How does the special purpose investment vehicle (SPV) work?
The SPV, which is set up as an LLC, becomes the investor in the company and the investors become members of the LLC. The manager of the LLC is the sole source of contact with the company and may sit on the board of directors or an advisory board and issue reports to the members of the LLC. The company’s capitalization table then includes just the LLC, not every individual investor.
Sample Investment Summary for a Typical SPV:
Each time Florida Funders provides accredited investors with an opportunity to invest in an early-stage company, we form a new Special Purpose Investment Vehicle (SPV), an LLC, to hold the securities of that company. Each investor will be purchasing an ownership interest in an SPV, rather than directly buying the securities of the early-stage company. This simplifies paperwork both for the investors and the early-stage company.
Accordingly, the LLC is a special purpose vehicle limited liability company formed by Florida Funders Management, LLC, (the “Managing Member”) for the purpose of investing in equity or a convertible note of the portfolio company (i.e. the early-stage company).
Most of each Member’s capital contribution will be used to acquire their proportionate share of ownership in the SPV. A small portion of each Member’s capital contribution, however, will be used to fund anticipated expenses over the life of the investment. For example, if the LLC raises $200,000, then $10,000 to $20,000 may be reserved for the administrative fee and the remaining balance will be invested in the early-stage company. The administrative fee is expected to cover some of the third-party, out-of-pocket expenses of the LLC (organization, syndication, formation, operations, and liquidation) and none of the administrative fee will be used to compensate Florida Funders or Florida Funders Management. If the Administrative Fee is not sufficient to cover the expenses of the LLC, the Manager may offset proceeds from the sale of the securities by the LLC or recall distributions previously made to the Members. If the upfront Administrative Fee reserved for LLC expenses exceeds the actual expenses of the LLC, such excess amounts will be returned to the Members.
Distributions resulting from proceeds received with respect to the stock will be payable as follows: First to each Member in an amount equal to 100% of its capital contribution. Thereafter, distributions will be payable as follows: 80% to the Members in accordance with their respective capital contributions; and 20% to the Managing Member. Florida Funders will not be entitled to receive any carried interest payments until the Members have received 100% of their capital contributions.
The LLC will be managed exclusively by the Managing Member, Florida Funders Management, LLC. The Manager shall have the sole and exclusive right to manage, control, and conduct the affairs of the LLC. The Manager may resign but cannot be removed by the Members. The Manager will decide when to make distributions of the LLC’s assets, if any, to the Members. The Manager will decide whether to sell the securities held by the LLC for cash or to distribute such securities to the Members in kind.
The LLC may have certain rights as an owner of the securities of the early-stage company. These rights may include access to confidential information of the company, the right to buy additional securities, and the right to vote the securities held by the LLC. The Members will not participate in any of these rights individually.
Interests in the LLC are generally non-transferable without consent of the Managing Member. The Managing Member may transfer its interest in the LLC at any time.
Is this crowdfunding?
Technically, no. Equity crowdfunding is defined by Title III of the JOBS Act to include non-accredited investors. Florida Funders accepts accredited investors only and is not a crowdfunding site or funding portal as defined by the JOBS Act. The Florida Funders’ business model has been referred to as online venture capital or syndication.