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Key takeaways
An SPV is a separate company that pools money from several investors and holds a stake in a startup as a single shareholder.
The startup's shareholder list, the official register of who owns the company, stays short. In return, the SPV needs its own bookkeeping, its own annual accounts and its own tax returns.
With ten angels investing 25,000 euros each and seven years until the exit, a German SPV costs roughly 21,000 to 27,000 euros net, or 8 to 11 percent of the money invested.
The investors end up paying these costs. After the exit, the vehicle also has to be wound up, and whatever is left may only be distributed after a one-year blocking period.
Without a special purpose vehicle, equity profit participation rights do the job: a contract that gives investors a share of profits and of the exit. Through a syndicate, every investor invests directly in the startup.
Ten business angels, private individuals who put their own money into young companies, want to invest in your German GmbH, each with 25,000 euros. If each of them is entered individually in the shareholder list, ten additional shareholders have a say in major decisions, and every change to the articles of association has to be notarised. The usual answer is an SPV. In this article we work out what it costs until the exit, meaning the sale of your startup, and who ends up paying for it.
What is an SPV?
An SPV is a company set up for one single purpose. The abbreviation stands for special purpose vehicle. In German it is called a Zweckgesellschaft.
In angel investing, that purpose is one single investment. Several investors pool their money in the vehicle, and the vehicle invests the combined amount in a startup. To the startup, it looks as if it has a single investor.
Unlike a fund, an SPV does not raise money for many startups. It exists for exactly one deal, meaning an investment in one specific company.
How does an SPV work in an angel round?
With an SPV, the angels become shareholders of the vehicle, and the vehicle becomes a shareholder of your startup. The process usually looks like this:
The angels set up the vehicle together in front of a notary, usually at the initiative of the lead angel. That is the investor who brought in the deal and leads the others.
Each angel pays their money into the company.
The vehicle invests the pooled amount in your startup and appears there as a single shareholder in the shareholder list.
A managing director represents the vehicle towards your startup from then on, for example when shareholders vote.
As a founder, you then have one name in your shareholder list instead of ten. The angels do not own part of your startup. They own part of the vehicle, and only the vehicle holds a stake in your startup.
Which legal form does an SPV take?
In Germany, an SPV is often a GmbH (a limited liability company) or its smaller sibling, the UG. Both protect investors from being liable with their private assets. A GmbH & Co. KG is also possible: it is not taxed itself, but consists of two companies. A GbR, a simple partnership between several people, is cheaper to set up, but its members are personally liable.
Below, we calculate with a GmbH because it has the simplest structure.
What does an SPV cost?
An SPV costs money at three points: when it is set up, in every year it exists, and once more when it is wound up after the exit.
Our example: Ten angels invest 25,000 euros each, 250,000 euros in total, through a GmbH as the SPV. The exit happens after seven years. All amounts are net of VAT.
Setting it up
The notary and the commercial register (Handelsregister, the public company register kept by the local court) cost around 934 euros for a GmbH with its own articles of association. The articles themselves, which set the rules of the company, cost more. They have to cover who manages the vehicle, how votes work, what happens if an angel wants to leave and how exit proceeds are split.
Expect ten to 15 hours of legal work. At hourly rates from around 250 euros, and often more at specialised firms, that comes to 2,500 to 5,000 euros.
And the notary does not go away. If another angel wants to join later, or one wants to sell their stake, a GmbH can only do that through a notary, this time at the level of the vehicle.
Running it
The vehicle is a company in its own right, even if it only holds one investment. It needs the same things as any other GmbH. The figures are based on the German fee schedule for tax advisers (StBVV), set at the lower end for a company with few transactions:
Annual accounts plus corporate income tax and trade tax returns: around 1,450 euros
Ongoing bookkeeping: around 605 euros
Publishing the annual accounts and the fee for the transparency register, the register of who stands behind a company: around 40 euros
Not counting the bank account, the chamber of commerce fee and the managing director's time, that adds up to around 2,100 euros a year. Over seven years, that is around 14,700 euros.
On top of that comes a second tax level. The vehicle pays tax on its own income before it distributes anything to the angels. Gains from selling the startup stake are largely tax-exempt at that level, but every distribution needs its own returns and certificates. How this plays out in a specific case should be clarified with a tax adviser beforehand.
Winding it up after the exit
When your startup is sold, the proceeds first land in the vehicle. It can pay out most of them to the angels as profit. Once its purpose is fulfilled, the vehicle is wound up, and fixed rules apply. First, creditors, meaning anyone the company might still owe money to, are publicly asked to come forward. Whatever assets are left may only be distributed one year later. This blocking period (Sperrjahr) is set out in Section 73 of the German Limited Liability Companies Act (GmbHG).
Notary, register court and the tax adviser's final accounts typically cost 3,000 to 6,000 euros for the winding-up.
The full calculation
Item | Cost in the example |
|---|---|
Set-up: notary and commercial register | around 934 euros |
Set-up: articles of association | 2,500 to 5,000 euros |
Running costs, seven years | around 14,700 euros |
Winding-up after the exit | 3,000 to 6,000 euros |
Total | around 21,100 to 26,600 euros |
All amounts are net. A vehicle that only holds an investment usually cannot reclaim the VAT on these invoices from the tax office.
That means around 2,100 to 2,700 euros for each of the ten angels, roughly 8 to 11 percent of their ticket, meaning their individual investment. The smaller the tickets, the heavier these costs weigh, because they stay almost the same: with five angels at 10,000 euros each, they would exceed 40 percent of the money invested.
If you do not set up the vehicle yourself but use an SPV platform, you usually pay several thousand euros or 1 to 2 percent of the amount invested per deal, often with a minimum fee.
What an SPV means for investors
An SPV solves the problem in the startup's shareholder list and shifts the effort to the investors.
The advantages:
The startup has one shareholder instead of ten, and there is one bundled vote. Later investors such as VC funds see a tidy structure.
The angels can invest together, even with smaller amounts, and the lead represents them towards the startup.
The drawbacks for investors:
They bear the costs of the vehicle, either on top of their investment or out of it.
They are only indirectly invested. They own part of the vehicle, not part of the startup. In the startup, the vehicle's managing director votes, as decided by the angels within the vehicle.
Joining and leaving are cumbersome, because every transfer goes through a notary.
Proceeds only reach them through the vehicle, which distributes them and eventually has to be wound up.
As a founder, you are left with the question of who organises the vehicle. The work can end up with the founding team, even though it is not your company.
Alternatives to an SPV compared
If you want to bring many angels on board in Germany, there are four routes, and they differ mainly in how much effort is left after closing.
With a capital increase, your startup issues new shares, and every angel becomes a shareholder with voting rights. A convertible loan only postpones that question: once the loan converts into shares, the effort is back. We worked out the costs in our article on convertible loans. The SPV bundles the angels in a company of their own. The equity profit participation right gives them an economic stake without making them shareholders.
Route | Notary | Who is in the shareholder list? | Running costs |
|---|---|---|---|
Capital increase | yes, every round | every angel individually | none, but every vote with everyone |
Convertible loan | at the latest on conversion | every angel after conversion | none until conversion |
SPV | at set-up, joining and leaving | only the vehicle | around 2,100 euros a year |
Equity profit participation right | no | no one new | no vehicle costs |
There is also a middle way: some angels sign a contract to vote together. That bundles their votes, but each of them still appears individually in the shareholder list.
The solution without a vehicle: equity profit participation rights and syndicates
With equity profit participation rights, investors share in the startup economically like shareholders, without a second company being needed.
An equity profit participation right (Eigenkapital-Genussrecht) is a contract with your startup. The investor shares in profits and in exit proceeds as they would with a shareholding, but has no voting rights and does not appear in the shareholder list. Like any startup investment, it can also be lost entirely. We explain how it works in detail in our article on profit participation rights.
