199. SPV’s, Side Cars, & The Syndication Surge (Jeremy Neilson)

199. SPV's, Side Cars, & The Syndication Surge (Jeremy Neilson)
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Nick Moran Angel List

Jeremy Neilson of Assure joins Nick to discuss SPV’s, Side Cars, & The Syndication Surge. In this episode, we cover:

  • Quick walkthrough of your background
  • Can you give us a brief overview of Assure?
  • What is an SPV Investment in the context of this discussion?
  • Can you walk us through the history of how sidecars and/or angel groups have handled (or mishandled) these syndication style investments in previous decades?
  • Why do you think startups and seekers of capital are increasingly raising through SPVs and targeting syndicate leaders?
  • What are the pros and cons of utilizing an SPV as an LP or individual investors?
  • What are the pros and cons of utilizing an SPV as an institutional investor or syndicate leader like myself?
  • Do the lead investors on these SPVs make money upfront — initiation fees, mgmt fees, broker/transaction fees?
  • Some critics of the SPV model may say that the fees associated with SPVs can also create misalignments between the VC and LP. I haven’t heard this critique myself but what are your thoughts on comments like these and how should the vehicle be structured to avoid misalignment?
  • With the SPV model, you’re providing members with specific rights, such as redemption, voting, and pro-rata rights. Talk about thee member rights and its effect on the associated parties. From the investor’s standpoint, are there any issues or risks associated with providing such rights and what’s your opinion on how it should be handled?
  • What are your thoughts on sidecar investments and how should they be handled correctly? What are some challenges and in what situations do they work best?
  • Do you see fund managers that use SPVs exclusively for pro ratas? What are the advantages here?
  • What are the regulatory risks for sidecar funds?
  • How big should a side car fund be and what’s the appropriate minimum contribution?
  • SPVs are viewed by some VCs as passive investors (non-strategic money) and that the company should have pursued more active investors. An SPV leading the round has the potential to magnify this thinking even further. What’s your opinion here and what advice would you have for those raising capital?
  • There are other platforms offering “SPV as a service”… platforms that you’ve powered on the back-end like AngelList and SeedInvest. Why would lead investors use you over one of the other platforms?
  • At the VC or PE fund-level, you also offer fund administration. What does that entail and how is it different than admin at the SPV-level?

Guest Links:

Key Takeaways:

  1. Large established venture capital funds are an important part of the ecosystem, but in order to increase the access of capital to startups, there needed to be additional pools of capital for startups. Assure provides that back-office engine to make it work. 
  2. SPV stands for “Special Purpose Vehicle” also known as a sidecar fund. It is a legal entity, typically an LLC, set up through registering with the state in order to accomplish a special or single purpose. In venture, it’s primarily used to pool money for investing in a startup.
  3. Prior to Assure, in order to accommodate these syndication style investments, you would need to hire a law firm, accounting firm, tax firm and take on the burden of doing the administration entity maintenance yourself. There was very little optionality to use SPVs unless you were going to raise a very large vehicle.
  4. As an LP or individual investor, the benefits of utilizing an SPV include, the ability to be more selective about deals, negotiation of pro-rata and information rights, access to higher quality investment opportunities at lower minimums and lower fees. 
  5. Some cons to using an SPV as an LP or individual investor could include, having to laboriously sift through deal flow if the syndicate lead is doing deal by deal and dealing with multiple K-1’s. 
  6. As an institutional investor or syndicate leader, the benefits of utilizing an SPV include, increased flexibility to do deals without having to raise a fund, deal by deal carry and networking opportunities, among many others. 
  7. Some cons to using an SPV as an institutional investor or syndicate leader could include, SPV’s are slower in comparison to a VC fund and there are no ongoing fees where typically venture funds would have fees associated with management, admin and due diligence. 
  8. At Assure, they charge a one time fee for approximately 7+ years of work that includes, all the setup, entity maintenance, use of their technology platform as well as post-close activities, distributions, and shutdowns. Jeremy shares that it’s a “cradle to the grave” full package without any additional fees in the future. 
  9. Within the SPV structure, there are 2 sets of rights, the rights with the startup and the rights within the SPV.
  10. It’s important for investors into SPVs to trust that there’s alignment between their interests and that of the syndicate lead, that they’re going to vote in a way that increases the value of the investment. 
  11. Jeremy disagrees with certain critiques implying that syndicate leads using SPVs don’t provide active strategic assistance, as though they only invest to those that they invest in.
  12. The strategic assistance that’s provided by a syndicate lead is based more around the specific person or entity rather than the structure they use.
  13. At Assure, they have a traditional venture capital fund administration service, where they do work for over 160 funds.
  14. The product that Assure provides is similar to others in the marketplace, but what differentiates them is that they’re a one-stop shop, with an extensive knowledge base around all the components of fund administration. 

