Special purpose vehicles have become a standard tool in the venture ecosystem — and a source of genuine confusion about economics, governance, and conflicts of interest. Gurpreet S. Bal has structured and reviewed SPVs from both the GP and portfolio company side: "SPVs are useful for everyone until the economics get complicated. Then you find out whether the GP structured it for the fund's benefit or for the company's convenience — and sometimes those aren't the same thing."
His work spans the full range of sidecar structures, from pro-rata vehicles for existing investors to broadly syndicated SPVs enabled by modern fund administration platforms.
An SPV (special purpose vehicle) is a standalone legal entity — typically a Delaware LLC or LP — created to hold a single investment. When a fund's LPA imposes concentration limits (often 10–20% of committed capital per investment), an SPV lets the GP invest beyond that limit by raising additional capital from LPs or third parties for the specific deal. A sidecar is the same idea, usually a co-investment vehicle running alongside the main fund, and the distinction is mostly informal. GPs also use SPVs to deploy pro-rata rights when the main fund is in harvest mode, and low administrative cost has driven SPVs well beyond their original use.
An SPV — special purpose vehicle — is a standalone legal entity, typically a Delaware LLC or LP, created to hold a single investment. When a venture fund's LPA imposes concentration limits (often 10–20% of committed capital per single investment), an SPV allows the GP to invest more than the fund's limit by raising additional capital from LPs or third parties specifically for that deal. A sidecar vehicle is the same concept, usually applied to a co-investment vehicle that runs alongside the main fund. The distinction is mostly informal. GPs also use SPVs to deploy capital from their pro-rata rights — the contractual right to participate in future financing rounds — when the main fund is in harvest mode and technically closed to new commitments. The administrative cost of running a separate entity is low enough that SPVs have proliferated far beyond their original use case.
Pro-rata rights let a fund participate in a portfolio company's next round to maintain its ownership percentage. In a hot company, exercising these rights in later rounds can require more capital than the main fund can deploy, leaving the GP three choices: waive the right (diluting its position in its best asset), exercise through the main fund if capacity allows, or form an SPV to exercise it separately. The SPV route is common because it honors the right, brings in co-investors, and generates extra carry — but it raises the question of whether the GP is acting for the fund's LPs or building a separate profit center.
When a fund leads a seed or Series A, it typically negotiates pro-rata rights: the right to participate in the next round up to the amount needed to maintain its ownership percentage. In a hot company, exercising pro-rata rights in later rounds — Series C, D, and beyond — can require capital that exceeds what the main fund can deploy. The GP is then faced with a choice: waive the right (diluting the fund's position in its best asset), exercise it through the main fund if capacity allows, or create an SPV to exercise it separately. The SPV route is common. It lets the GP honor the right, bring in co-investors, and generate additional carry on the incremental investment. But it raises a real question: is the GP exercising pro-rata rights for the benefit of the fund's LPs, or creating a separate profit center for itself and its preferred investors?
SPV carry varies widely — some GPs charge zero on co-investment SPVs as an LP incentive, others charge the standard 20% or even higher on proprietary deal flow not offered through the main fund. The conflict becomes acute when a GP routes its best opportunities into an SPV rather than the main fund, whether to earn higher carry or to favor certain LPs. The LPA usually addresses related-party transactions and the LPAC often has approval rights over GP-affiliated vehicles, but the language is frequently ambiguous, and the issue tends to surface in LP disputes traceable to a gap in the original LPA.
Carry economics on SPVs vary widely. Some GPs charge zero carry on co-investment SPVs as an LP incentive. Others charge the standard 20%, or even higher carry on proprietary deal flow that is not offered through the main fund. The conflict becomes acute when a GP routes its best opportunities into an SPV rather than the main fund — because the GP can earn higher carry on the SPV, or because the SPV LPs are more favorable counterparties. The LPA typically addresses related-party transactions and conflicts, and the LPAC will often have approval rights over GP-affiliated vehicles. But the language is frequently ambiguous, and many LPs don't scrutinize SPV economics until they notice that the fund's strongest performers were concentrated outside the main fund. Gurpreet Bal has seen this issue surface in LP disputes and it is almost always traceable to a gap in the original LPA.
Platforms like AngelList Venture sharply reduced the cost of forming and administering SPVs, enabling angels and scouts to syndicate individual deals efficiently — a lead can form an SPV, raise from accredited investors, and close in days, typically with an upfront carry (often 20%) and sometimes a setup or management fee. For founders this opened a new source of capital but also a new question of who is on the cap table, since a single SPV may represent dozens of underlying investors. In a later M&A process or IPO, winding down and distributing proceeds through a large SPV can be genuinely complicated.
Platforms like AngelList Venture dramatically reduced the cost of forming and administering SPVs, enabling a new class of angel investors and scouts to syndicate individual deals efficiently. A syndicate lead can form an SPV for a specific deal, raise capital from accredited investors, and close in days. The economic model typically includes an upfront carry percentage (often 20%) and sometimes a setup or management fee. For founders, this created a new source of capital but also a new question: who is in your cap table? An SPV appearing on your cap table may represent dozens of underlying investors, each with their own economic interests. In a future M&A process or IPO, the administrative mechanics of winding down and distributing proceeds through a large SPV can be genuinely complicated. The convenience of SPV capital is real; so is the operational tail.
Gurpreet S. Bal is a corporate partner with 16 years advising on private equity, merger transactions, and public offerings for companies and investors at three of the world's top law firms. He has represented clients in hundreds of transactions with aggregate deal value exceeding $60 billion across AI, semiconductors, fintech, and emerging technology. For more information and to get in touch, visit gurpreetbal.com.