Go/No-Go SPV Decisions for Emerging Managers

Emerging managers are not yet managing a ton of money. They are emerging. SPV opportunities can present themselves here and there, and it can be a way to grow AUM and provide LP exposure to unique deals. It’s hard to know if doing an SPV is the right call or not for the manager.

The question worth asking before you send the opportunity is not "can I fill this allocation?" It's "what does this SPV say about my fund, my discipline, and my access?" Because every SPV you share is a piece of fund positioning. 

Here are the different scenarios to consider.

Start with the source of the deal

Not all SPVs are the same instrument. They fall into three rough categories, and the diligence an LP applies to each is very different.

1. Follow-on into a breakout already in the portfolio, with the fund participating alongside.

This is the cleanest version of the trade. You have earlier ownership in the company, you have proprietary information rights, you've watched the company grow, and you're putting more fund dollars in at the same time. The SPV is the overflow.

I personally like this scenario for an emerging fund manager. LPs love these because your incentives are unambiguous. You're not selling them a deal you passed on yourself. You're inviting them into concentration you already believe in and the fund is participating in this round. 

If you only ever run one type of SPV, make it this one.

2. Follow-on into a breakout where the fund can't participate.

Reserves are exhausted or reserves are not part of the strategy, the round is later stage and your mandate stops earlier, or concentration limits cap you out. The company is doing well-to-great, your access is real, but the fund is not in a position to invest more in this round.

This can still be a good SPV, provided you’re transparent about the SPV and lack of fund participation. Explain in the memo exactly why the fund isn't in the round. What you cannot do is let LPs assume the fund is participating when it isn't (not that this happens much). This feels like it can be a good reason to go forward with an SPV, as more of an extension strategy to the fund itself.

3. Net new company where you have unique access but the deal doesn't fit the fund.

Wrong stage, wrong check size, wrong sector adjacency. But you know the founder, you've earned the allocation, and you know your LPs want exposure to this name and can't get it.

I honestly don’t know the answer to this one and think it varies by fund.

I get that you might have unique access, want to be an investor, and have LPs that also want some exposure. With that in mind, it’s hard not to do it. On the other hand, I could see existing LPs not being excited that your focus is over here and not on the core role of fund manager. I think here it depends on how expectations were set and who your LPs are. I don’t think it's an easy go/no-go decision for emerging managers and the fund context matters here.

Is it a bad look to share an SPV the fund has no exposure to?

Not automatically. But it is a signal, and you should know which signal you're sending.

The more reasonable version: the deal is genuinely outside the mandate you pitched your LPs. A seed fund passing a Series B/C/D to its LPs is a stage problem. Same with a great company in a sector your fund explicitly excludes.

The less reasonable version: the deal is squarely in your mandate and you chose not to use fund dollars. Now the LP is looking at an offer to buy something you had the chance to buy and didn't. Every sophisticated LP will ask the obvious question, and there is no good answer. Either you lacked conviction, in which case why are they getting it, or you had conviction and chose fee income/AUM over fund concentration, which is not a good sign.

There's a frequency dimension too. One out-of-portfolio SPV a year reads as opportunism in the better sense. One a month reads more as a syndicate business with a fund attached. 

Fee structure for existing vs. net new LPs:

The economics question is really a precedent question. Whatever you offer on the first SPV becomes the reference price for every SPV after it.

A structure that holds up or feels more aligned:

• Non-LPs: 2/20, 2/10, 1/20 or 1/10 if you want the deal to move.

• Fund LPs: offer something meaningfully better. 0/10, 1/10 or 0/20 with a hurdle.

• Prospective LPs mid-fundraise: Either higher fees than existing LPs or reduced fees if they join the funds as an LP i.e. something to economically benefit your fund LPs.

Existing LPs should get better economics than LPs who did not back the fund (yet), and telling them so is one of the more concrete answers to "what do I get for being in your fund?"

Alternative Approach: Outsourcing strategy to replace running an SPV internally

One of the more underrated moves for an emerging manager is to treat your pro-rata rights as an asset you can provide a fund/service for this rather than a right you either exercise or waive. Most seed funds run thin or nonexistent reserves, and by the time a company is raising a Series B or C at a real markup, writing the check is out of reach. An alternative path is to partner with growth or crossover funds that will share carry on the allocation you bring them, or with dedicated pro-rata funds built specifically to take down these rights in exchange for a split of the economics.

The important nuance is that this monetization should sit at the fund level, not with the GPs personally. Carry earned from assigning pro-rata flows back into the fund's economics, which means LPs still capture exposure to the breakout companies they backed you to find, and you avoid the conflict of a manager privately profiting off a position the fund sourced. Done consistently, it is a way to capture upside for you and your LPs without:

1. Having to invest more capital from the fund

2. Needing to put together an SPV 

✍️ Written by Zachary and Alex