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.

The Investment Vehicle That Changed Everything

A few years ago, investing in startups meant either writing checks as an individual angel or committing capital to a full VC fund. There wasn't much in between.

Then SPVs became mainstream, and suddenly the whole game changed.

Now you can get 20 people together, each putting in $5k, and collectively write a $100k check into a company. Or you can organize 50 operators to invest $2k each and take a meaningful position in a startup you believe in.

This is why SPVs matter: they democratize access to deals while keeping cap tables clean.

But most people don't actually understand how SPVs work, when to use them, or what the tradeoffs are. Let's fix that.

What Actually Is an SPV?

A special purpose vehicle (SPV) is a legal entity created for a specific investment. That's it. It's a company whose only job is to invest in one other company.

Here's how it typically works:

You find a promising startup raising money. You want to invest, and you know other people who want in too. Instead of having 15 people each get added to the cap table, you create an SPV.

All 15 people invest into the SPV. The SPV takes that pooled capital and writes a single check to the startup. On the startup's cap table, there's just one line item: the SPV.

When the startup eventually exits (acquisition, IPO, whatever), the SPV receives the proceeds. Those proceeds then get distributed to the SPV's investors based on their ownership percentage.

Simple, right?

The complexity comes in the structure, economics, regulations, and how you actually set these things up.

Why SPVs Exist (The Cap Table Problem)

Startups have a real problem: too many investors creates a messy cap table.

Imagine you're a founder raising $500k. You could take it from one VC who writes the full check. Or you could take it from 50 angels writing $10k each.

That second option sounds appealing. More angels means more connections, more potential customers, more advice (maybe). But now you have 50 people on your cap table. That means:

• 50 people to update regularly
• 50 people you need to manage relationships with
• 50 different legal agreements to track
• 50 signatures needed for certain corporate actions
• Potential 409A valuation issues if any of those investors are employees

It's a nightmare.

SPVs solve this. Those 50 angels invest through an SPV. The startup only deals with one entity. The SPV organizer (called the "lead") handles all the investor relations for that group.

For founders, this is perfect. They get access to lots of capital and connections without the cap table chaos.

The Economics: How SPV Leads Make Money

Running an SPV isn't free. Someone needs to set up the legal entity, manage the investors, handle compliance, and coordinate everything.

That someone is the lead, and they typically get compensated in two ways:

Management Fee: Usually 1-2% of the total amount raised. If you raise $100k through an SPV with a 2% management fee, that's $2k to cover setup costs, legal fees, and admin.

Carry: Usually 10-20% of the profits. If the SPV invests $100k and the startup exits returning $500k, that's $400k in profit. With 20% carry, the lead takes $80k off the top. The remaining $320k in profit gets distributed to investors based on their contributions.

These numbers aren't arbitrary. They mirror traditional VC fund economics (2% management fee, 20% carry) but adjusted for the fact that SPVs are single-deal vehicles with lower overhead.

Some leads charge higher fees. Some charge lower. It depends on the deal, the lead's reputation, and how much work they're actually doing.

AngelList Changed the Game

For years, setting up SPVs was expensive and complicated. You needed lawyers, documents, and lots of money just to get started.

Then AngelList (now AngelList Venture) built infrastructure to make SPV creation easy. Suddenly anyone could spin up an SPV for a few thousand dollars instead of tens of thousands.

This democratized syndicate investing. Now operators, angels, and emerging managers could organize capital around specific deals without needing a full fund structure.

The AngelList model: create an SPV on their platform, invite investors, they handle all the legal infrastructure and compliance. You focus on finding and winning deals.

Other platforms followed: Allocations, Sydecar, Tribevest, and others all built tools to make SPV creation accessible.

This infrastructure is why SPVs exploded in popularity over the last few years.

The 99 Investor Problem

Here's a critical constraint: most SPVs are structured as 3(c)(1) entities under the Investment Company Act. That means they're limited to 99 accredited investors.

This cap creates interesting dynamics.

If you're organizing an SPV for a hot deal, you might have 200 people who want in. You can only take 99. How do you choose?

Some leads take first-come, first-served. Some prioritize larger checks. Some invite people who bring strategic value (industry expertise, potential customer relationships, recruiting help).

The 99-person limit is why minimum investments in SPVs are often $5k-10k or higher. If you're raising $500k, you need an average check size of about $5k to fit everyone under the cap.

There is a workaround: structure the SPV as a 3(c)(7) entity. This allows unlimited qualified purchasers (people with $5M+ in investable assets). But now every investor needs to meet that higher threshold, which limits your pool.

Running Your Own SPV: The Operator Advantage

One of the coolest trends we've seen: operators running SPVs for companies in their networks.

Here's how it works:

You're a VP at a tech company. You know the industry cold. A promising startup in your space is raising money. You believe in it but can't afford to write a $50k check yourself.

So you organize an SPV. You reach out to other operators in your network. "Hey, I found this company doing X. I think they're going to crush it. Want to invest $5k each?"

You get 20 people together. Everyone invests $5k. The SPV writes a $100k check.

You negotiated 15% carry for organizing it. When the company exits and returns 10x, here's what happens:

• SPV invested $100k, returns $1M
• $900k in profit
• You take 15% carry = $135k
• Remaining $765k gets split among all 20 investors (including you)
• Your $5k investment returns ~$40k, plus your $135k carry

You just made $175k by organizing a deal and bringing people together.

This is powerful. You're building a track record as an investor, making meaningful returns, and creating value for other investors in your network.

SPVs and Your Investment Strategy

For individual investors, SPVs open up access to deals you couldn't reach otherwise.

You might not be able to write $50k checks. But you can write $5k checks through SPVs organized by people you trust. Over time, you build a portfolio of startup investments without needing massive capital.

The tradeoff: you're paying carry to the SPV organizer. That comes out of your returns. But if the alternative is not accessing the deal at all, it's worth it.

For emerging fund managers, SPVs are often a stepping stone. You run a few successful SPVs, demonstrate your ability to source and evaluate deals, then use that track record to raise a proper fund.

We've seen this path work well. The SPV experience teaches you fund mechanics without the complexity of a full fund structure.

The Real Power of SPVs

The reason SPVs matter isn't just about the mechanics or the economics. It's about what they enable.

They let operators become investors. They let small investors access deals. They let founders raise efficiently from groups. They let emerging managers build track records.

SPVs democratize startup investing in a way that wasn't possible before. The infrastructure exists now. The playbooks are out there. The opportunity is real.

But like any tool, SPVs are only as good as the people using them. Find the right deals. Bring the right people together. Create value beyond just pooling capital.

Do that, and SPVs become a powerful mechanism for building wealth and supporting great companies.

Whether you're an operator looking to transition into investing or an investor seeking access to better deals, understanding SPVs is essential. Angel Squad brings together people navigating these structures from both sides – organizing SPVs, investing through them, and learning from others who've done it successfully. Join a community where this knowledge isn't gate-kept, it's shared.