who trusted the read, and together they formed a single-purpose vehicle that secured cap table positions in an AI company valued at half a billion dollars.

This is SPV investing. Moreover, if you’re still waiting for your wealth advisor to explain it, you’re already behind.

Consider the trajectory: the annual count of new SPVs has increased 116% over the last five years. Furthermore, formations exploded 235% year-over-year in 2021 alone. Meanwhile, the secondary market—where LP positions trade hands—hit $103 billion in the first half of 2025. Consequently, the infrastructure for private market access has fundamentally shifted, and the people who understand these mechanics are playing a different game entirely.

Here’s what you actually need to know.

What an SPV Actually Is—And What They Don’t Tell You

A Special Purpose Vehicle is a legal entity created for one specific investment. That’s the entire concept—no portfolio diversification, no blind pool, and no trusting a fund manager to deploy your capital over the next decade into companies you’ll never evaluate yourself.

Think of it like this: a traditional VC fund resembles a REIT. Essentially, you’re buying exposure to someone else’s real estate judgment across dozens of properties you’ll never visit. An SPV, by contrast, is buying the building at 54th and Park because you know what’s going in next door.

The Mechanics

First, a lead investor identifies a deal and negotiates terms with the company. Next, they form an SPV—typically a Delaware LLC or limited partnership—and invite other investors to participate. Capital then gets called once, and the SPV appears as a single line on the company’s cap table. Finally, when the company exits, proceeds flow back through the vehicle to investors.

Formation costs typically run $8,000 to $15,000, distributed across all LPs on a pro-rata basis. Additionally, setup takes days rather than months. Platforms like AngelList, Carta, and Sydecar have consequently compressed the legal and administrative overhead to the point where a qualified lead can have a vehicle live by Monday morning.

The Real Story

SPVs exist because the traditional fund structure serves GPs, not LPs. Specifically, the two-and-twenty model—2% annual management fee plus 20% carried interest—was designed for a world where access was scarce and LPs had no alternatives. That world, however, is ending.

Consider the math carefully. A $100 million fund charging 2% management fees collects $2 million annually for ten years. That amounts to $20 million in fees before a single dollar of profit materializes. In other words, the GP gets paid whether the fund performs or not. SPVs, by contrast, invert this dynamic entirely. Most charge no management fee whatsoever, and the lead eats what they kill—carried interest on actual profits, typically ranging from 15-20%.

This shift isn’t generosity. Rather, it’s competition. When LPs can access deals directly, GPs must earn their economics.

The Numbers Nobody’s Watching

Here’s what the conventional narrative consistently misses:

SPV formations on Carta increased 198% between 2018-2020 and 2021-2023. However, the more revealing trend involves size. Specifically, the median SPV larger than $10 million reached $22.6 million in 2023—up substantially from $15.2 million in 2019. Although less than 10% of institutional SPVs manage more than $75 million, that top tier accounts for nearly 30% of all capital raised.

Translation: sophisticated investors aren’t just using SPVs—they’re deploying increasingly larger amounts through these structures. Family offices and institutional players are consequently committing serious capital this way, not merely angel investors pooling $25K checks.

Additionally, AngelList data reveals the platform has generated 26.5% yearly returns on investments since 2013. Notably, the top 10% of SPVs perform at or above that benchmark. This dispersion matters significantly because this isn’t an asset class where average performance gets you anywhere. Therefore, lead selection becomes everything.

The secondary market adds yet another dimension worth examining. SPVs have become increasingly likely to acquire common shares rather than preferred stock or convertible notes. In 2024, common stock comprised nearly 30% of all SPV investment—the highest percentage on record. This pattern signals increased use of SPVs for secondary transactions, specifically buying positions from early investors or employees who need liquidity.

Who’s at the Table—And Who’s Being Played

Every SPV involves a lead investor, limited partners, a target company, and usually a platform facilitating the mechanics. Understanding their respective incentives reveals whether you’re sitting in the right seat.

The Lead Investor

The lead sources the deal, negotiates allocation, performs diligence, and manages the vehicle through exit. In exchange, they earn carried interest—their share of profits after LPs receive their principal back.

Quality leads bring three essential elements: deal flow you can’t access yourself, diligence you don’t have time to perform, and relationships that secure allocation in competitive rounds. Inferior leads, by contrast, bring merely a pitch deck and a platform account.

