Given the continued and growing interest in special purpose vehicles (“SPVs”) as a means of accessing private market investments, we are publishing a series of posts that examine different aspects of these structures. This is our second post in the series exploring how a single-investment SPV can be structured to obtain the economic exposure investors seek.
As discussed in our introductory post, an SPV’s primary function is to provide investors with economic exposure to a private company without those investors holding the company’s securities directly. An SPV may accomplish this objective by (1) acquiring securities issued by the underlying company, (2) obtaining indirect exposure through contractual arrangements with securityholders of the underlying company, or (3) creating synthetic exposure through derivative instruments referencing the underlying company’s share price or performance with no involvement by the company.
In our prior post, we introduced a fictional private company, TechCo. An SPV sponsor evaluating how to structure a TechCo SPV has several available alternatives depending on a range of factors, including TechCo’s stage of development, its willingness to approve secondary transfers, the sophistication and investment objectives of prospective investors and the extent to which investors seek actual ownership rather than purely economic exposure.