Venture capitalists are eager to invest in leading AI companies, often willing to pay high prices for a place on their cap tables. However, many of them find themselves unable to enter these lucrative deals. Meanwhile, smaller, lesser-known investors, including family offices and high-net-worth individuals, have discovered their own path to share allocations in some of the hottest private startups like Anthropic, Groq, OpenAI, Perplexity, and Elon Musk's x.ai (the creator of Grok).
These investors utilize special purpose vehicles (SPVs), allowing multiple parties to pool resources and acquire a stake in a single company. Typically, SPVs are set up by investors with direct access to these startups' shares, who then sell portions of their allocations to outside backers, often charging substantial fees and retaining a portion of the profits, known as carried interest.
While SPVs are not a novel concept—smaller investors have relied on them for years—the trend of securing shares from leading AI names is on the rise. Many smaller investors have found that, apart from OpenAI, acquiring shares in highly sought-after AI companies is not as challenging as expected. Early investors in these startups are keen to exercise their pro-rata rights, which enable them to acquire additional shares during fundraising rounds and maintain their ownership percentage. This scenario is ideal for SPVs, as they facilitate access to shares that may otherwise remain untouched due to early investors' constraints.
In many instances, venture capitalists provide access to SPVs for their existing limited partners, but they may also engage brokers to broaden their reach to a larger pool of potential investors. Remarkably, a single AI startup may feature multiple SPVs within its capital structure, reflecting a variety of smaller investors. However, the terms each investor faces can vary significantly depending on the specific SPV, leading to a somewhat unpredictable landscape for buyers.
Ken Sawyer, co-founder of Saints Capital, a secondary market VC firm, notes that he frequently encounters SPVs for the same startup marketed with differing terms. "Fees and carried interest vary widely," he remarked, highlighting that SPV sponsors may charge up to 2% of the total investment amount while claiming 20% of the profits.
Moreover, some SPVs are layered on top of others. For example, when Menlo Ventures launched a $750 million SPV to invest in Anthropic earlier this year, some participating funds resold portions of their allocations to additional investors, charging further fees for this secondary offering.
Investors interested in Anthropic have a wealth of options. Shares of the OpenAI competitor were auctioned during FTX's bankruptcy proceedings, as the crypto exchange's fund had invested in Anthropic before its collapse in late 2022.
"FTX's sale flooded the market with a significant number of shares," said Glen Anderson, CEO of Rainmaker Securities, a secondaries market platform for late-stage companies. "Numerous brokers like us established SPVs to acquire Anthropic shares.” According to court documents, the FTX estate sold nearly $900 million worth of shares in Anthropic.
In some cases, SPVs are formed alongside primary funding rounds for companies actively raising capital. This enables smaller investors to participate in startups or coveted private firms concurrently with larger investors.
For instance, shares in Elon Musk’s xAI were readily available, with the company raising part of its $6 billion funding round through SPVs that sometimes included a 5% upfront fee, plus management fees and carried interest, as reported by Business Insider. The xAI funding round was open for several weeks, allowing various investors to form SPVs and sell shares to smaller players. Initially targeting $3 billion with a pre-money valuation of $15 billion, xAI adjusted its fundraising goal to $6 billion at a valuation of $18 billion due to strong demand.
Sawyer observed that primary round SPVs frequently remain open for extended periods, enabling companies to assess demand for shares from a broader array of investors. While SPVs present a valuable opportunity for acquiring shares in sought-after companies that are otherwise inaccessible, some investors caution that they carry considerable risks. Unlike traditional venture funds, SPV backers often lack direct insights into the startups involved.
Jack Selby, managing director at Thiel Capital and founder of AZ-VC Fund—a firm focused on supporting Arizona-based startups—expressed his astonishment at the resurgence of this trend. “It’s mind-boggling that just a few years after the excesses of 2020 and 2021, when many were investing blindly into SPVs with opaque terms, people are once again diving into every shiny new opportunity, especially in AI.”
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