eron

[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.

[eron @eronflo]

@monad_xyz 0xaCccc4040e1c91D98Ab733f2244D1432cCDe299D

[eron @eronflo]

@alphazeta @VitalikButerin A defining feature of Ethereum is that it has no discernible spot on a political spectrum.

It can be used to further authoritarianism, libertarianism, liberalism, or conservatism, much like the internet.

Its up to the people to choose what to support. Feature, not bug.

[eron @eronflo]

@matthewstoller He's a millenial, don't bring us into this