How Founders could be utilizing SPV's for Angel Rounds
Running a process in your angel rounds
Landon Ainge -- Managing Director of Assure Syndicates
Dear Founders,
As you venture out to the investment world you will ask many investors to be open to accepting something new. At this time I ask you to consider the same - specific around the angel round stage.
I Challenge You To Consider An SPV... So, what is an SPV?
An SPV is a Special Purpose Vehicle, also known as SPV, syndicate, side car, SPE, LLC's, pledge fund or investment fund vehicle. In normal terms an SPV is a legal entity created to consolidate investment from multiple parties into an asset or assets to simplify documentation, structure and assign responsibility for management.
These consolidated investment vehicles are utilized in multiple asset classes include real estate, crowd funding & equity investments.
A Common Story For Founders
As I talk to founders I continue to run into the same situations, especially in markets with under-served early stage capital. The story begins the same - Founder had a great idea, so she built (and continues to build) a product and seeing initial traction. Traction either patents, revenue growing to $3k-$30k of monthly recurring revenue. This opportunity could be accelerated down the path of exponential growth with an injection for capital, but isn't quite ready for institutional Venture Capital.
Founders connect to Angel investors through referrals, customers, LinkedIn, Twitter, digital marketplaces, referrals and friends. After pitching and improving every day the founder gets lucky to find one believer (the first believer). Validation that the founder isn't crazy - and often times that first believer can drive more interest, like it did for Brendan Fitzgerald.
"In a separate deal, I had one investor who put in $25,000, but it was one of 40+ angel investments he had made, and he brought in 5-6 of his regular co-investors with him." - Brendan Fitzgerald
In this situation its amazing to have an advocate. Often times others wait on the sidelines for more progress, but will it ever be enough? If you have the angel interest and can get between $50k - $500k it is best to utilize an SPV.
Here are the benefits of utilizing an SPV for Founders?
If you are considering going down the venture capital route you should consider the long term impacts of keeping your capitalization table (cap table) clean.
SPV's can help you bring strategic (value-add) investors even if they are small checks, without sacrificing your capitalization table. Important note is that they need to accredited investors to protect the company
Run a process - raising capital is a skill that is learned. Important aspect including timing, preparation, information and closing while there is interest. Utilizing an SPV when you have multiple interested angels AND at least one that has agreed to terms. This can help to determine who is ready and willing to invest now.
SPV's open the door to angel referrals - As with many other investments, individuals often invest together. Having a simple portal (such as Glassboard - the platform @assure has built) makes bringing referrals into the deal both seamless and transparent.
Technology makes life and processes move faster. Using technology for SPV's allows founders lives easier in "closing". Technology (like Glassboard) track who and how much is committed, digital document signing and digital wire confirmations dramatically decreases the number of emails back and forth.
Don't worry angels there are many reasons you should view it as promising that a company is utilizing an SPV - this will likely be a future article. Be on the lookout.
If you are closing an angel round and want to consider utilizing an SPV - let's chat!
Links to other articles, content and research for this article:
https://www.toptal.com/finance/startup-funding-consultants/raising-capital-for-startup
https://assure.co/angel-capital-association-partners-with-assure-to-simplify-angel-investing/
https://assure.co/spv-administration/glassboard/