What’s the tell? Skin in the game reveals everything. AngelList recommends leads invest at least 2% of the allocation or $10,000, whichever is lower. Nevertheless, many commit the bare minimum—just $1,000. That’s a significant red flag. If the lead isn’t betting real money on their own conviction, you’re assuming all the risk while they collect optionality.

The Limited Partners

LPs provide capital in exchange for economic exposure. Importantly, the structure offers several advantages over direct investment: lower minimums (often $1,000-$25,000 versus $50,000+ for direct), simplified cap table management for the company, and access to deals that would otherwise require relationships they haven’t built.

The trade-off, however, is control. You’re trusting the lead’s judgment on valuation, terms, and timing. You don’t negotiate directly, you don’t sit on boards, and you simply wire money and wait for updates.

The Platforms

AngelList, Carta, Sydecar, and Allocations have become the infrastructure layer for SPV formation. They handle entity creation, compliance, banking, K-1 distribution, and LP management. Their incentives, however, align primarily with volume—more SPVs mean more fees.

This dynamic creates a quality problem worth noting. Platforms don’t filter for deal quality with the same intensity a sophisticated LP would. Instead, they’re processing transactions rather than making investment decisions. Consequently, the best deals often never touch platforms at all—they move through text threads and dinner invitations among people who already trust each other.

Reading the Room

Here are the questions insiders ask that outsiders typically don’t:

First, what’s the lead’s actual track record? Focus on deals exited rather than deals announced. Markups are merely paper gains, whereas distributions represent real money.

Second, how did they secure this allocation? Competitive rounds are zero-sum by nature. If a lead has consistent access to oversubscribed deals, they possess relationships worth paying for. Conversely, if they’re bringing you deals nobody else wanted, that’s valuable information too.

Third, what are the actual fees involved? Examine setup costs, management fees (if any), carry percentage, and any organizational expenses. A 2% management fee plus 20% carry on an SPV is excessive—you’re paying fund economics without receiving fund diversification.

Finally, what’s the communication cadence? Quality leads provide quarterly updates at minimum. Radio silence between investment and exit should be treated as a warning sign.

SPV Investing vs. Traditional VC Funds: The Real Comparison

The choice between SPVs and traditional funds isn’t about which is “better.” Instead, it’s about matching structure to strategy.

VC funds offer diversification, professional management, and passive exposure. You commit capital upfront, the GP deploys it over 3-5 years across 20-40 companies, and you wait 7-10 years for returns. The management fee covers operations regardless of whether the fund performs. Furthermore, you don’t choose which companies receive your capital.

SPVs, by contrast, offer concentration, deal selection, and active exposure. You evaluate each opportunity individually, commit only to deals meeting your criteria, and maintain control over portfolio construction. Most charge no management fee, and shorter holding periods become possible. However, you bear the diligence burden (or trust someone else to bear it), and concentration means accepting single-deal risk.

What’s the sophisticated play? Employ both structures strategically. Establish core fund allocation for baseline private market exposure, then add opportunistic SPV positions for high-conviction bets you can underwrite yourself. Family offices increasingly structure their alternatives sleeve this way—diversified foundation with concentrated alpha layered on top.

The Secondary Market: Where Patient Capital Hunts Urgent Sellers

Not all SPV opportunities involve primary investment in new funding rounds. Increasingly, the secondary market—where existing positions change hands—has become a major venue for SPV deployment.

The numbers are genuinely staggering. Secondary transaction volume hit $103 billion in the first half of 2025 alone, putting the market on pace to exceed $200 billion for the year. Moreover, GP-led transactions, where fund managers roll their best assets into continuation vehicles, accounted for $25 billion of $45 billion transacted in Q1 2025.

Why does this matter for SPV investors? Secondary SPVs enable access to companies that closed their funding rounds years ago. Perhaps an LP needs liquidity due to divorce, portfolio rebalancing, or a capital call elsewhere. Their urgency consequently becomes your entry point.

