SpaceX makes its public debut on Friday and some investors who backed the company through special purpose vehicles (SPVs) still don’t know how many shares they’re entitled to or whether they’ll get any shares at all.
Investing through SPVs, where multiple parties pool their money to invest in a single company, has been around for a while. But SpaceX represents an unprecedented case of an IPO with multiple layers of these vehicles. Since demand for SpaceX allocations has been so high in recent years, investors in an SPV have occasionally formed a new SPV from their shares, creating a structure sometimes stacked four or five layers deep.
SpaceX will be the first major test of the legitimacy of multi-layer SPV. In recent months, Anthropic and Anduril have announced that they are disallowing these structures.
Nearly a dozen SPV managers and secondary market investors who spoke to TechCrunch said that backers in lower-tier vehicles might find they own fewer shares than they think or, in rare cases, that they may not receive any shares at all.
In most situations, these investors won’t learn how many SpaceX shares they actually own until the company’s rolling lock-ups, scheduled to take place over about four months, begin to lift. That’s because SPV managers won’t begin distributing shares to investors in these vehicles until they get access to the shares themselves, sources told TechCrunch. Lock-up agreements prevent insiders, including employees, their friends and family, and venture investors, from selling shares for a set period after an IPO to prevent excessive selling pressure on the stock.
The first-layer SPV will have 30 days to distribute stock to its investors, said Justin Ernest, founder and managing partner of Sabertooth Capital, a firm that invests primarily in first-layer SPVs. Consequently, the next layer down likely won’t get its shares for as long as 30 days, meaning the vehicle below that must wait even longer to deliver stock to its own backers. For the final disbursement, the bottom SPV layer may have to wait eight or nine months, Ernest estimates.
A secondary investor, who asked to remain anonymous, told TechCrunch that some investors in “messy” multi-layered SPVs will be surprised to learn that some of the shares they expect to get will be “eroded by fees” pocketed by the SPV.
Ideally, the SPV manager communicates with the investors in their vehicle from the IPO date on. “Problem is you have a communication train with each person only knowing what’s going on in the layer above them,” the secondary investor said.
In short, the structural ownership of these vehicles has become so highly convoluted that even the best-intentioned SPV sponsors may end up inadvertently misleading their investors.
The biggest concern for downstream SPV investors is that they may not get any shares in SpaceX.
Giovanni Pennetta, the manager of Sestante Capital, was recently sentenced to four years in prison for fabricating access to non-existent allocations in the defense tech company Anduril.
The fear, of course, is that Pennetta is not the only deceptive sponsor out there. Investors at the bottom of these structures essentially had to confirm that every single manager above them was legitimate. But given the messy structures of these deals, it’s likely some buyers didn’t vet the entire chain.
“A friend just shared in confidence – they bought SpaceX through a 2 layer SPV in 2021. The returns are supposed to be worth any fees, the only problem – the SPV manager stopped responding to emails or calls,” Nick Davidov, founder of venture firm Davidovs Venture Collective, posted on X last month. He wrote that the investor hasn’t heard from the SPV manager for a year.
Idan Miller, managing partner at the secondary market Unicorns Exchange, is convinced that a few other bad actors will be revealed once lock ups expire.
“Once the lock up of the shares is removed, and these SPVs will start selling the shares, there will be some vehicles that will be revealed as scammers or fraud,” Miller told TechCrunch.
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