Why Are Top Startups Blocking SPV Investors?

Alex Heath asks why leave deal-by-deal vehicles, where limited partners could see each company, for a fund. Alex Davis says this is the first real fund. Large special-purpose vehicles were a different market in 2012. A decade of groups that call themselves family offices, some with hundreds of investors, has made it hard for a company to know who is actually on the cap table.

A company that is 10 times oversubscribed, and that could take $10 billion, would rather take the money from a discretionary fund than from vehicles it cannot identify. He also treats the structure as a regulatory problem. Managing over $150 million is one line at which a firm can be an exempt reporting advisor, and some groups under a threshold have raised for a great company, Anthropic in a recent round among them, without it being clear the capital was deployed. The company wears the black eye. Databricks and other companies have been direct that this kind of investor should not be able to do it. Committed capital from a known set of partners is what those companies want. A firm that can invest only through these vehicles gets blocked over time, and the great companies take discretionary money instead. That is adverse selection, and the fund is how Disruptive got ahead of it.