How Investors Are Using SPVs to Buy Stakes in OpenAI and Anthropic
To get a slice of hot artificial intelligence startups like OpenAI and Anthropic, investors have been flocking to investment vehicles that pool money from several parties to back just one company. These structures, known as special purpose vehicles, have long been part of Silicon Valley business but have quietly mushroomed as demand for AI startup stakes has skyrocketed.
When Thrive Capital earlier this year led a purchase of existing OpenAI shares, estimated to be worth hundreds of millions of dollars, it also created an SPV of less than $10 million to give its limited partners extra exposure to the ChatGPT developer, according to a person briefed on the investment. Around the same time, at least two smaller VC firms, Soul Ventures and SparkLabs Global Ventures, used SPVs to buy shares of OpenAI in the sale that valued the company at $86 billion, in Soul’s case to make it easier to buy more shares of the company in the future. Additionally, several investment firms assembled SPVs to buy Anthropic shares owned by bankrupt crypto exchange FTX last month.
The Takeaway
• Thrive used an SPV as part of its OpenAI purchase
• Omidyar tried to raise an SPV to invest in Anthropic
• OpenAI barred investors from China in recent tender
Demand for AI stock has risen so much that some fund managers have launched SPVs to invest in other SPVs that bought stakes in leading startups such as OpenAI. These structures mean the investors in the secondary SPV could effectively end up paying fees to two levels of fund managers.
In such layered arrangements, “everybody knows that the fees are a bit gratuitous,” said Will Robbins, a general partner at venture capital firm Contrary. “Everyone knows deep down that there’s no portfolio management, no value add to the company—it’s just pure financial extraction,” he said.
SPV managers typically charge between 1% to 2% of the money raised and 10% to 20% of the profits, or carry. Some managers cut all fees, a boon to LPs who invest in them. When Thrive set up an SPV to invest in payments firm Stripe, it waived the fees on the SPV. It’s not clear whether Thrive charged fees on its OpenAI SPV.
Omidyar’s Efforts
SPVs can be advantageous, investors say. They allow smaller investors such as family offices and philanthropies to pool money so they can write larger checks than would be possible on their own. Many of the startups would otherwise be out of reach for these investors because of the minimum check size they require due to the ballooning cost of developing AI.
Omidyar Network, the venture and philanthropic organization funded by eBay founder Pierre Omidyar, has tried at least twice to invest in OpenAI rival Anthropic via SPVs. After finding it was too late to join an SPV for Anthropic led by Menlo Ventures, Omidyar Network CEO Mike Kubzansky gathered $7.5 million in commitments from the Ford Foundation and other philanthropic investors. He planned to use this SPV to bid for the FTX-owned Anthropic stake.
“Having watched what happened with OpenAI,” said Kubzansky, “the initial thought was, wouldn’t it be nice to have someone on the cap table who cares about the mission and [not just] the returns?” he said. An SPV could have allowed more impact-focused investors to participate with smaller checks, he said.
Ultimately, the deadline set by the investment bank managing the auction—Perella Weinberg Partners—was too tight for Kuzbanksy to arrange the SPV. Instead, Omidyar used $1.5 million of its own capital to buy a stake directly, while Ford Foundation spent $5 million on a direct stake.
SPVs also give VC firms known for backing young companies the chance to bet big on mature ones, too. For instance, earlier this year, Menlo Ventures, known for investing early in Uber and Poshmark, raised a $750 million SPV to invest in Anthropic at a price that valued the startup at $15 billion excluding the investment. If Menlo had made the investment through its latest venture fund, Anthropic would have represented a large portion of its invested capital, posing the risk of having one company determine the fund’s performance.
The percentage of SPVs in startups that have AI in their name, such as OpenAI, that are listed on AngelList has jumped to around 12% this year, from 7% all of last year and 4% in 2022, according to the startup, which matches investors with founders and other investors.
Some AI founders are concerned that SPVs could bring unwanted investors into the mix, because founders typically can’t control what the long list of investors in an SPV do with their stakes in those vehicles. For instance, an investor in an SPV could sell their stake to another investor from a country barred from investing in the U.S.
Those potential pitfalls are why Perplexity AI CEO Aravind Srinivas says he hasn’t allowed an SPV to buy shares in his AI-powered search startup. “Otherwise, random people get to claim they are investors in Perplexity” even though their stakes are indirect, he said.
“I just want everything tightly controlled by my own legal team” Srinivas said over text message. (Perplexity raised money earlier this year in a round that valued it at $520 million and has since received offers for additional capital that would value it at $1 billion, The Information reported.)
OpenAI’s Demands
Sensitivity over the makeup of investors has intensified as tensions have heightened between China and the U.S. over tech investments, and as the Biden administration has stepped up its reviews of foreign investments in AI companies.
When OpenAI launched the sale of employee and investor shares that valued the company at $86 billion, the company mandated that no SPVs with investors from China could participate, according to one investor who participated in the sale. The company also wanted to formally review the LPs of any VC funds that invested, the investor said.
An OpenAI spokesperson said the company restricts the ability of investors to indirectly transfer their shares to other investors. If they do so without OpenAI’s approval, the company can cancel their equity stakes and keep the capital.
Concern over SPVs letting unwanted investors into a company’s ownership can compound when SPVs sell stakes to other SPVs, further lengthening the list of investors that have indirect ties to the startup.
Robbins, the Contrary partner, says in early March, a manager marketed to him an SPV that was buying a stake in another SPV that planned to buy a stake in Anthropic. If Robbins had chosen to participate in that round, the SPV with indirect access would have charged a 20% carry and an annual management fee for up to 10 years, on top of any fees for the SPV holding the Anthropic shares. He turned down the offer.
Investors are raising similar double-layer SPVs to invest in other leading AI developers. At least one current OpenAI investor is looking to sell part of their stake to an SPV at a near–$100 billion valuation, according to a person involved in the transaction. That SPV is raising a portion of its funds from another SPV that’s also raising money at the same time, the person said.
Even while they raise SPVs, some venture capitalists have privately grumbled about them, especially if they have to join an SPV and pay the extra fees to make the follow-on investments necessary to maintain their stake in the company. Some investors involved in Anthropic expressed frustration over having to pay extra fees to Menlo to participate, according to two investors in the company.
Still, for many investors, the vehicle represents the best way to get shares in sought-after AI startups. That was the case for Soul Ventures, a venture firm based in Hong Kong and Malibu, Calif., with around $350 million in assets under management, which used an SPV with capital from its first growth fund to invest in OpenAI, said co-founder and managing partner Warren Hui. It used an SPV using capital from its first growth fund to invest in OpenAI, said co-founder and managing partner Warren Hui. It used this structure in case it wanted to buy more shares in OpenAI from the same SPV using capital from a future, second growth fund. The firm also owns shares in Anthropic through an SPV it raised.
SparkLabs Global Ventures, a VC firm headquartered in Palo Alto, Calif., also used an SPV to back OpenAI in the $86 billion tender. The goal was to help the firm’s limited partners, many of which are family offices in South Korea, Taiwan and Singapore, make a dedicated bet on the AI pioneer, according to Frank Meehan, a general partner at SparkLabs.
Some SPV managers are trying to address startups’ worries about the SPV investors selling their stakes to other parties.
Eric Ries, author of “The Lean Startup,” has asked investors in SPVs he raises to sign a contract pledging that they will prioritize the company’s long-term health over near-term profit, such as by holding shares for a certain period of time or supporting a decision to become a public benefit corporation.
Ries raised an $18 million SPV to buy Anthropic shares from FTX, according to filings.