Brian Nichols is the co-founder of Angel Squad, a community where you’ll learn how to angel invest and get a chance to invest as little as $1k into Hustle Fund's top performing early-stage startups

Understanding SPVs is essential for modern angel investing. These structures enable the $1,000 investments, simplified administration, and portfolio construction that make individual startup investing practical. Without SPVs, most angel investing opportunities wouldn't be accessible.

This is how to use SPV strategy for investing in early stage companies.

What SPVs Are and How They Work

Basic definition: SPV (Special Purpose Vehicle) is legal entity created specifically to make single investment. Multiple investors pool capital into SPV, which then invests in the target company.

The structure: SPV is typically LLC. Investors become members of LLC. LLC holds equity in startup. Your ownership is in SPV, which owns equity in company.

Why it exists: Startups prefer few investors on cap table. 50 individual $1,000 investors creates administrative nightmare. Single SPV representing 50 investors appears as one line on cap table.

Who manages it: SPV has manager (often the community or platform facilitating investment). Manager handles administration, communications, and eventual distribution of proceeds.

As Elizabeth Yin, co-founder and GP of Hustle Fund, explains: "Getting deal flow & education have been the bigger blockers to date" for new investors.

SPVs remove structural blockers by making small investments administratively viable.

How SPV Investment Works Step by Step

Step 1: Opportunity presented Community or syndicate presents investment opportunity. Terms defined including company valuation, investment structure (usually SAFE), and SPV terms.

Step 2: SPV created Manager creates SPV entity specifically for this investment. Legal documents prepared including operating agreement and subscription documents.

Step 3: Investors commit Individual investors indicate commitment amount (minimum often $1,000). Commitments aggregated until target reached or deadline passes.

Step 4: Documentation signed Investors sign SPV subscription documents electronically. Documents specify your investment amount, SPV terms, and your representations.

Step 5: Funds collected Investors wire funds to SPV bank account. Manager confirms receipt from all committed investors.

Step 6: Investment executed SPV invests aggregated capital into startup. SPV signs company's investment documents (SAFE or equity).

Step 7: Ongoing management SPV manager handles communications with company, distributes updates to investors, and manages administrative requirements.

Step 8: Exit distribution When company exits (acquisition or IPO), proceeds flow to SPV. Manager distributes to investors proportionally after fees.

SPV Economics and Fees

Management fees: Some SPVs charge annual management fee (1-2% of invested capital). Others have no ongoing fees.

Carry: Most SPVs include carry (typically 20% of profits) to manager or lead. This compensates for sourcing, administration, and value-add.

Setup costs: Administrative costs of creating SPV spread across investors. Larger SPVs have lower per-investor cost.

Example economics:

• You invest $1,000
• SPV has 20% carry
• Company exits with 10x return
• Your share of exit: $10,000
• Carry paid: $1,800 (20% of $9,000 profit)
• Your net return: $8,200 (8.2x)

Net impact: Carry reduces returns but enables access you wouldn't otherwise have. Trade-off usually worthwhile.

As Eric Bahn, co-founder and GP of Hustle Fund, emphasizes: "For beginners, a bigger startup portfolio is better. It helps with diversification and helps you learn and get reps in. Investing requires practice like everything else."

SPV structure enables building bigger portfolio through accessible minimums.

Advantages of SPV Strategy

Advantage 1: Lower minimums SPVs enable $1,000 investments that direct investing couldn't support. Build diversified portfolio without massive capital.

Advantage 2: Simplified administration Manager handles documentation, communications, and distributions. You focus on investment decisions, not paperwork.

Advantage 3: Clean cap table Startups appreciate single SPV investor versus many individuals. Better ongoing relationship and less administrative burden.

Advantage 4: Professional management Experienced manager navigates complex situations (down rounds, acquisitions, legal issues) on your behalf.

Advantage 5: Access to quality deals SPVs often formed by investors with deal access you couldn't get independently. Quality sourcing included.

Advantage 6: Aligned structure Carry aligns manager incentives with investor returns. Manager profits when you profit.

Limitations of SPV Strategy

Limitation 1: Carry reduces returns 20% carry meaningfully impacts net returns. Necessary trade-off but real cost.

Limitation 2: Limited control Manager makes administrative decisions. You can't individually negotiate or take direct action.

Limitation 3: Information filtering Updates come through manager who may summarize or delay information. Less direct relationship with company.

Limitation 4: Manager dependency SPV quality depends on manager competence and integrity. Poor manager creates problems.

Limitation 5: Complexity in edge cases Down rounds, pivots, or company issues create complexity that SPV structure must navigate. Not always smooth.

As Shiyan Koh, co-founder and GP of Hustle Fund, notes: "Great founders can look like anyone and come from anywhere."

SPV structure lets you back diverse founders you'd never access through personal network.

Evaluating SPV Quality

Manager track record: Has manager run SPVs before? What's their reputation? How have previous SPVs performed?

Fee structure: What's the carry? Any management fees? How do fees compare to alternatives?

Communication practices: How often will you receive updates? How responsive is manager to questions?

Deal sourcing: Where do opportunities come from? Is there institutional curation or random sourcing?

Legal quality: Are documents professionally prepared? Is structure standard and well-understood?

Exit handling: How will exit distributions work? What's the process for returning capital?

SPV Strategy Within Community Context

How Angel Squad uses SPVs: Each investment opportunity creates new SPV. Angel Squad members invest into SPV at $1,000 minimum. Hustle Fund team manages SPV operations. Proceeds distributed when exits occur.

The integrated approach: SPVs are mechanism, not the value. Community provides deal flow curation, educational support, and peer network. SPVs are infrastructure enabling participation.

Your focus: Evaluate opportunities and make investment decisions. SPV structure and administration handled by community infrastructure. You don't need to understand every legal nuance.

Building Portfolio Through SPV Investments

Diversification strategy: Invest in 20+ SPVs over 2-3 years. Each SPV is one company investment. Portfolio construction happens through multiple SPV participations.

Timing: Opportunities presented on ongoing basis. Evaluate each, invest in those meeting criteria. Build portfolio through consistent participation.

Tracking: Maintain personal spreadsheet tracking SPV investments. Record company name, investment date, amount, and key terms. Track updates as received.

Patience: SPV investments have same 7-10 year timeline as direct investing. Exits take years. Maintain patience across entire portfolio of SPVs.

Getting Started With SPV Investing

Step 1: Join community providing SPV access Angel Squad offers SPV-structured investments from Hustle Fund's curated pipeline with $1,000 minimums.

Step 2: Complete accreditation verification SPV investments typically require accredited investor status. Provide documentation as part of onboarding.

Step 3: Fund your account or prepare for wires Some platforms hold funds for deployment. Others require wire transfer for each investment. Understand your community's process.

Step 4: Review opportunities as presented Evaluate each SPV opportunity against your criteria. Don't feel pressure to invest in every deal.

Step 5: Execute investments meeting your criteria Sign documents, transfer funds, and confirm completion. Add to tracking.

Step 6: Maintain portfolio Track investments, read updates, and maintain engagement. Build portfolio over time through consistent SPV participation.

SPVs have made early stage investing accessible to individuals in ways that weren't possible a decade ago. Understanding SPV structure and strategy is foundational to modern angel investing. Use SPVs through quality community like Angel Squad to build diversified portfolio with institutional-quality deal flow and professional management.