Transcribed with AI:

0:03
welcome to the podcast about investing in startups, where existing investors can learn how to get the best deal possible. And those that have never before invested in startups can learn the keys to success from the venture experts. Your host is Nick Moran and this is the full ratchet

0:23
Welcome back to TFR. Today we discussed the surge in SP V structured investments happening across venture capital platforms like AngelList seed invest and funders club have helped drive this democratization of startup investment. And our guest Jeremy Nielsen runs the company a sure that powers most of these investments, a sure has organized nearly 5000 SPVs, totaling 2.5 billion in investments for their clients. In this episode, we review the history of SPVs how they work, the pros and cons for founders, LPs and lead investors, the fee structures, investor rights and also how to choose a platform that works best for you. Here’s the interview with Jeremy Nielson of Usher.

Today Jeremy Nielson joins us from Salt Lake City. Jeremy is CO CEO of Usher fund management sure specializes in fund administration and SPV investment services for private equity, venture capital investment platforms and Angel networks. They are the back office in a box investment service that helps our community organize and invest efficiently in private companies. And Jeremy has an extensive background in finance and venture capital, which we’ll talk about more in a couple minutes here. Jeremy, welcome to the program.

1:48
Thank you.

1:50
Yeah, thanks for thanks for coming in. Can you give us a quick walkthrough of your background?

1:56
Sure. So started earning my undergrad from BYU and went on to get a law degree from Wake Forest University, finished off my education with an MBA from the University of Utah Braz, finishing my MBA, I was hired to launch and manage the Utah fund of funds, it was a $300 million State of Utah program that focused on obtaining top tier private equity returns while also providing access to alternative capital for Utah entrepreneurs. So in my role there I visited with hundreds of CEOs and startups. I also visited with hundreds of fund managers, we ultimately made 28 fund investments across the entire spectrum. A lot of them were venture capital, but even invested internationally. After seven years of managing the Utah fund to funds left and my co founder and CO CEO, we launched a sure our first real big contract was with the SBA in Washington, DC, they hired us to do due diligence for them on their billion dollar early stage venture capital initiative. And then our second big win was when AngelList called and asked us to figure out how to build an SPV engine. And after we started working with AngelList, our speedy, affordable cradle to grave SPV product became a hit. And the phone started ringing and hasn’t stopped, we obviously hit upon something that the market was really hungry for. And today we provide a complete back office service paired with technology for the private transaction marketplace.

3:32
Yeah, so tell us more about that. What what specifically was AngelList looking to do, and how did you solve that problem?

3:41
So AngelList, a little bit more of the story AngelList called, and the question they asked was, can you set up funds in bulk? And what’s interesting about that comment is, or that question is that setting up a fund traditionally has been very time consuming, very expensive. Sure. I’ve set up my own fund. Previously, I’ve set up the funds for the Utah fund of funds, and they’re hundreds of 1000s of dollars and takes months and months. So the you know, the question, can you set them up in bulk? I immediately said yes. Even though, you know, we hadn’t figured out how we would end up doing that. And that’s been a big culture. Part of Asscher is when our clients call and say, Can you help us figure out solve a solution? We mostly most of the time, say yes. So AngelList was trying to, in their words, democratize venture capital, which I took to mean, how do we make this simpler, easier and quicker for startups to receive money? And the way to do that would be to add players to the marketplace. So traditionally, and even today you have large established venture capital funds, which are an important part to the ecosystem. But in order to increase the access of capital to startups, things had to change there needed to be additional pools of capital for startups. And they were trying to solve that through a technology platform. And they needed somebody, a group to provide that back office engine that that made that work. And so they asked if we could do it, we said, Yes, we figured it out. That obviously was a key piece that the marketplace wanted, because we are quite busy.

5:40
I would imagine. So Jeremy, we’ve used to share quite a bit at new stack. I think most folks in the audience here are aware that we like to cut a check out of our funds. We also like to sidecar with our group. And so service like assure allows us to make a more sizable investment. It allows us to lead rounds, take a board seat, where appropriate, also lessens the load on the entrepreneurs we’re investing in. So if we can put more money to work the our fund and a sidecar, they don’t have to go scrape up a bunch of checks from from smaller investors. It’s also had this added benefit of giving our LPs and our group members a way to invest Direct, which some people prefer. So we’ve been really pleased, you know, using the AngelList platform to do this, which for years has been powered by you guys also running SPVs directly through you guys in your platform, which is called glassboard. But you know, I still get these questions on a weekly basis from listeners on the show that are saying what are these SPVs? What does that mean? What is a sidecar? Can you can you talk us through what this SPV is and who are the constituents and how it works?

6:53
SPV stands for special purpose vehicle or some people call it a single purpose vehicle or a sidecar fund. So basically, an SPV is a legal entity, typically an LLC, but an SPV is set up through registering with a state in order to accomplish a special or single purpose. And so in our world, your world our world, it’s to pool money to invest in a startup. Yep. So there’s another there’s a number of other reasons to use an SPV, like limiting your liability being able to charge carry. But basically, as you described, you can either go into your pocket and invest directly onto the company’s cap table. Or you can raise a fund. Or you can use an SPV. Like you said, sometimes people marry all these different structures and options together. But if you’re if you need functionality, or optionality to go alongside a fund, or you don’t have money, that you can go into your pocket, or you don’t have enough money to make it meaningful for the startup, or you don’t have a fun, and SPV is your option to pool funds and invest in private assets, typically startup companies.

8:07
Right. Right. And if we, you know, prior to usher in prior to this automation, that you guys are doing this back office, sort of in a box. How was this all handled? I mean, was it was it done by lawyers on a case by case basis, and you know, a new fund entity was spun up every time with the associated costs. You know, I know after talking to many attorneys about our new stack fund, those costs can be quite high. And so I’m curious, you know, how was this coordinated? How was this done? Prior to you guys, you know, accommodating this fund administration in bulk ask that you received from AngelList and others?

8:50
Yeah, I think you’ve described it pretty well, prior to assure you would go to a law firm, and the law firm would charge a large amount of money and move it law firm speed. So there really was no optionality to use SPVs unless you were going to raise a very large vehicle, 3 million, 5 million 10 million, otherwise, just the expense would not make sense. And we have lots of clients that come to us, and they tell us their horror stories about going to a law firm and being charged 150 $350,000 for these SPVs I recently spoke to a local venture capitalist here who who said, you know, we’re thinking about doing some SPVs and we call the law firm and they bid us $100,000 And that’s just for like setup and documents. Wow. That didn’t include tax ongoing entity maintenance and other things. And you know, we had a longer conversation and you know, he said, you know, now talking to you SPVs are back on the table. Well, because it’s affordable Asscher provides a affordable, low costs speedy cradle to grave product. So you know, back to your question directly, you know, before sure you would hire a law firm. And then you would perhaps hire maybe an accounting firm, you would hire a tax firm, you would also have a large burden of yourself doing the administration, entity maintenance, you would also be kind of responsible for post closed corporate actions, pro rata rounds, like all this, all this stuff that comes after you close. And that burden starts to pile up five deals, 10 deals, 20 deals, and pretty soon you’re shut down, you can’t do deals anymore, because you’re spending all of your time administering these SPVs. And you don’t have a large staff. So you either build it in house, or you went to law firms, and they just weren’t an option, because they were too expensive, too slow. And there weren’t enough services combined. That allowed you to keep doing investing, you just became overburdened with, with the management of of those SPVs. Sure,

11:05
I’ve seen it, I’ve seen Angel groups that have tried to take this on themselves. And all the administration requirements, and the K ones and, you know, has the deal stack up to here, these these angel group leads, many of which I’m very friendly with here in Chicago, complain about the administrative burden of all these deals that they’ve had to put together and hire law firms to help organize it, it makes me feel great, and gives me a lot of peace of mind to know that, you know, we were able to find a partner like you guys early and use a platform like Asscher or like AngelList to help automate this process for us.

11:50
In many times, we talk with clients who have gone and spent a lot of money on documents to kind of the beginning portions of setting things up. And unfortunately, they’ve spent a lot of money. And more unfortunately, we many times have to throw their documents in the garbage because setting up a traditional fund is somewhat of a known quantity or entity and there’s documents on the internet but to do an SPV is different. And we basically say your documents are not SPV documents, and we need to start over from scratch. And that’s unfortunate.

12:25
Jeremy, what do you think? The startups, you know that the seekers of capital that the founders that are raising money? Why do you think they’re increasingly using SPVs? And targeting folks that lead groups or lead syndicates, like myself for capital?

