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SPV Trends → Q3, 2024

As we enter the final quarter of 2024, we've compiled a comprehensive analysis of the SPV ecosystem trends observed over the past three months. This report combines our firsthand insights as active syndicate leads managing deals and collaborating closely with LPs, along with quantitative data generously provided by our partners at Sydecar, the best-in-class SPV and fund administration platform for venture capitalists. Sydecar's platform reliably handles back-office operations, automating banking, compliance, contracts, tax, and reporting. At Last Money In, we trust Sydecar to help run our SPVs so that we can focus on making deals and building relationships.

In this post we’ve split this into 2 sections:

1. Quarterly insights we’re seeing in the SPV ecosystem (we lead over 180 SPVs a year)

2. A deep dive into SPV management fees based on 833 SPVs run on Sydecar’s platform in the trailing 12 months

Section 1 → LMI Quarterly Insights:

Increased secondary volume for companies that have raised and been marked up in the post-2022 era. 

A notable trend is emerging in the startup investment landscape: a significant uptick in secondary market volume, particularly for companies that have successfully raised recent funding rounds and seen valuation markups since 2022.

This appears to be driven by syndicate leads and external platforms catering to accredited and retail investors, who have identified secondary transactions as a strategic pathway to access high-demand growth-stage and pre-IPO startups. While participating in primary funding rounds remains the gold standard for many investors, myself included, the reality is that gaining entry to these rounds for the most coveted companies has become increasingly challenging, often requiring deep industry connections or substantial capital commitments. Consequently, the secondary market has emerged as a viable alternative, offering a more accessible route to invest in promising companies. 

Additionally, in general, it feels like many LPs are more excited about later-stage companies that have a 1) more proven business model, 2) tier 1 backing (like Sequoia, Benchmark, Insight, a16z, Founders Fund among many others), 3) shorter liquidity timeline and 4) the potential for valuation discounts due to inefficient pricing on secondary opportunities. Of course, many LPs are more excited about Seed deals (myself included), but with a longer timeline to reach IPO, I believe many LPs are more comfortable writing larger checks into more established companies with expected liquidity in under ~5 years.

This liquidity issue was further exemplified yesterday by Jason Lemkin of SaaStr. It may take VCs 18 years to get liquidity on their best investments. Thankfully as the secondary markets have become extremely liquid for $1B+ valued companies, there should be ample opportunities for partial / full liquidity for early stage investors before a traditional liquidity event (M&A / IPO) if they so choose.

More willingness to pay for management fees

I think many LPs have become more accepting of paying small management fees for many of these later-stage/secondary deals. My sense is that this is becoming more of the norm, and I feel it is reasonable for syndicate leads who do this job FT.

The reality is, for individual investors, there are not many alternative ways to access these later-stage/pre-IPO deals outside of SPVs (that allow for smaller minimums). Another reality (from experience charging management fees the past 2 quarters) is that paying 2% to 8% management fee in total does not seem to turn many LPs away from a deal they are interested in. In other words, the management fee is not the reason an LP is passing on a given deal.

In full transparency, I’m relatively new to charging management fees, so perhaps it was always like this. However, I’ve not received much pushback at all related to management fees on late-stage deals. A point to clarify is that for early-stage primary deals, we have not charged management fees and my feeling is that there would be significant pushback on these deal types given the much higher degree of risk and longer timeline to liquidity. But maybe that would surprise me too…

And for the LPs…I think that the reality is that a small management fee does not get in the way of a good return, especially when compared to the benefit of access, which we as GPs provide. And let me tell you, it’s a lot of work to get access. When compounded against the reduced carry available via Deal Sheet, the ROI becomes easy to justify. 

Slower for LPs to commit to deals

A notable shift has occurred in the startup investment landscape, particularly in the pace at which LPs commit to deals. Despite the persistent high demand for certain opportunities, the timeline from deal launch to LP commitment has elongated significantly.

This stands in stark contrast to the frenetic pace observed during the 2020-2021 bull market—an admittedly unique period of dealmaking—when deals frequently became oversubscribed within hours or a matter of days. That era of rapid-fire commitments was fueled by a combination of market exuberance and fear of missing out (FOMO), compelling LPs to make quicker decisions. Their urgency was driven by dual concerns: the possibility of being shut out of lucrative opportunities entirely or facing substantial allocation reductions in oversubscribed rounds. 

The current deceleration in commitment speed likely reflects a more cautious, deliberative approach by investors in response to market corrections and economic uncertainties. LPs are now conducting more thorough due diligence, reassessing risk tolerances, and perhaps grappling with liquidity constraints. This shift towards measured decision-making, while potentially frustrating for deal leaders accustomed to the previous tempo, may ultimately foster a healthier, more sustainable investment ecosystem. It encourages more rigorous evaluation of opportunities and potentially leads to better-aligned, longer-term partnerships between investors and startups. 

The interesting thing I am noticing in this environment is that the most in-demand deals are still raising lots of capital and many allocations are still getting oversubscribed. But this does not happen in 1-2 days anymore rather over a two-week span. I’m seeing a similar volume from the LP side. Again, this is not all deals, but instead what I would consider the higher tier deals in the SPV ecosystem that are unique in that there are not a bunch of syndicate leads syndicating the same deal.

LPs are increasingly picky at Seed, but the top deals still raise $$$

I’m seeing syndicate LPs be a lot pickier at seed than previously. This is not a “seed deals are not getting done” statement, but rather there needs to be a strong signal or interest, and the bar for seed deals is higher. 

Of note - this isn't reflective of the overall Seed VC market, which remains robust with an increasing deal flow (e.g., YC doubled its cohorts). Rather, it's a retail-driven caution. For seed deal SPVs to raise significant capital, they now require a distinct competitive edge, be it the founder's background, notable co-investors, or an exceptional business model.

The increasingly high bar for seed-stage investments can be attributed to several factors, including:

1. Liquidity Timeline Misalignment: Many LPs are now prioritizing investments with shorter paths to liquidity. The extended timeline typically associated with seed-stage investments—often 7-10 years or more before a significant liquidity event—may not align with the current investment strategies or cash flow needs of certain LPs, especially in a market environment characterized by macro uncertainty and disruption (like AI).

2. Reduced Risk Appetite: There's a noticeable shift towards lower-risk investments among LPs. Seed-stage deals, inherently high-risk due to the early nature of the companies involved, may fall outside the comfort zone of investors who are recalibrating their risk tolerance in response to market volatility or previous losses. I think for this to improve, we need mega distributions via IPOs. 

3. Seed Fatigue: Some LPs who have not experienced significant returns from their seed investments may be experiencing "seed fatigue." Without tangible evidence of outsized outcomes, these investors might be pausing their seed-stage allocations, adopting a wait-and-see approach before committing additional capital to this high-risk, high-reward segment of the market.

4. Preference for Later-Stage Deals: Building on the previous points, there's an increasing inclination among LPs to gravitate towards pre-IPO rounds. These later-stage investments offer more concrete traction metrics, clearer product-market fit, and potentially shorter timelines to exit. This shift allows investors to mitigate some of the risks associated with earlier-stage investments while still participating in potentially high-growth opportunities.

5. So Many New Companies: I’m going to state the obvious here… it’s hard to pick the winners at seed with so many new companies being founded and resources out there to start companies. 

Many LPs write the minimum check acceptable in syndicate

I wrote in a recent post that the top 10% to 20% of our LPs account for 80%+ (probably 90%+) of the capital raised in our syndicate. We've got a ton of LPs who write very small checks, and that’s great because we offer very low minimums allowing for beginners or small check writers to get exposure in a small way to VC.

If you want to see some of our deals, fill out our 1 minute typeform here. 

I have noticed that so many folks are always investing the minimum (typically $1,000 or $2,500) in a given deal. As a syndicate lead, this does not really move the needle much, but perhaps it's a nice way to build relationships with LPs who will write larger checks over time. 

Two recent examples of LP check sizes:

1. Last week, we raised $140k for an SPV we have just now signed/wired for. There were 37 LPs in this vehicle. 15 of the 37 invested under $3k. 

