Single-Asset Funds and SPVs

When you want to buy stocks in a public company, you can (generally) just log in to your brokerage of choice, make a few clicks, and voilà — you’ve got equity. But if buying on the public market feels like a walk in the park, then investing in the private market can often feel like a marathon without directions or a map.

One route is investing via a fund — or more precisely, a single-asset fund.

What Is a Single-Asset Fund?

A single-asset fund is a fund formed to allow a group of investors to pool their capital and make a single investment in a specific company.

Before putting your money into a single-asset fund, you’ll already know what company it’s investing in — so you can choose funds that are investing in the companies you want. In that way, investing via a single-asset fund is more similar to direct investing than to, say, joining a VC fund, where the fund makes multiple investments into multiple assets, and you don’t have any say in what those investments are.

What Does a Single-Asset Fund Do?

Single-asset funds are formed by people who know they want to invest in a specific company. The fund then collects money from accredited investors. All capital is called upfront before the investment is made.

When you invest in a single-asset fund, you become a member of that fund. Each member in the fund has a membership interest corresponding to the size of their investment. So if you invest $5,000 into a single-asset fund that ultimately raises $100,000, your membership interest is 5%.

Once the fund has raised its full amount, it sends the money to the seller from which it is purchasing shares. After that, as far as the target company is concerned, the fund is just like any other investor on its cap table.

On your end, too, your fund investment functions much like any other investment because single-asset funds are structured as Delaware Limited Liability Companies (LLCs): gains and losses are passed through the fund to its members in proportion to their membership interest.

What does that look like in practice?

Successful Exit

If the startup has a successful exit (acquisition, merger, or IPO) at a price higher than what the fund paid for the shares, the fund will receive proceeds in the same way that any shareholder would. Those proceeds are then passed through to the members in proportion to their membership interest, and members each pay their own capital gains or other applicable tax. So, if the company your fund invested in doubles in value between the fund’s purchase and the exit, your $5,000 will turn into $10,000. Of course, if the company exits below the purchase price, the loss is likewise passed through.

Liquidation Event

If the startup has a liquidation event that is not a “successful” exit (e.g. bankruptcy, restructuring, or major asset sale), and the fund has a liquidation preference that allows it to get some of that payout, you may get back some amount that is less than your original investment — again, in proportion to your membership interest. Or, like with any startup investment, if the company’s liabilities exceed its assets at the time of liquidation, you won’t get any money back.

What Is a Single-Asset Fund, Legally?

Single-asset funds are set up as legal entities, most commonly LLCs. LLC stands for “limited liability company,” because the members of the LLC — in this case, the investors in the single-asset fund — aren’t held personally responsible for the LLC’s debts or liabilities. That means that when you invest via a single-asset fund, your downside risk is generally limited to the amount of money you invest. Typically, the worst that can happen is that your entire investment goes to zero.

Every single-asset fund has governing documents that lay out the terms of the fund, covering things like voting rights, fees, and more. No two funds have the exact same terms.

The terms of the single-asset fund are set by the fund organizer (sometimes known as a fund manager). This is the person or firm that sets up the fund, sources the target investment, works with investors in the fund, and acts as the point of contact with the company you’re investing in.

Why Should I Use a Single-Asset Fund?

At this point, you might think that single-asset funds complicate things, and you’d be better off investing in companies directly. In some cases, that might be the right choice. However, single-asset funds can actually make investing easier and more accessible.

At Mirai Capital, our platform allows you to buy shares directly from private companies. But we also offer single-asset funds for the most sought-after names — because doing so opens up those investments to a lot more people.

Single-Asset Funds Let You Access More Opportunities

Private investment opportunities often have a high minimum transaction size that most accredited investors can’t meet on their own. This is especially true for later-stage investments, since later-stage companies have typically reached higher valuations.

High investment minimums make good sense on the company’s side — when a startup is fundraising, accepting small checks would cost them extra in legal fees, not to mention being an administrative burden. Private companies typically also want to avoid having a large number of shareholders. But as an individual investor, high minimums often mean you’re shut out of deals.

Single-Asset Funds Have Lower Investment Minimums

High investment minimums make it harder to diversify your portfolio — which is a big problem when you’re investing in startups since most startups fail. Depending on your goals, some of the existing minimums might be a lot of money to invest in a single company, and you might feel that money would be better spent hedging your bets across a range of other investments. But all else equal, you’d still like to have exposure to big-name private companies. So what can you do?

With direct investing, you often only have two options: make a big investment or don’t invest at all. Single-asset funds offer a third option. With a fund, you can get exposure to high-valuation private companies with a significantly smaller investment, like $25,000.

Funds Are More Attractive to Companies

If you pool your money with other investors in a fund, the fund can buy more shares than you could buy on your own. That makes the fund a bigger and more attractive investor to the target company, which means it might secure better deal terms and have a higher likelihood of closing the transaction. Most importantly, it gives you an opportunity to invest in a company that would otherwise not have entertained an investment from you directly.

What Are the Downsides of Single-Asset Funds?

While single-asset funds can make it easier to invest in private companies, they might not come with all the same advantages as direct investing. Whether the upsides of investing via a fund outweigh the downsides is ultimately up to you.

Funds May Require Additional Admin and Fees

Setting up a single-asset fund costs money, whether you go through a dedicated platform for funds or set up an LLC yourself. That cost is often shared among the fund’s members. When there’s a lead investor, fund manager, or other organizer managing the fund on your behalf, funds can often come with carried interest fees and management fees. It’s important to get full disclosure on fees from the fund manager before investing.

Funds Can Be Less Liquid Than Direct Investing

Once you’ve put your money into a single-asset fund, your investment is strictly governed by the terms you agreed to. That means you can’t withdraw your money, and you may be subject to other restrictions as well. Some investing platforms offer the opportunity to resell single-asset fund units if an investment meets the conditions.

Funds Make Investment and Other Decisions

During the life of the fund, decisions like shareholder voting and participation in tender offers are made by the fund on behalf of its members. Direct shareholders make these decisions independently.

Shareholder Information May Be Filtered

As the shareholder of record, the fund may be entitled to receive information from the company. Depending on the company and the terms of the fund, this information will not always be shared with the members of the fund.

Recap

• A single-asset fund lets investors pool their capital to make a single investment in a specific company.
• The single-asset fund passes gains or losses on to you, proportional to your investment. In this way, it’s similar to direct investing. If the company’s valuation doubles (from the time the fund makes the investment), so does your investment (though you’ll also often have to pay some fees to the fund).
• You can get access to opportunities that would not otherwise be available to small investors. Share sales of major private companies are usually completed in large tranches in the seven figure range. Using single-asset funds, Mirai Capital allows you to access these opportunities with investment minimums as low as $25,000.
• You won’t have a direct stake in the private company. As a member of the single-asset fund, you won’t actually own shares of the target company. You will have an indirect stake in the company.