12:42
I’m not sure there’s an easy answer for that. But the fact is that SPVs are now an option. And traditionally, they weren’t, you know, really smart investors are now using SPVs. And startups don’t particularly care what the structure is behind that smart investor, they’re really interested in getting that thought leadership and the networks of those that are investing into their company. So I think they’re really after that, that thought leadership rather than a particular structure or name of a structure VC versus SPV. Another, I think, logical reason is that startups are, are hungry for capital. And they’re going to find capital, right? They’re going to root it out wherever it is, and find it. And if that’s an A, that’s an SPV, then that’s an SPV. You know, your question makes me somewhat think that there’s this assumption that VC money is preferred money. And we can have a conversation about, you know, around around those assumptions. But I believe that startups and secrets of capital, see VCs as purely capital and they see SPVs as purely capital. And they’re not particularly concerned about the structure behind them. They just want to get capital, if that comes in and SPV, then it comes in and SPV. Yeah,

14:07
I would agree. I mean, I think a lot of people seek us out. Specifically, because of the work we’ve done with with other founders, they’ll get a referral. And they’re not terribly concerned with the structure behind it. I have heard sort of three often cited reasons from my founders on why they they really liked the SPV process. First and foremost, you know, I’m the lead so they interact with me and they don’t, they don’t have to interact with the 20 3040 investors that are a part of the SPV unless those folks can provide some some benefit. So that kind of limits the amount of, I guess, overall sort of communication and back and forth they have with with their investors. They’ve also mentioned that, you know, the network is powerful. So when they do need help, if they’re hiring, or they need introductions to enterprise customers, you know, often there’s a person in that group of Let’s say 30 investors in the SPV that has some networks that can provide some value. We’ve heard that routinely from startups that we’ve worked with that they’re getting value from the syndicate members from the SPV members. And then the final thing that comes up frequently is they just liked the fact that it’s one clean line on their cap table, you know, they’re not admitting 30 investors onto their cap table, each occupying its own line, you know, all those members are putting into one vehicle and keeps things really clean on the ownership side. So we’ve actually heard a lot of positive feedback so far on this structure, although many may not know some of those benefits going in. Jeremy, let’s talk a bit about sort of the the LP side or the individual investor side. So what do you see is maybe pros and cons of using this this SPV and syndication process for the investors?

15:55
Yeah, I think that there are a number of pros, individual investors or LPS can get access to higher quality investment opportunities at lower minimums. So if they are a member of a local angel group, that’s great. And they can find interesting in good deals there. But many times after write very large checks. And they’re really only exposed to perhaps a region or a locale. Because of groups like yourself and others, these LPS can now access deal flow across the US and across the world. So there’s just better access for them through the structures, number two minimums, they can get in for smaller dollar amounts, that allows them to diversify their portfolio, have greater exposure, support different groups, and just allows them to build a portfolio the way they would like to rather than be forced to write very large checks, and then be kind of out of money, if you will, before they feel like they’ve invested in the number of deals that they’re interested in investing in. I think another pro is that it’s not blind pool SPVs typically are established to pool capital to invest in a known company. So these investors get the chance to be like, Yeah, I like that I’m interested in that particular one, maybe they get the chance to talk to the CEO, maybe they get a chance to do some due diligence and research, maybe they’re well aware of that company already. So there’s some excitement around that, you know, the opposite. There’s a VC Fund, which they call blind pool, which is your investing in the Fund, you are waiting for that manager to do their work and find deals and make decisions without any of you as an LPS interest or input. So they get the chance to actually be more selective and the deals are doing. So thing, there’s low fees, running the Utah fund of funds, I really saw the the underbelly of of the fees and the cost of running funds and LPS having to pay in funds. And so there’s kind of a known fee on SPVs, right? It’s this and that’s what you’re gonna pay. And it’s and I believe they’re lower, and then you get more rights, we kind of mentioned this, that you pool your money with other people, you’re going to be part of that larger group of lead like yourself who’s going to negotiate pro rata rights and information rights and other things like that. And so they’re basically they’re they’re jumping on your coattails to get the rights that they would probably like, if they had more money to invest. You know, I think I think a couple of cons negative there would be, they may really like, you know, new stack, they may really like all your deals. And if you’re doing deal by deal, they have to go through the process every single time. So can get laborious sifting through all the deal flow deciding on every single one. And so they may get tired. That may be one thing. The other one is K ones. A lot of people complain, you know, I’ve done 20 SPVs, and I’m getting 20k ones, that can be a frustration as well. Sure.

18:58
You touched on sort of the syndicate leads like myself, and I mentioned sort of at the top of the interview here some of the benefits that have accrued to new stack, but can you outline maybe some of the reasons why a lead investor like myself, or a VC fund or somebody, you know, with a network of investors would pursue organizing SPVs through Sure.

