SPVs and Family Offices
Updated: Nov 27, 2020
SPV use in family offices is growing, and it’s a trend that isn’t going away any time soon. So, let's define SPVs, discover how family offices are using them, and dive into how our own firm, TWO39 Ventures, uses them.
What is an SPV?
An SPV (Special Purpose Vehicle) is an entity, typically a Limited Liability Company or Limited Partnership, that is used to silo a specific investment into a venture capital, or other investment opportunity and hold the risk/reward of that investment separate from any other, often with pooled investors. For many family offices, this is an attractive way to isolate one-off, or direct deals and track them independently. Naturally, with the ease of isolating risks between different investments, family offices will often invest together into one SPV for a deal by pooling their money into the vehicle.
How are family offices using SPVs?
All family offices made their wealth somehow. Whether multigenerational wealth or a recent liquidity event that put them in the position to invest. History shows that family offices have always been fairly active in allocating a portion of their overall portfolio to alternative assets and private deals. In the past, this was mostly done via passive positions in funds where they would commit a certain dollar amount to the fund and the GP of the fund would decide what companies to invest in and how much they would invest. However, in the past decade, family offices have become more sophisticated and modernized with a team of investment professionals they can lean on both internally and externally through their network of friendly single and multi-family offices. Due to this shift, they are becoming more interested in having more control over the companies they invest in. In many cases, these families have direct industry knowledge or strategic value and can help ensure the success of given investments. This is especially relevant to the conversation around SPV’s because they are the perfect vehicle for family office investing. Ultra-High net worth family office investing tends to be very relationship-driven with many offices investing alongside each other. Frequently, there will be a lead family with expertise and know-how in the industry creating significant synergy.
We find that family offices are best positioned compared to other investors because they can leverage direct experience of one family and pool assets of many families based on their superior valuation and diligence work. Family offices that are friendly with other family offices can move faster and deploy more capital into a deal, owning more equity and becoming much more strategic to the underlying investment. Since most families with this type of wealth tend to find themselves in similar circles they are able to depend on each other throughout the diligence and investment process. The benefits become that family offices can now take control of their investments into venture capital without having to give money to a fund manager while maintaining the same levels of investment equity and robust diligence.
Based on this, we believe SPVs are best used with family offices because they can control what investments they make, they can pool larger amounts of capital and they add strategic value to the underlying investments.
How is our family office using SPVs?
Our family office, TWO39 Ventures, uses SPVs as vehicles to make direct investments with other like-minded investors into innovative startups that are using novel technology to address real-world problems in big markets. What this means for our investors is that they get the same benefit of having access to vetted deal-flow as a traditional VC fund but with the flexibility to make their own investment decision on a highly curated, deal by deal basis. This differs from the traditional fund structure, where the Limited Partner –in this case, the investor is much more passive and relies on the General Partner or Fund Manager to make the right investment decisions.
TWO39 Ventures sees SPV’s as the future for sophisticated, hands-on family offices to take control back of their alternative investments through leveraging the combined knowledge and expertise of each family. Not only is this attractive for each family that participates in the deals, we find that the companies we invest in are beneficiaries of the strategic value each investor brings ensuring a better path and equation for success.
SPVs are powerful. They are here to isolate financial risk. They can govern ownership of a specific asset, can result in tax savings, and are easy to create. It is no wonder why family offices are using more SPVs than ever before.
After reading more about the capabilities of SPVs, will your family office be using SPVs in the future? Share with us your own experiences. We look forward to hearing from you!