If a pitch reaches at least its minimum funding goal, then a special entity is set up called a ‘Special Purpose Vehicle’ (SPV). This SPV is like a company that does nothing else but hold your investment for you and you will own shares in the SPV.
Additionally, an agreement is put in place called the ‘Investor Agreement’ which lays out the terms of how the SPV will represent your interests in the investment. This is all outlined at the point of investment.
Benefits for investors
In the absence of an SPV and investor agreement, investors would normally hold the shares in each investee company directly as registered shareholders.
Investors are left to manage the administration of their investments on their own, tracking corporate events, attending meetings and issuing consents where necessary. The bureaucratic hassle alone can be a pain, but the far greater problem is that there is no coordinated effort to monitor and enforce shareholder rights. Without a coordinated effort, minority shareholders can easily fall prey to abusive actions by directors and majority shareholders.
The SPV and investor arrangement also helps your investment grow as it can prevent companies from having issues in the future when raising additional capital caused by having too many shareholders. Having too many shareholders can often block deals due to the fact that the company shareholder register is too complicated to administer.