Venture capitalists are scrambling to invest in prominent AI companies, willing to pay high share prices for key positions on their cap tables. Still, many find it challenging to enter these deals. However, small, lesser-known investors, such as family offices and wealthy individuals, have discovered ways to secure shares in top private startups like Anthropic, Groq, OpenAI, Perplexity, and Elon Musk’s X.ai producers of Grok.
They are leveraging Special Purpose Vehicles (SPVs), where multiple parties combine their funds to share a stake in a single company. SPVs are typically formed by investors who have direct access to these startups’ shares and then sell portions of their allocation to outside backers, often imposing substantial fees while retaining some profit share (known as carry).
Although SPVs aren’t new – smaller investors have used them for years – there’s an increasing trend of SPVs acquiring shares from the top names in AI.
What these investors are discovering is that the most sought-after AI companies, except for OpenAI, aren’t that difficult to invest in at smaller scales. This is because early backers of in-demand AI startups are keen to exercise their pro-rata rights, which allows them to purchase additional shares each time the company raises funds, maintaining their ownership percentage. This situation is ideal for an SPV. Instead of surrendering the shares due to a lack of funds, early investors create an SPV, raise money from others, and typically charge additional fees.
VCs may offer SPV access to their existing limited partner investors or use brokers to reach a broader range of potential investors. Consequently, the same AI startup might have multiple SPVs on their cap table, representing numerous small investors. The terms for each small investor depend on the SPV, creating a somewhat unpredictable, buyer-beware environment.
Ken Sawyer, co-founder of Saints Capital, a VC firm specializing in the secondary market, stated that SPVs for the same company are often marketed with varying terms. “Fees and carry are all over the map,” he said, noting that SPV sponsors can charge up to 2% of the total investment and keep 20% of the profits.
In some cases, SPVs are formed atop another SPV. For instance, when Menlo Ventures raised a $750 million SPV to invest in Anthropic earlier this year, some funds that invested in it resold a portion of their SPV allocation to other investors, charging additional fees on their secondary SPV, according to Sawyer.
Investors seeking Anthropic shares have numerous options. Shares in the OpenAI competitor were auctioned off as part of FTX’s bankruptcy. The crypto exchange’s fund had invested in Anthropic before FTX collapsed in late 2022.
“FTX’s sale flooded the market with a massive amount of shares,” said Glen Anderson, CEO at Rainmaker Securities, a secondary market for late-stage companies. “Many brokers like ourselves created SPVs to buy Anthropic shares.” FTX’s estate sold nearly $900 million worth of Anthropic shares, according to court documents reviewed by CNBC.
In some instances, SPVs are created in conjunction with primary rounds of companies still fundraising. This allows small investors to invest in a startup or a desirable private company alongside major investors.
For example, shares in Elon Musk’s xAI were plentiful, according to Glen Anderson, co-founder and managing director at Rainmaker Securities. xAI raised part of its capital in its latest $6 billion round through SPVs that, in some cases, had a 5% upfront fee, on top of management fees and carried interest (profit split charge), as reported by Business Insider.
xAI’s round remained open for weeks, allowing different investors to form SPVs and offer shares to smaller players. Initially, the company aimed to raise $3 billion at a pre-money valuation of $15 billion, but increased to $6 billion at an $18 billion pre-money valuation due to high demand, as previously reported by Truth Voices.
Sawyer mentioned that he now frequently sees primary round SPVs remaining open for extended periods, allowing companies to assess demand for their shares from a broad pool of backers.
While SPVs might be a viable method for acquiring shares in coveted companies not otherwise accessible to investors, some caution that they come with high risks. Unlike venture funds, SPV backers do not receive direct information on the companies.
“It’s astonishing that just a few years after the excesses of the 2020 and 2021 period, when people were essentially investing blindly into SPVs, with layers of fees, into opaque vehicles,” said Jack Selby, managing director at Thiel Capital and founder of AZ-VC Fund, which supports startups based in Arizona. “People are repeating the cycle with anything that’s a shiny toy: AI.”
