SPV, Fund or Co-Invest: Choosing the Vehicle

A special purpose vehicle, a pooled fund and a direct co-investment can hold the same shares in the same company, yet each answers three legal questions differently: which Investment Company Act exclusion the issuer relies on, which Regulation D exemption covers the offering, and whether the manager needs an adviser exemption at all. Fees, control, reporting and exit follow from those answers, so the vehicle is a legal choice first.

01The Three Structures

A pooled fund takes commitments from many limited partners, calls that capital over a commitment period, and builds a portfolio its general partner selects. The model limited partnership agreement term sheet published by the Institutional Limited Partners Association (ILPA) drafts a commitment period ending on the fifth anniversary of the initial closing and a ten-year term with two one-year extensions, each figure bracketed for negotiation.

A special purpose vehicle (SPV) is a pooled issuer formed to hold one position. It can carry an allocation larger than a single fund may hold in one company, or give an investor exposure to one company without a blind-pool commitment. The structure has grown quickly: investors formed and managed 1,719 SPVs on one administration platform between 2021 and 2023, up 198 percent on the prior three years, and the same data set notes that one investment instead of many forgoes the diversification a fund provides. In a clinical-stage therapeutics or diagnostics company, one readout or coverage decision then sets the outcome for every holder.

A direct co-investment places the security in the investor's own name, bought in the company's own financing alongside a lead fund. The label is loose in practice. The SEC examination staff refers to investments made by coinvestment vehicles and other coinvestors, and a co-investment routed through a vehicle is an SPV for every purpose discussed below. Only the direct form removes the pooled layer.

02The Vehicle Comparison

The table sets the three structures against nine attributes. Each figure is a cited market convention or a statutory or regulatory term, and none describes the terms of any particular sponsor.

03The Investment Company Act Exclusion

An issuer that is engaged primarily in investing in securities, or that holds investment securities worth more than 40 percent of its total assets, is an investment company under Section 3(a)(1). A fund and an SPV both meet that description, so each needs an exclusion. Section 3(c)(1) excludes an issuer whose securities are beneficially owned by not more than 100 persons, or 250 for a qualifying venture capital fund, and which makes no public offering. Rule 3c-7 sets the qualifying venture capital fund ceiling at $12,000,000 in aggregate capital contributions and uncalled committed capital.

The look-through in Section 3(c)(1)(A) is the trap for SPVs. A company holding 10 percent or more of the issuer's outstanding voting securities counts as one owner unless it is itself an investment company or relies on Section 3(c)(1) or 3(c)(7); then each of its own holders counts. A pooled vehicle with 80 investors that takes such a stake in an SPV with 30 other members produces 110 beneficial owners, and the SPV no longer qualifies.

Section 3(c)(7) removes the count and requires that every owner be a qualified purchaser at acquisition. Under Section 2(a)(51), that means a natural person owning not less than $5,000,000 in investments, or an entity investing on a discretionary basis not less than $25,000,000. The holder ceiling then comes from Exchange Act Section 12(g), which triggers registration at 2,000 holders of record, or 500 who are not accredited investors, for an issuer above its asset threshold.

A direct co-investment has no pooled issuer between the investor and the company, so the exclusion question does not arise at the investor's level.

04The Offering Exemption

Every fund and every SPV is a separate issuer making a separate offering, and each files a notice on Form D no later than 15 calendar days after its first sale under Rule 503. Rule 506(b) places no limit on accredited purchasers and allows no more than 35 other purchasers in any 90-calendar-day period, each of whom, alone or with a purchaser representative, must be capable of evaluating the investment. A purchaser who is not accredited must receive the disclosure specified in Rule 502(b) a reasonable time before sale.

Rule 502(c) bars a Rule 506(b) issuer, and anyone acting for it, from general solicitation or general advertising, including any advertisement, article or notice published in a newspaper, magazine or similar media. The SEC staff treats a pre-existing, substantive relationship with the offeree as one means, not the only one, of showing the absence of general solicitation, and in Compliance and Disclosure Interpretations 256.26 and 256.29 it requires that the relationship exist before the offering begins. Because each SPV is a new offering, a relationship first formed while a given SPV is being offered cannot support that offering.

