VCs are selling shares of hot AI companies like Anthropic and xAI to small investors in a wild SPV market

Small investors access AI companies via SPVs, facing varied fees and risks.

: Smaller investors are buying shares in leading AI companies through special purpose vehicles (SPVs) despite the varied fees and risk, capitalizing on their inability to invest directly. These SPVs pool money to buy shares from early investors or during primary funding rounds, sometimes adding layers of SPVs to increase access and fees. The market experiences high variability in terms and conditions for these investments, prompting concerns over transparency and investor protection.

In the rapidly growing investment area of AI technology, smaller investors including family offices and high-net-worth individuals are finding opportunities through the use of special purpose vehicles (SPVs). These investment entities allow them to pool funds to secure shares in high-demand AI startups like Anthropic, Groq, and Elon Musk’s xAI, where direct investment opportunities might not be available. SPVs are particularly appealing as they enable participation in lucrative markets otherwise dominated by bigger venture capital firms and allow for investment in shares during primary funding rounds alongside major investors.

However, the use and management of SPVs can come with significant variability in the fees charged and the profit shares (carries) expected, with some charging as high as 2% of the invested total and taking up to 20% of the profits. Furthermore, SPVs are sometimes layered, where shares are purchased by one SPV and then portions are sold off to another, potentially compounding fees and diluting transparency. These practices lead to a complex investment landscape where terms and conditions could vary widely from one SPV to another, often leaving investors to navigate a 'wild west' market atmosphere.

Despite the attractiveness of this investment route, there are risks associated with the non-traditional structure and lack of direct company engagement. Investors in SPVs often do not receive detailed information about the operations or financial health of the companies they are invested in, which can result in higher risk levels compared to direct investments. The recent increase in the number of SPVs and re-emergence of high-risk investment behaviors reminiscent of the years preceding the 2020s financial issues have raised concerns among market observers about investor protection and the sustainability of such investment practices in the hot AI market.