Pricing has tightened considerably, however. Buyout portfolios traded at 94% of net asset value in 2024, up 300 basis points year-over-year. Even venture and growth portfolios reached 75% of NAV. Therefore, the days of buying quality positions at 50-cent dollars have largely passed. Nevertheless, the opportunity remains valuable: access to specific companies you’d otherwise never reach, often with shorter paths to liquidity than primary investments provide.

How to Actually Get Started

Theory proves worthless without execution. Here’s the practical path forward.

Step 1: Get Qualified

Most SPV investments require accredited investor status—specifically, $200,000 individual income ($300,000 joint) for two consecutive years, or alternatively $1 million net worth excluding primary residence. Additionally, some platforms require qualified purchaser status ($5 million in investments) for certain deals. Therefore, determine which category you qualify for before proceeding.

Step 2: Choose Your Entry Point

Platforms offer the lowest barrier to entry. AngelList’s syndicate network, for example, provides deal flow from established leads with minimums as low as $1,000. You browse opportunities, review materials, and decide deal-by-deal. The infrastructure is entirely turnkey—they handle everything from entity formation to K-1 distribution.

Syndicate leads, alternatively, offer more curated access. Find investors whose judgment you trust, whose sector expertise matches your interests, and whose communication style works for you. Then back their syndicates consistently and build the relationship over time.

Direct relationships ultimately provide the best deals but require the most effort. GPs running sidecar SPVs alongside their main funds offer access to their highest-conviction positions. Similarly, family office networks share proprietary deal flow. These opportunities never appear on platforms—instead, they flow through trust networks built over years.

Step 3: Build Your Framework

Decide in advance on several key parameters: What sectors do you understand well enough to evaluate? What stage (seed, Series A, growth, secondary) matches your risk tolerance and liquidity needs? What check size per deal makes sense, and how many positions do you want in your SPV portfolio?

Discipline matters considerably more than deal flow. The worst SPV investors say yes to everything that looks exciting. The best, conversely, establish clear criteria and stick to them regardless of FOMO.

Step 4: Manage the Portfolio

Track your positions diligently. Most platforms provide dashboards, but maintain your own records regardless. Monitor for updates, follow-on opportunities, and secondary liquidity options. When markups happen, resist the temptation to count paper gains as real money. When write-downs occur, analyze what you missed and incorporate those lessons.

Tax Considerations You Can’t Ignore

SPVs function as pass-through entities. Consequently, income, gains, and losses flow to your personal tax return via Schedule K-1. This structure creates both opportunities and complexity worth understanding.

Qualified Small Business Stock (QSBS) treatment under Section 1202 can exclude up to $10 million or 10x your basis from capital gains tax. However, this benefit applies only if the underlying investment qualifies and you hold for at least five years. Importantly, not all SPV investments are QSBS-eligible, so ask before committing capital.

Carried interest for lead investors faces its own distinct rules. Section 1061 requires a three-year holding period for long-term capital gains treatment on carry. This primarily affects lead economics rather than LP economics, but understanding the incentive structure helps you evaluate deals more effectively.

Jurisdictional structuring also matters significantly for international investors. Delaware dominates U.S. formations due to its favorable business law framework. Meanwhile, Cayman Islands, Luxembourg, and Ireland attract offshore structures. Notably, some foreign tax authorities don’t recognize LLC pass-through treatment, making LP structures preferable for cross-border situations.

None of this constitutes advice, however. Engage a qualified tax professional who understands private market investments before proceeding.

Your Edge: What You Now Know

SPV investing isn’t inherently complicated. Rather, it’s opaque by design. The people who’ve been doing this for years benefit when new money doesn’t understand the mechanics, the economics, or the access points.

You now understand how the structure works, where the fees hide, who’s incentivized to do what, and how to evaluate opportunities effectively. Additionally, you grasp the difference between platforms and relationships, between paper markups and real returns, between leads worth backing and leads merely collecting optionality on your capital.

The fundamental question isn’t whether SPVs belong in a sophisticated portfolio—the 116% growth over five years already answered that conclusively. Instead, the question is whether you’ll participate as an informed player or sit out while the architecture of private market access shifts beneath you.

The deals are moving. The capital is flowing. The people who understand SPV investing are building positions in companies that won’t go public for years—but will define the next decade of wealth creation when they do.

Your move.

Go Deeper

The Next Move

The difference between spectators and players is proximity to deal flow. Here’s how to close that gap: