VCs are selling shares of hot AI companies like Anthropic and xAI to small investors in a wild SPV market | TechCrunch
Venture capitalists (VCs) are eagerly trying to invest in high-flying AI companies. They're willing to pay sky-high prices for shares in these coveted startups. However, most VCs aren't able to get in on these deals. Surprisingly, it's the small, unknown investors like family offices and high-net-worth individuals who have figured out a way to get shares in the hottest private startups such as Anthropic, Groq, OpenAI, Perplexity, and Elon Musk's X.ai (Grok). These savvy investors are utilizing Special Purpose Vehicles (SPVs) where multiple parties pool their money to share an allocation of a single company. Typically, SPVs are created by investors who have direct access to the shares of these startups. They then sell a portion of their allocation to external backers, often charging substantial fees while also keeping a share of the profits. While SPVs are not new – smaller investors have been using them for years – there is a growing trend of SPVs successfully acquiring shares in the biggest names in AI. What these investors have discovered is that it's relatively easy for them to buy shares in the most popular AI companies, excluding OpenAI, at their smaller investment levels. This is because early backers of sought-after AI startups are eager to exercise their pro-rata rights. This allows them to buy more shares each time the company raises funds, ensuring they maintain their percentage ownership. It's the perfect scenario for an SPV. Instead of giving up their shares because they can't afford them, early investors create SPVs, raise money from others, and charge additional fees in most cases. Often, VCs offer access to the SPV to their existing limited partner investors. They may also utilize brokers to open up access to a much larger pool of potential investors. In fact, the same AI startup may have multiple SPVs on its cap table, representing numerous small investors. However, the terms each small investor agrees to depend on the specific SPV. It's a bit of a wild west situation where buyers need to be cautious. Ken Sawyer, co-founder of Saints Capital, a secondaries market VC firm, noted that he regularly sees SPVs for the same company marketed with different terms. He explained that fees and profit splits can vary greatly, with some SPV sponsors charging up to 2% of the total invested amount and keeping 20% of the profits. Moreover, some SPVs are built on top of other SPVs. For example, when Menlo Ventures raised a $750 million SPV to invest in Anthropic earlier this year, some funds that invested in it resold a portion of their SPV allocation to other investors, charging additional fees in the second-layer SPV, according to Sawyer. Investors who are particularly interested in Anthropic have numerous options. Shares in this OpenAI competitor were auctioned off as part of FTX's bankruptcy. The crypto exchange's fund had invested in Anthropic before FTX's downfall in late 2022. Glen Anderson, CEO of Rainmaker Securities, a secondaries market for late-stage companies, stated, "FTX's sale flooded the market with a huge amount of shares. Many brokers, including ourselves, created SPVs to buy Anthropic shares." Court documents reviewed by CNBC indicated that the FTX estate sold nearly $900 million worth of Anthropic shares. Another noteworthy development is the creation of SPVs in association with primary rounds of fundraising for companies. This means that small investors can join a startup or a coveted private company at the same time as major investors. For instance, shares in Elon Musk's X.ai (xAI) were readily available, according to Glen Anderson, co-founder and managing director at Rainmaker Securities. xAI raised a portion of its capital in its latest $6 billion funding round through SPVs, which, in some cases, had upfront fees, management fees, and carried interest (profit split charges) of up to 5%, as reported by Business Insider. Initially, xAI was raising $3 billion with a pre-money valuation of $15 billion. However, once the demand became apparent, it increased the round to $6 billion with a pre-money valuation of $18 billion. Sawyer revealed that primary round SPVs now often remain open for some time, allowing companies to gauge demand for their shares from a large pool of backers. While SPVs may provide a suitable mechanism for purchasing shares in hot companies that are otherwise unavailable to investors, some caution that it comes with high risk. Unlike venture funds, backers of SPVs do not receive direct information on the companies. "It's mind-boggling that just a few years after the excesses of the 2020 and 2021 period, when people blindly invested in SPVs with layers of fees and complete opaqueness," said Jack Selby, managing director at Thiel Capital and founder of AZ-VC Fund, a firm focused on backing Arizona startups. "People are once again doing the same thing with any shiny toy that comes along, including AI."