19:23
There’s a number of reasons and I think, many times it has to do with preference, but there’s a lot of flexibility with SPVs a lot of our clients are individuals like I just don’t want to run a fund. I don’t want to raise it. I don’t want to deal with the burdens of it. And I just want to do deals. Yep. And so they they do SPVs and so there’s a lot of flexibility. There there’s deal by deal carry. I think the alignment of you know we’re going to do is deal together and if it pays out then I’m going to take my portion home. If a deal doesn’t doesn’t work out then I don’t Take anything home, you know, venture fund will know the entire portfolio typically has to perform in order for them to get paid out on carry. But if you’re doing SPVs, you get paid out on a deal by deal basis. You know, another one is that you mentioned is just the networking opportunities, consistently tell people that investing in a fund is is like marriage, and doing SPVs or deal buy deals like dating, it just there’s a lot of opportunities and ability to grow your network without a whole lot of pressure. If you’re going out to individuals and groups saying, you know, invest in my fund, I don’t know what I’m gonna invest in, just trust me, I’m really smart, which is many times the case, but it’s easier to say, Hey, I’m doing a couple of deals, why don’t we? What can I show them to you, they can evaluate them can see how you think. And it’s just an easier path to grow and build networks. And a lot of times, you can do that both with a fund. During the fun again, between fundraisers, you’re doing SPVs, you’re dropping downside cards, it’s a great vehicle to explore relationships in between fun fundraisers, I think there’s a lot of flexibility with SPVs to help grow networks, I think a couple of cons would be in comparison to a VC fund SPVs are slower. So SPVs with a shirt can be very fast. We’ve gotten them down to you know, within a week, you can set them up and close them. But a week or two weeks is slower than a VC fund that you just have the money sitting in the bank and you just write a check. Yep, there is there is a slower issue there. And then there’s no ongoing fees. Typically, with SPVs, you know, venture fund, you’re gonna have management fee. SPV just typically don’t have, you know, walking around money in there. There’s that carry, maybe there’s like some fees to cover admin and some other due diligence costs, but there’s really not any ongoing fees. And so that may be a con.

21:58
Got it. Got it. Yeah, I had a funny conversation recently with a VC in Boston. And he was asking me about sort of the history of new stack how we got started. And it’s no big secret. But we started with SPVs. So prior to having a fund, we would invest deal by deal. So I would source a great deal that I want to do invest my own money in. We do all the diligence, do all the vetting, we’d write up this investment memo, this Deal Memo, and we’d make it available to a group of angels we had in Chicago, as well as angels that have joined our group over the internet that listen to the show and whatnot. And the first 10 deals we did were all SPVs. And fortunately, those 10 All went well. And that allowed us to raise fund one. But when I was talking to this VC in Boston, he was kind of laughing, he said you did it backwards. He’s like, what we do is, you know, we raised the funds that we raise a second fund. And now that we have these companies raising huge rounds, and we have these big pro rata allocations, we don’t have enough money in reserves. So we’re, we’re running SPVs on the pro rata s. It was funny to him, he thought I did it backwards for us, you know, it was just a natural sort of evolution. Because before we had credibility, before people knew that our thesis was working, and we could source unique deals, we had to sort of lead with the deal first, instead of leading with new stack, so we’d find really compelling founders building really compelling businesses. And the interest in those deals themselves are what sort of garnered the the investment amongst the group. And then, of course, some credibility accrued to us in the firm. And then we were able to raise a fund and now we do both. But there are different styles here, right? There are people that use it just for Paratus. For very large rounds. There are people that use it for very early stage Angel rounds like ourselves, there are certainly a lot of different models for utilizing sidecars.

23:55
Yeah, I think that the flexibility and the newfound love of SPVs is driving a lot of people to think about things differently on how they can use it and how they can change their investing thesis is and philosophies and behaviors. And when I ran the Utah fund to funds just we’d see a lot of first time funds. And just like kind of a first time CEO, you’re really you’re selling a promise you’re selling a dream. And just like a CEO that can can show revenue, that really gives credibility, just like that. And early stage venture capitalists that wants to do funds can start with SPVs deal by deal proving out that they can get deal flow, they can evaluate them that they can pool interested in individuals, and then move forward from that. And yeah, there’s just a lot of optionality with the structures.

24:47
So Jeremy, you had mentioned fees a bit when we were discussing the last question, can we get an overview you know, what are the fees associated with spinning these up? And then are the lead invest There’s people like myself, do they make money upfront? Or their initiation fees, management fees broker fees? How does that work?

