Comparing SPV structures in private market investing

Special purpose vehicles (SPVs) enable a group of investors to pool their funds into one investment. They also comprise an increasingly core pillar of the private secondary market.

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Let’s break down everything to know about SPVs, their fee models, and their implications for accredited and retail investors alike.

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What is an SPV?

An SPV is a legal entity created to pool capital from multiple investors for a single investment opportunity, often a private company. Common use cases include direct investments into startups, sidecar vehicles alongside larger VC funds, and joint ventures. 

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Some emerging platforms leverage SPVs to enable non-accredited investors to invest in fractional shares of privately held firms for a smaller upfront cost than buying actual company stock. One example, MicroVentures, requires a minimum investment of just $100. 

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Contrast that with Augment*, which allows users to buy and sell full shares of startups and other pre-IPO companies, but is only available to accredited investors. The former approach comes with unique benefits — but also drawbacks.

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Advantages and disadvantages of SPVs

SPVs provide several possible benefits for investors. These include:

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• Simplicity: SPVs maintain a narrow focus on a single investment, reducing complexity in portfolio management.
• Lower Costs: By pooling together funds, individual investors may be able to invest less in an asset with high growth potential, while accessing the same exposure. 
• Isolated Risk: Since each SPV is legally distinct, any financial or legal issues would be confined to that vehicle, protecting broader portfolios and reducing exposure.
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However, there are disadvantages to the SPV structure, as well. To name a few:

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• Concentration: The flipside of simplicity is a lack of diversification. SPVs are typically raised to invest in one company, making them less diversified than a typical fund.
• Lack of Rights: A shareholder of a company may have certain rights, such as a say in the company’s direction. An SPV investor does not. 
• Lack of Access: SPVs are managed by a single owner, meaning investors also do not have direct access to the companies in which they are investing. 
• Fees: SPV managers may charge fees, which can ultimately make investing in an SPV less cost-effective than buying stock directly. 

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SPV structures

The two most common legal structures for SPVs are limited liability companies (LLCs), the standard for U.S.-based deals, and limited partnerships (LPs), often used when working with institutional investors. SPVs can also take the form of joint ventures (JVs) or offshore SPVs.

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Comparing SPV fee models: 2/20 vs. 0/0

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What is the 2/20 structure?

The 2/20 model is one of the most common SPV fee structures, particularly for larger or more complex deals. In this structure, fund managers charge a 2% annual management fee on committed capital and take 20% carried interest (“carry”) on profits above a certain threshold.

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What is the 0/0 structure?

The 0/0 model, more common for smaller deals, includes no management fee and no carried interest. In lieu of traditional fees, managers may negotiate alternative incentives, such as taking a portion of the equity or future profits.

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How fees impact investor returns

Fee structures play a key role in determining net returns for investors. 

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Carried interest mechanics

Carry is only earned after investors receive their initial capital back, along with a “preferred return” or “hurdle rate”, which is typically in the range of 6% to 8%. Once the hurdle is cleared, profits are split. 

In the case of the 2/20 model, the SPV manager receives 20% of the profits following the preferred return. The other 80% is shared by the individual investors.

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Management fees and cost considerations

Management fees typically cover SPV setup, compliance, legal, and administrative work. These extra costs may reduce returns, if not offset by upside. 

Understanding SPV fee structures and incentives for spv management and tax treatment

Fee structures for special purpose vehicles (SPVs) are a core driver of behavior and costs in cost-effective management of recurring SPV deals; they typically include one-time setup fees, ongoing management or administrative fees, carried interest or performance fees, and reimbursable expenses tied to compliance, legal structure, and jurisdictional requirements. Leads should design fees to align sponsor incentives with investor returns—minimizing fixed overhead where possible, using transparent percentage-based or capped fee models, and leveraging SPV platforms or standardized legal entities to reduce per-deal costs. Tax treatment and cross-border considerations materially affect net returns and administrative burden, so fee-setting should account for withholding, VAT/GST, and local filing obligations while preserving operational efficiency and clear reporting to investors.

How leads should think about fee-setting

• Align incentives: prefer fee models that reward realized returns (carry) and minimize extraction from gross deal value to keep interests aligned with investors.
• Prioritize transparency: disclose setup, ongoing, and pass-through costs upfront, with clear allocation for legal, tax and compliance expenses.
• Choose fixed vs percentage wisely: fixed fees can aid budgeting for predictable recurring SPV deals, while percentage-based fees scale with performance—consider hybrid or capped arrangements.
• Leverage platforms and standard legal structures: using an SPV platform or standardized legal entities lowers marginal costs and speeds repeat deal execution.
• Account for jurisdictional tax impacts: build expected tax treatment and cross-border compliance costs into fee modeling to avoid surprise net-return erosion.
• Cap administrative fees and reimbursements: set reasonable caps or benchmarks for third-party expenses and legal costs to keep deals cost-effective.
• Bundle discounts for repeat deals: negotiate platform or counsel discounts when running multiple SPVs to capture economies of scale.
• Maintain reporting and auditability: ensure fees and expense allocations are easily reportable to satisfy investor due diligence and regulatory compliance.
• Benchmark regularly: compare your fee structure against other SPVs, SPV platforms and traditional fund alternatives to maintain competitiveness.

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The bottom line

Special purpose vehicles have become a mainstay of private market investing, thanks to their often-low upfront costs and potentially high pay-offs. SPVs provide a wider pool of investors with exposure to unique assets. But they also introduce additional considerations, such as management fee structures. 

Ultimately, the right private investment vehicle depends on each investor’s goals, risk profile, and expectations. Meanwhile, the secondary market grows stronger and more robust with each new means of accessing it. After all, a rising tide lifts all vehicles, special purpose or otherwise. 

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*Augment Markets, Inc. is a technology company offering software and data services with securities-related services offered through its wholly-owned but separately managed subsidiary Augment Capital, LLC, Member of FINRA/ SIPC.

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Important Disclosures: This material has been prepared for informational purposes only. None of the information provided represents an offer or the solicitation of an offer to buy or sell any security. The information provided does not constitute investment, legal, tax, or accounting advice. You should consult with qualified professionals before making any investment decisions. Investing in private securities involves substantial risk, including the potential loss of principal. Private securities are typically illiquid, have limited pricing transparency, and often require longer holding periods. These investments are available exclusively to qualified accredited investors and offer no guarantee of returns. Additionally, past performance of private securities does not indicate or predict future results.

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