VCs are clamoring to invest in hot AI companies, willing to pay exorbitant stock prices for coveted seats at their tables. Even so, most cannot enter into such agreements at all. However, small, unknown investors, including family offices and high-net-worth individuals, have found their own way to acquire shares in the hottest private startups like Anthropic, Groq, OpenAI, Perplexity and X.ai by Elon Musk (the makers of Grok).
They use special purpose vehicles, or SPVs, where multiple parties pool their money to share an allocation of a single company. SPVs are generally formed by investors who have direct access to the shares of these startups and then turn around and sell a portion of their allocation to outside backers, often charging significant fees while retaining some profit share (known as carryover).
While SPVs are not new – smaller investors have relied on them for years – there is a growing trend of SPVs successfully acquiring shares from the biggest names in AI.
These investors are finding that the most popular AI companies, other than OpenAI, are not that difficult to buy at their smaller investment levels. That’s because early backers in sought-after AI startups are willing to exercise their pro-rata rights, which allow them to buy more shares each time a company raises, retaining their ownership percentage. This is the perfect scenario for an SPV. Instead of giving up the shares because the first investor can’t afford them, they will set up the SPV, fund it by raising money from others and, in most cases, charge additional fees.
In many cases, VCs will offer access to the SPV to their existing limited partner investors, but may also use brokers to offer access to a much larger universe of potential investors. In fact, the same AI startup may have multiple SPVs on its capital board, representing many small investors. But the terms each retail investor will pay depends on the SPV. It’s a bit of a wild west, buyer-beware situation.
Ken Sawyer, co-founder of Saints Capital, a secondary market VC firm, said he regularly sees SPVs for the same company come to market on different terms. “The fees and the transfer are all over the map,” he said, adding that SPV sponsors can charge up to 2% of the total money invested and keep 20% of the profits.
Additionally, some SPVs are formed on top of another SPV. For example, when Menlo Ventures was raising one $750 million SPV to invest in Anthropic earlier this year, some funds that invested in it resold a portion of their SPV allocation to other investors, charging additional fees to their second tier SPV, Sawyer said.
Investors who want Anthropic, in particular, have several options. Shares of competitor OpenAI were auctioned as part of FTX’s bankruptcy. The crypto exchange fund invested in Anthropic before the FTX blowup in late 2022.
“The sale of FTX flooded the market with a huge volume of shares,” said Glen Anderson, CEO of Rainmaker Securities, a secondary market for late-stage companies. “A lot of stockbrokers like us set up SPVs to buy Anthropic shares.” The FTX estate sold nearly $900 million of Anthropic stock, according to court documents reviewed by CNBC.
Sometimes SPVs are created in conjunction with main rounds of companies still in fundraising mode. This means that small investors can get into a startup or a coveted private company at the same time as large investors.
For example, shares in Elon Musk’s xAI were plentiful, according to Anderson. xAI raised a portion of its capital in its latest $6 billion round through SPVs that in some cases had 5% upfronts, in addition to management fees and interest (profit sharing); Business Insider mentionted.
xAI’s round has been open for weeks, allowing various investors to form SPVs and sell them to smaller players. The company was initially raising $3 billion at a pre-money valuation of $15 billion, as TechCrunch previously reported. But once xAI realized there was so much demand, it raised to $6 billion at a pre-money valuation of $18 billion.
Sawyer said he now regularly sees primary SPVs remain open for a period of time, which allows companies to gauge demand for their shares from a large pool of supporters.
While SPVs can be a convenient mechanism for buying shares of hot companies that are not available to investors through any other means, some investors warn that it comes with high risk. Unlike venture funds, backers of SPVs do not receive direct information about the companies.
“It boggles my mind that just a few years after the excesses of 2020 and 2021, when people were essentially blindly investing in SPVs, with charges on top of fees, in vehicles that were completely opaque,” said Jack Selby, chief executive. at Thiel Capital and founder of AZ-VC Fund, a company focused on supporting startups based in Arizona. “People are doing it again with what is a shiny game: AI.”
