However, the terms each small investor pays depend on the SPV, leading to a "wild west, buyer-beware situation." SPVs can charge high fees and keep a significant portion of the profits. Some SPVs are even formed on top of another SPV, leading to additional fees. Despite the potential risks and lack of direct information on the companies, investors are increasingly using SPVs to invest in hot AI companies.
Key takeaways:
- Small, unknown investors are using Special Purpose Vehicles (SPVs) to invest in hot AI companies like Anthropic, Groq, OpenAI, Perplexity, and Elon Musk’s X.ai. SPVs are formed by investors who have direct access to the shares of these startups and then sell a part of their allocation to external backers.
- There is a growing trend of SPVs successfully getting shares from the biggest names in AI. Early backers in sought-after AI startups are eager to exercise their pro-rata rights, which allows them to buy more shares each time a company raises, maintaining their percentage ownership.
- Some SPVs are formed on top of another SPV, charging additional fees on their second-layer SPV. For instance, when Menlo Ventures was raising a $750 million SPV to invest in Anthropic, some funds who invested in it, resold a slice of their SPV allocation to other investors.
- SPVs may be a suitable mechanism for buying shares of hot companies not available to investors by any other means, but they come with high risk. Unlike venture funds, backers of SPVs don’t receive direct information on the companies.