Rule 506(c) permits general solicitation on two conditions: every purchaser is accredited, and the issuer takes reasonable steps to verify that status. The Commission listed the terms of the offering, including a minimum purchase amount, among the verification factors in Release No. 33-9415. Interpretation 256.36, issued on March 12, 2025, states that an issuer requiring a high minimum purchase in cash, with no contrary knowledge and confirmation that the money is not financed by a third party, may conclude that it has taken reasonable steps.

A direct co-investor buys in the company's own offering, under whichever exemption the company claims.

05The Adviser Exemption and Carried Interest

Two federal exemptions matter most to managers of funds and SPVs. Rule 203(l)-1 defines a venture capital fund as a private fund that represents a venture strategy, holds no more than 20 percent of its capital in non-qualifying assets, limits leverage to 15 percent for no more than 120 days, and offers no ordinary redemption rights. A qualifying investment is equity acquired directly from the portfolio company. Shares bought from existing holders are non-qualifying, so an SPV built around a secondary block larger than 20 percent of its capital falls outside the definition.

Rule 203(m)-1 exempts a United States adviser that advises solely qualifying private funds and manages less than $150 million in private fund assets, measured annually. Either way the manager files reports on Form ADV as an exempt reporting adviser under Rule 204-4.

Carried interest brings in Section 205(a)(1), which bars an adviser registered or required to be registered with the SEC from compensation based on a share of capital gains. Rule 205-3 lifts the bar for qualified clients, and for a fund relying on Section 3(c)(1) the rule treats each equity owner as a client. Under the Commission's order effective August 16, 2021, a qualified client has at least $1,100,000 under the adviser's management or a net worth above $2,200,000, excluding a primary residence; a qualified purchaser also qualifies. Section 205(b)(4) excludes contracts with Section 3(c)(7) issuers altogether.

An exempt reporting adviser is neither registered nor required to register, so the federal bar does not reach it by its terms. State law can. The model private fund adviser rule of the North American Securities Administrators Association conditions its exemption, for a Section 3(c)(1) fund other than a venture capital fund, on every beneficial owner meeting the Rule 205-3 qualified client definition and on annual audited financial statements.

Tax treatment adds two timing points. Under Section 1061, gain on a carried interest counts as long-term only after a three-year holding period, which matters in a single-asset vehicle that exits early. Under Section 1202(g), qualified small business stock gain passes through a partnership only to a partner that held its interest on the date the vehicle acquired the stock and at all times afterward. A direct holder faces no such pass-through condition.

06Governance, Information and Exit

A limited partner in a Delaware partnership is not liable for its obligations unless it is also a general partner or participates in control of the business, subject to the qualifications in Section 17-303. Its information right under Section 17-305 runs subject to reasonable standards the partnership agreement may set, so the agreement defines what an SPV member actually receives. A direct stockholder of a Delaware corporation relies on the inspection right in Section 220 and on whatever information rights it negotiated with the company.

Allocation is the governance point that touches all three structures at once. The SEC's examination staff reported advisers that agreed to provide co-investment opportunities to certain investors without adequate disclosure to others, in its June 23, 2020 risk alert. ILPA Principles 3.0 asks general partners to disclose in advance, in the offering documents and the partnership agreement, a framework for allocating co-investment opportunities, interests and expenses among the fund and co-investors.

Exit differs most in who decides. A general partner times each sale within the fund term; an SPV ends with its single company's liquidity event; a direct holder decides for itself within the company's transfer restrictions. In healthcare growth equity, where value often turns on a regulatory or reimbursement milestone, control of timing can matter as much as any fee line.

07Frequently asked questions

Does an SPV need its own Investment Company Act exclusion?

Yes. An SPV is an issuer engaged primarily in holding securities, so it relies on Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act in its own right. Under Section 3(c)(1)(A), a vehicle that itself relies on Section 3(c)(1) or 3(c)(7) and holds 10 percent or more of the SPV's voting securities is counted through to its own holders.

Can an SPV be marketed publicly?

Only under Rule 506(c), which permits general solicitation if every purchaser is accredited and the issuer takes reasonable steps to verify that status. An SPV offered under Rule 506(b) is bound by the Rule 502(c) prohibition on general solicitation and general advertising.

Is a co-investment vehicle the same as a direct co-investment?

No. A co-investment vehicle is a pooled issuer, so it raises the same exclusion, offering and adviser questions as any SPV. A direct co-investment places the company's security in the investor's own name, bought in the company's own offering.

Nothing in this piece is investment, legal, tax or accounting advice, and nothing in it is an offer to sell or a solicitation of an offer to buy any security.