25:07
Yeah, again, there’s it depends and variability and options here, but I’ll just give you kind of the typical. So at a sure our kind of base typical SPV that groups like yourself would use, we charge one time for seven plus years worth of work. And that includes, you know, setting it up documents, onboarding investors using our technology platform, security filings, Form DS, do a bank account for the deal if needed, you know, post close activities, distributions, shut downs, if there’s a bankruptcy, or an IPO, or m&a or whatever that is, file distributions, final K ones, shutting down the entities, again, cradle to grave whole thing, don’t need to worry about paying any more money, we’re gonna take care of it for you. We have a large team and lots of services. So if someone wants to bolt on additional services, like financials or they want to invest in real estate, and it has a lot of distributions every month, you know, so we can bolt those on, price goes up, but still all very manageable, known predictable, typically, managers of SPVs, don’t take management fee. And so there really aren’t a lot of fees that go towards the organizers. We’ve seen some clients will take a few few $1,000 for themselves, or a little bit here and there. But for the most part, there’s not very, some very common to see a management fee or things like that, we always counsel our clients to be to be thoughtful. The SEC is party to this stuff, you know, when we’re doing SPV, we are selling securities according to the SEC. So staying compliant, not taking commissions when you’re not registered as a broker dealer, or you know, not taking management fee if you’re not registered, just need to be careful, it’s a service assured provides as well as part of our cradle to grave service is helping our clients get registered with the SEC. And so overall, just need to be careful with taking fees. But typically, there’s a one time fee to assure and then maybe there’s some other fees to a few other providers. And then we let the SPV ride and see how the company does.

27:29
Yeah, I think that’s that’s part of the reason why the model worked so well for us, because you guys assess a one time upfront fee for many, many years of admin and management, which was a big relief, because in a lot of these situations, if you’re trying to do SPVs, will with law firms or outside, you’re gonna have yearly fees that come up, and surprises and and that can get out of control. So the one time fee was was a nice advantage. I think it’s probably worth noting too, that that fee can come out of the total raised investment amount, right. So if we put together $200,000 SPV, then that initial fee to assure comes out of that investment amount, and the rest goes into the startup. So that that makes the process a little more clean and easy for us. Yeah,

28:20
that’s right. What we tell our clients is, we don’t care who pays us, we just want to be paid. And what we mean by that is you can come out of the amount raised, you can go into your pocket and pay it sometimes like Angel groups will take annual fees, and then they pay us out of those fees. Occasionally, they’ll have the CEO pay for it. But how you described it, Nick is how most of our clients go about it, that the investors that are pooling their funds together, a small portion of that will go to pay for the admin, which to me makes sense, right? You go into a venture fund, you’re going to be paying a fee, you go and other private transactions, you’re going to pay a fee. There’s just a very reasonable one time fee with assure and throwing a few bucks and everything’s taken care of. So Jeremy,

29:08
in this model, you’re providing members, investors with specific rights such as redemption voting, in some cases, pro rata. Talk about the member rights in the effects, associated parties, you know, from the investor’s standpoint, are there any issues or risks associated with providing these rights and what’s your opinion on how they should be handled?

29:31
So the rights are obviously a big part of the value for SPVs. As you pull money together, you are larger allocation and getting rights with the startup company, or is a big value pro rata rights information. REITs investors into SPVs obviously need to trust their syndicate lead and their their interests are aligned and that they’re going to vote in a way that increases the value of that investment. So there’s kind of two sets of REITs. There’s the REITs, with the startup company. And then there’s REITs. Within that SPV, that SPV has a set of fund Doc’s that will outline the relationship between the members. There are some REITs within there, as well. Again, those can be variable, they can be changed. And it’s really about how the syndicate lead wants to run their deals and run their SPVs. And what they want to provide to their partners and their investors. But when our clients do SPVs, and they want to do a lot of them, these types of documents need to get standardized. And one of the reasons why I sure can do it does is because we work really hard at the front end to get our clients set up with a set of documents and a process and a structure that works and can be repeated quickly. Any client that wants to kind of redraft docks and have a lot of input from investors every single time they do a deal. I sure can do that we’ve done that. But it just it turns the engine off. Every time you do that, it just really resets the structure in the process in the SPV engine, and it becomes that’s that’s where it becomes expensive, right? Like, that’s where lawyers make their money. And that’s where lawyers are great is when you want to have a lot of customization, which we don’t believe is necessary, we believe that for for this, this marketplace and for private transactions to move forward. And to continue to see a democratization of investing and for startup companies to be able to get access to capital that’s interested in investing in them. You can’t have lawyers customizing every paragraph every time there’s a deal, you really need to just get to a happy place and and do deals.

31:51
Got it? Yeah, I’ve heard critiques from some of the VC community that will say lead investors that are running these SPVs are passive, they’re not strategic. The company, the startup, for instance, should have pursued more active investors more strategic investors. What are your thoughts on this? What’s your opinion on, you know, an SPV leading around? And do you have any advice for those that are raising capital?

