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Why raising an SPV may be better than a debut venture fund

TechCrunch | Caterina Fake | Apr 7, 2022

Caterina fake - Why raising an SPV may be better than a debut venture fundYou have social capital in your industry and access to hot startups. You know top investors. You’re smart, have hustle, know what it takes. It’s almost inevitable, and maybe even your destiny: You are going to be a VC. And so you ask the VCs you know: How do I raise my first fund? You ask me, Caterina Fake, and my answer is counterintuitive: Don’t.

Don’t start by raising a fund.  Start with SPVs.

SPVs – special purpose vehicles – are an underappreciated and overlooked way to break into venture investing. SPVs are much faster to raise than a fund, easy to set up, and, best of all, generate returns faster, because fees and carry are paid out deal by deal. Good for companies, good for investors and good for you, the future VC.

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SPVs are seen as bush league by VCs, because they’re not “real” funds, but their wins are just as real. They’re a disruptive on-ramp that lots of rookie —  and seasoned — VCs use to outmaneuver their slower-moving peers, get into otherwise inaccessible opportunities, and, if all goes as planned, ring the bell at the NYSE or light their cigars with $100 bills.

Y Combinator invented the SAFE so founders could raise capital in smaller chunks and raise it faster. It revolutionized fundraising. SPVs are like SAFEs for VCs.

What makes SPVs so useful? Consider: SPVs are cheap and easy to set up on a variety of platforms, including AngelList, Canopy, Assure, Carta, Republic, Flow and Stonks. (Full disclosure, Stonks and Flow parent company Dapper Labs have received funding from my firm, Yes VC.)

A standard SPV on AngelList takes a couple of days and costs $8,000. Meanwhile, a traditional fund — which involves formation, drafting agreements and onboarding LPs — usually takes months and can add up to tens or even hundreds of thousands of dollars in legal fees.

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You can market SPVs to a much broader group of investors than a traditional fund, bringing in non-institutional investors (family offices, HNWs, any accredited investor). They like SPVs because it is like investing directly in a company, except you do the hard work sourcing, building relationships and closing the deal for them — they just get to pick.

Founders like SPVs too, because they bring in a group of investors who can be useful to them, SPVs can close quickly, and SPVs don’t clutter up their cap table. Founders will often send investors your way — say friends and family, small checks, potential advisers and investors who didn’t get into the last round.

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NCFA Jan 2018 resize - Why raising an SPV may be better than a debut venture fundThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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