For you as a founder, this means: all shareholders approve the issue once, and after that every investor signs digitally, without a notary appointment. There is no vehicle to set up, run every year and wind up at the end.
For investors, the syndicate comes in. A syndicate is a group of investors who follow a business angel, the lead, into their deals. On beel, the lead shares individual investment opportunities with their syndicate, and every member invests directly in the startup through equity profit participation rights. No money is pooled and no special purpose vehicle is set up. The lead can agree a carry, meaning a share of the co-investors' profits, and sets its level individually. Investors from across the EU can take part.
If the startup enables it, equity profit participation rights can also be transferred on a secondary market, meaning traded between investors. There is no guarantee of finding a buyer, and a sale may only be possible at a loss.
What it costs: Investors pay nothing to beel, and there are no running costs for a vehicle. Fees are paid by the startup and, in a syndicate, by the lead. You can find the amounts on our pricing page.
Conclusion
An SPV keeps your startup's shareholder list short. The investors pay most of the price. In the example with ten angels and 250,000 euros, the net costs add up to:
Set-up: around 3,400 to 5,900 euros
Running costs: around 2,100 euros a year, around 14,700 euros over seven years
Winding-up: 3,000 to 6,000 euros, plus a one-year blocking period for the remaining assets
That is around 21,100 to 26,600 euros, roughly 8 to 11 percent of the money invested. How much applies in an individual case depends on the set-up and should be clarified with a lawyer and tax adviser beforehand. If you want to pool investors without running a second company, equity profit participation rights and a syndicate without an SPV will do the job.
Pool your angels without setting up an SPV
Want to close an angel round without setting up a special purpose vehicle and without a notary appointment for every investor? We cover the whole process in one flow, from your shareholders' approval to the digital signature. See how a round works on beel. Are you a business angel who wants to share deals with your network without setting up an SPV for each one? Start your syndicate on beel.
Frequently asked questions
How much does an SPV cost per year, and is it worth it for small angel tickets?
As a German GmbH, an SPV costs around 2,100 euros net a year to run, mainly for bookkeeping, annual accounts and tax returns. Set-up and winding-up come on top. Because these costs barely depend on the amount invested, they weigh heavily on small tickets: with ten angels at 25,000 euros each, they come to roughly 8 to 11 percent of the money invested over seven years, and with five angels at 10,000 euros each, to more than 40 percent.
What are the alternatives to an SPV if I want to pool many small investors?
One alternative is equity profit participation rights. They give every investor an economic stake like a shareholder's, without a separate company having to be set up and managed every year. Through a syndicate, investors can follow a lead and still each invest directly in the startup.
How do I stop many small investors from becoming a problem in my cap table for the next VC round?
What matters for your cap table, your overview of who owns how much of the startup, is whether every investor becomes a shareholder with voting rights. An SPV combines the investors into one shareholder, while equity profit participation rights keep them out of the shareholder list entirely. Either way, the number of votes stays small. The difference lies in the effort afterwards.
Am I directly invested in the startup when I invest through an SPV?
No. With an SPV, you own a share of the vehicle, and the vehicle holds the stake in the startup. In the startup, its managing director votes, and proceeds only reach you through the vehicle. With equity profit participation rights through a syndicate, by contrast, you sign the contract directly with the startup, though without voting rights.
Which is cheaper: setting up an SPV for each deal or using a syndicate platform?
Your own SPV costs set-up, running costs and winding-up for every deal, in this article's example around 21,000 to 27,000 euros net over seven years. SPV platforms usually charge several thousand euros or 1 to 2 percent of the volume per vehicle. A syndicate without a special purpose vehicle saves the vehicle entirely. What you pay there depends on the provider's fees and on the carry the lead sets.
What does SPV stand for?
SPV stands for special purpose vehicle, called a Zweckgesellschaft in German. It refers to a company set up for one single purpose. In angel investing, that purpose is usually holding a stake in a startup, for which the money of several investors is pooled.
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