32:18
Yeah, you know, an SPV is a legal structure. Nothing more, we’ve kind of covered that a VC Fund is a legal structure, nothing more. And both an SPV and a VC fund have nearly identical legal structures. So I think what’s being asked or said is the question is that those syndicate leads that use SPVs don’t provide active strategic assistance as though they invest to those that they invest in. I would completely disagree with this. You know, I was I’ve been in the VCP PE world for 15 years and have done visit with over 1000 venture capitalists and done due diligence on hundreds of funds. And when you do due diligence on funds, you end up calling the CEOs and say how impactful how helpful how strategic, is this a VC group or manager that is adding value. And many, many, many times the report back is that the VC is not active, they’re not strategic, they’re not helpful, and many times it’s hurtful. And it’s been my experience through raising a round of financing through our clients for sure. And talking to CEOs and startups and our clients that some of the syndicate leads in the marketplace right now are the most strategic and most helpful of anybody. It’s, it has nothing to do with the structure SPV or VC has everything to do with the lead. And you can find a strategically that’s passive, and you can you definitely find VCs that are passive. So CEOs need to pick that partner, that finance partner that they want, and it can be helpful. And if they want someone really passive, then go find one. If you don’t then find someone that’s active. Yeah,

34:01
it’s much more about that the person or the entity leading the investment or, or making the investment less less so about the structure. We’re definitely in sync on that. So Jeremy, there are other platforms out there offering SPV as a service, you know, syndication as a service platforms that you’ve powered on the back end, like AngelList and seed invest. Why would a lead investor like myself, use one platform over the other?

34:28
I think there’s some different reasons and try not to speak for different groups, but different platforms have different strengths and weaknesses. Some have broker dealers that allow them to raise certain money from large family offices. Others just use SPVs. Some do funds, they’re all they’re all kind of have their own flavor. And you really need to figure out which one works for you. They also have different networks. They have you know, like you mentioned that the the syndicate members can be very helpful. to a startup company, when it comes time to ask me for help, advice, introductions. And so maybe one platform has a certain type of group or investors that you’re interested or not interested in. But when talking to our clients, when they come to us direct and say, you know, I was on a platform or I write, I tested a platform, or I talked to a platform, I great team, but I’m more interested in going just directly with a sure, the things that they tell us is sometimes platforms are requesting or requiring a portion of the carry to go to them. And they don’t want to share their carry. Sometimes they have a narrow investment mandate, where, you know, they say, if you’re doing investments into startups, then great, but if you want to do an opportunity fund, or a cannabis deal, or a crypto deal or a secondary deal, you can’t be on the platform. So they they don’t want a bounce, they just want one place that can do all transactions. And at a sure we take and do work with every asset class. And then a kind of a final one is, is the knowledge and reliability at assure, you know, we have the most knowledge, I believe in the world when it comes to the structures. And our knowledge is top to bottom. So we’re at assure we’re a one stop shop. So we have knowledge on the tax. We have knowledge on the financials, we have knowledge on the post close and everything we provide a banking solution. So if you need a question answered, clients end up calling assure to get that answer because most platforms are great, but they’re building a software overlay onto the back of assure and assures that engine. So we really are the experts. They’re providing value, but they don’t necessarily have the knowledge and depth of experience at Usher has

36:52
got it in. You guys also have fun administration product or service for venture capitalists for private equity funds. What does that entail? And how is that different than admin at the SPV level?

37:09
Yeah, so we do have a traditional venture capital fund administration service, we do work for over 160 funds. This This product is similar to others in the marketplace. But what differentiates us sure is that we have that one stop shop. So we have the front administration, we have the SPVs. We have the tax, we have the compliance, which tends to be KYC, AML 506, C accreditation, form D blue skies, and the exempt reporting advisor filings. So we have we have everything here in house as a one stop shop. A lot of our clients want to do SPVs alongside their funds, kind of kind of like you described. And so they don’t want to bounce between administrators. And they just all wanted it in one place. There’s also a real difference between traditional fund administration and SPV administration, traditional fund administration is all about accounting. It’s about books, financials, bank account reconciliations, audit, support, capital account statements, and the teams are tend to be filled with CPAs and accounting experts. When you do SPV administration, it’s very much legal. So it’s documents, its security filings, its compliance, its subscription doc review, its post close activities, which is all about documents, corporate actions, bankruptcies, ABCs, mergers and acquisitions. IPOs. So what assure we have a complete team that is filled with Juris Doctorate graduates and their team. And then we have a complete team of fund admin that’s full of CPAs and fun accountants.