2. A few weeks back we raised $150k for a pre-launch startup. There were 32 LPs in this vehicle. 22 of the 32 invested under $3k.

Both examples above feel like a lot of small checks but this is clearly how people want to invest or want to get started investing. Transparently, I’m glad syndicates can accommodate and provide an avenue for these LPs regardless of whether their check moves the needle or not. 

Section 2 → A Deeper Dive into Data on SPV Management Fees on Sydecar’s platform

We’ve partnered with Sydecar to share SPV management fee data from Oct 2023 to Sept 2024. We used this dataset to highlight a number of findings and trends we are seeing as it relates to management fees charged on SPVs.

Of the 833 SPVs…

• 40% of these vehicles did charge a management fee.

  • Therefore, 60% of SPVs run on the Sydecar platform did not take a management fee.

• The average management fee taken was 2.86%.

• The median was 2%.

• The range was .2% to 20%.

Of the 40% of SPVs that did take management fees…

• 21% took a 2% management fee, making this the most common management fee used

• 21% of co-investment SPVs (SPVs that were created alongside a Sydecar Fund+ committed capital fund) charged a management fee.

The average management fee taken on a co-investment SPV was 

• 1.19%

• the median was 1%

• The range was .75% to 2%

% of deals charging management fees by funding round:

• Pre-Seed = 25.21%

• Seed = 36.43%

• Series A = 37.10%

• Series B = 49.30%

• Series C = 40.91%

• Series D = 61.90%

• Series E = 75%

• Bridge Rounds = 41.18%

Final Thoughts based on the Sydecar data…

• Round Stage Correlation with Fees: Management fee prevalence generally increases as companies progress through funding rounds, with a notable jump at Series B and beyond. This trend likely reflects higher perceived value or lower risk in later-stage companies, increased complexity in managing these investments, or greater investor willingness to pay for access to established companies. The 75% management fee prevalence for Series E is striking but may be based on a small sample size, as SPVs are less common in later rounds. 

• Pre-Seed Anomaly: To add to our last point, the relatively low fee prevalence in pre-seed rounds (25.21%) is notable: this could reflect efforts to attract investors to higher-risk, earlier-stage deals. It might also indicate a higher proportion of founder-led or first-time SPV managers at this stage.

• Potential Correlation with Check Sizes: While not explicitly stated in the data, there might be a correlation between average investment amounts and fee structures across stages: Larger check sizes in later rounds could justify higher fees in absolute terms. This could explain the trend of increasing fee prevalence in later stages.

• Lower than Expected Fee Structure: Among SPVs that charge fees, there's a wide range (0.2% to 20%), but the concentration around 2% suggests a market standard, at least for the early-stage SPVs. Given the average is higher (closer to 3%), it suggests to me that there is a niche, but outlier set of vehicles that are charging much higher management fees. Overall,the management fees in this dataset are lower than I expected. 

• Fee Bifurcation: The narrow split between SPVs charging fees (40%) and those not charging fees (60%) suggests a market in transition. This distribution suggests ongoing experimentation with fee models to attract investors, varying levels of value-add services from SPV managers, or competitive pressures in specific sectors or stages. While the percentage of deals with management fees is lower than expected, the percentage of deals with management fees may represent a significant increase from the previous year. This shift is exemplified by my own experience: just six months ago, I had never charged management fees, but now I do. This personal evolution mirrors the broader market trend, highlighting the dynamic nature of fee structures in the current SPV landscape.

If you enjoyed this article, feel free to view our other prior adjacent topics: 

• Why Your VC Portfolio May Seem to Be Failing (And Why That's Normal)

• The Future of Syndicate Management: Inside Sydecar's New Platform

• Chronicles of a Syndicate Lead

Last Money in is Powered by Sydecar

Sydecar empowers syndicate leads to manage their investments more effectively. Organize, manage, and engage your investor network effortlessly with Sydecar’s management and communication tools. Their platform also automates banking, compliance, contracts, tax, and reporting, freeing up syndicate leads to focus on securing deals and strengthening investor relations. Elevate your syndicate operations with Sydecar.

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✍️ Written by Zachary and Alex