Sim Desai

Founder and CEO @claritymovescap. Unlocking private market liquidity.

[Sim Desai @SimDesai]

Boy am I glad I got clarity .com!

[Paul Graham @paulg]

Don't own the .com? The good news is, there's no such thing. "The .com" is just the only .com you've been able to think of so far.

[Sim Desai @SimDesai]

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[Sim Desai @SimDesai]

we paid $3,500,000 for clarity .com

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[Sim Desai @SimDesai]

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[Sim Desai @SimDesai]

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[Sim Desai @SimDesai]

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[Sim Desai @SimDesai]

@AceCustodian @claritymovescap we've actually seen a drop in sign ups and traffic because we had built so much SEO with https://t.co/I88XBePxs4, but we expect to build that up over time

[Sim Desai @SimDesai]

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[Sim Desai @SimDesai]

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[Sim Desai @SimDesai]

@M70Vault @claritymovescap We will be investing big time!

[Sim Desai @SimDesai]

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[Sim Desai @SimDesai]

@ilovedotcom Many thanks Romel

[Sim Desai @SimDesai]

@tokenoverflow Hey Ram, we are very active in primaries already but so far have focussed on large cap names with $1bn+ valuations. We’ve helped a number of emerging names in the $1-5bn range create awareness

[Sim Desai @SimDesai]

When do private companies need to approve SPVs?

As a major sponsor of venture SPVs, I thought I’d share some thoughts on this, particularly in light of all the chatter on this topic surrounding Anduril and Anthropic lately.

First, some reasons why I have good information on this topic:

1. In just over 2 years, starting in April 2024, we built an SPV business with over $2.1 billion in AUM (at FMV). We have learned a LOT along the way.

2. We manage both single-layer and dual-layer SPVs. Most of our SPVs, by value and number, are single-layer, but a substantial portion are dual-layer.

3. Our single-layer funds are DIRECT shareholders on-cap table of over 40 late-stage unicorns, including the likes of @AnthropicAI, @perplexity_ai, @cursor_ai, @Kalshi, @Polymarket, @LiquidDeath, @cerebras, @Apptronik, and dozens of other household names.

Now, do private companies need to approve SPVs? It depends on what you mean by that. Here are four different cases.

1. An SPV purchases a company’s stock. If the company has an approval right over transfers (they usually do), then YES, this purchase must be approved.

2. An SPV syndicates to investors instead of using pre-committed capital, in order to complete a direct primary investment. YES, an issuer has the ability, in the purchase agreement or subscription agreement, to require the investor to use pre-committed capital instead of syndicating to fund the investment.

3. An LP of a single-layer SPV sells to a new LP (the recent Anduril case). NO, this transaction almost never requires company approval, and neither the GP (@packyM) of the single-layer SPV nor the selling or buying LP (@ankurnagpal) typically seeks company approval (@mttgrmm). Company approval typically has no bearing on the validity of the investment.

4. A second-layer SPV invests into the primary issuance of a first-layer SPV. Unless the underlying primary investment documents prohibit syndication (we have rarely seen this), NO, this transaction does not require company approval.

One big misconception seems to be that the company can or should approve transfers between investors in an SPV that holds direct stock, or that the GP or LP should get the company’s blessing for such transactions (case 3 above).

This idea runs contrary to decades of private market practice. Hundreds of billions in LP stakes in private equity funds change hands every year. The underlying companies almost never approve such transfers, and in the rare cases they do, it’s usually because the GP is going to them out of deference, not because they are required to do so. It's only the explosion of SPVs in the venture space that has brought sudden attention to this question.

Happy to debate this topic if anyone has a different take.

[Sim Desai @SimDesai]

@DomP_9 That’s correct. We sometimes separately share information on the issuer’s financial performance with their consent

[Sim Desai @SimDesai]

@DomP_9 We provide audited financials on all SPVs, whether they are first or second-layer. No LP ever has contractual privity with the portfolio companies of its fund investments. This is true of $20 trillion in private funds globally.

[Sim Desai @SimDesai]

If someone is seeking pure play exposure to a single company then there is certainly some additional counterparty risk associated with a dual layer fund. However, it depends on the quality of the second layer manager. We find that investors are willing to buy into our 2nd layer funds at the same price as a first layer fund, suggesting that they don’t view any risk associated with adding hiive in between them and the first layer

[Sim Desai @SimDesai]

If someone is seeking pure play exposure to a single company then there is certainly some additional counterparty risk associated with a dual layer fund. However, it depends on the quality of the second layer manager. We find that investors are willing to buy into our 2nd layer funds at the same price as a first layer fund, suggesting that they don’t view any risk associated with adding hiive in between them and the first layer

[Sim Desai @SimDesai]

Mike, you mean case 3 out of 4? That's a secondary at the SPV (1st layer) level and wouldnt be subject to a ROFR at the company (cap table) level. There's a rare case where ROFR could be effective: if the SPV LP is 20%+ of the SPV and thereby deemed a direct shareholder.

[Sim Desai @SimDesai]

@davemcclure Thanks Dave. You have opened up yet another can of worms, lol. What specific regulatory/legislative changes do we need? Topic for future post.