38:55
Got it. Jeremy, if we could cover any topic here on the program? What topic do you think should be addressed? And who would you like to hear speak about?

39:03
It would be interesting to talk about would be the impact of networks on investing ecosystems. So think of yourself, Nick and being in Chicago. And you would probably know a number of the players, the impact of those networks and how they basically change ecosystems by you starting new stack in Chicago, you starting to do deals in Chicago, the impact of that, along with other individuals in the ecosystem is a fascinating conversation. So there’s a professor at the University of North Carolina named Ted Zoeller, and he does his research on on networks and how they impact ecosystems. I think that’d be fascinating.

39:48
Interesting, interesting. Yeah, I host this very informal breakfast for founding partners of emerging VC firms in Chicago. When I first put it together, I thought Maybe there was about eight of us. And it turns out, there’s 28, you know, lots of different funds doing very specific things in very specific areas. But I was noticing the other day, we just had a gathering last week, how many deals are being shared across this group. And we had a special guest from the fund to funds community. And his comment was that this would never happen in San Francisco, this group would never come come together and be so collaborative, everyone there is a little more Doggy Dog and competitive. So to your point, I think it’s, it’s interesting to see how these ecosystems evolve, and how just an informal network of investors ends up coming together to really put together a lot of deals and some of the great startups in the greater Midwest, you know, part of that is having the right investment team behind them.

40:45
I was just gonna say that I think that we are seeing some of these, quote unquote, flyover states are full of great investors, intelligent individuals, and many times great startup companies and groups like yourselves, and being able to use SPVs, and micro nano VC funds structures, I think can really be impactful for these communities, you know, governments around the Utah fund of funds. So governments are constantly trying to figure out how to benefit their communities. And those are all great ideas. But I also think that the changes in structuring and flexibility they offer can also play a really big role in helping other communities start to grow their ecosystems, a

41:29
grid, Jeremy, what’s the one thing you know, you need to get better at.

41:35
So at a sure, we cannot move fast enough, the marketplace is extremely hungry for our services, our products, and the innovation that we are very much interested in. And so we need to get better, continually getting better at moving faster, being responsive to the ideas of our clients, the wants and desires of our clients, and provide them with the products and services that continue to move this, this ecosystem and the investing community forward. And so we we can never be too fast at read being responsive to the marketplace.

42:17
Get one. Jeremy, you’ve spent quite a bit of time as an investor yourself. What investor has influenced you most?

42:26
I would say that prior to us launching a sure Foundry Group that’s Brad Feld and Jason and in his team, what I really loved about Foundry Group, we’re an investor and their fun one is the confidence they had in the marketplace. When they when they came and spoke with me at the Utah fund of funds. They were different than most VCs. And I’ll describe what I mean by that is they came in and said, We’re thematic investors, we know exactly what we’re looking for. We know exactly a good deal when we see it. And when we find it, we do the deal. We don’t care if there’s co investors, we don’t care if we lead the whole round. We don’t care what stage they’re at. We know what we’re doing. We’re very, very smart in these themes. And when we find a deal, and it hits the things that we’re looking for, we just move. And that was extremely impactful for me because talking to so many venture capitalists. There was just so much kind of, we follow we do co invest. We have other friends and partners, and I just really liked the confidence and that carried over when I after starting assured Jason Calacanis. Now, he’s a big personality. And he speaks a lot and tells the world about his philosophies. But it’s very similar, right? He has confidence in his. And he spent a lot of years developing it, spending a lot of time investing, making those decisions, having wins and losses, just his confidence around. I know what I’m doing when I find it, and make those investments. And we roll the dice and see what comes.

44:12
Love it. Love it. We’ve had both Brad and Jason on the program and yeah, no lack of confidence and conviction in their investments. And then finally here, Jeremy, what’s the best way for listeners to connect with you?

44:24
So we’re obviously on Twitter and LinkedIn where they can email me at jeremy@asscher.co love to love to hear from anybody. Well,

44:33
the man is Jeremy Nielson, they have powered over 4300 SPVs and 2.5 billion in assets under management, assure fund management. Thank you so much for your time today. Jeremy given us an overview of how this whole ecosystem and SPV environment works.

44:52
Thank you. I enjoyed being here with you.

44:59
That will wrap Pull up today’s episode. Thanks for joining us here on the show. And if you’d like to get involved further, you can join our investment group for free on AngelList. Head over to angel.co and search for new stack ventures. There you can back the syndicate to see our deal flow. See how we choose startups to invest in and read our thesis on investment in each startup we choose. As always show notes and links for the interview are at full ratchet.net And until next time, remember to over prepare, choose carefully and invest confidently thanks for joining us