SPVs – a US vs Europe comparison

Here is a detailed comparison between doing a syndication Special Purpose Vehicle (SPV) in the US versus Europe, covering legal structures, formation processes, investor considerations, and market context:

Legal Structures and Formation

United States:

• SPVs are commonly formed as Limited Liability Companies (LLCs) or Limited Partnerships (LPs). LLC SPVs are the traditional choice for venture capital firms investing in US companies, offering simplicity and liability protection. LP SPVs are preferred when raising capital from international investors due to their global recognition.
  
• The setup process involves defining the SPV’s purpose, choosing the location (often Delaware for ease and cost), drafting governing documents (operating agreement or partnership agreement), and obtaining an Employer Identification Number (EIN) for tax and banking purposes.
  
• Propel(x) is a popular platform in the US that simplifies SPV formation and management, handling legal formation, capital calls, tax documents, and investor closings.
  

Europe:

• In Europe, SPVs are often formed as limited liability companies or limited partnerships, similar to the US. However, specific procedures vary by country. For example, in Germany, setting up an SPV involves signing an agency agreement, drafting articles of association, notarization by a public notary, appointing directors, and registering with the local Trade Register (Handelsregister).
  
• The process can be more bureaucratic and involve more formalities such as notarization, but new software providers like Vauban, Odin, and Bunch are emerging to simplify SPV and syndicate formation across European jurisdictions.
  
• European SPVs also function as pass-through vehicles, where income and returns pass directly to investors proportionally.
  

Investor Pool and Syndication Culture

United States:

• Syndication and SPVs are well-established and widely used in the US venture ecosystem. Syndicates allow multiple investors to pool capital efficiently, often with a lead investor managing the deal.
  
• The US market has a higher prevalence of syndication in venture capital deals (about 80% of VC deals involve syndication), which correlates with better long-term operating performance of startups compared to Europe.
  
• Co-syndicating (multiple syndicates teaming up to run an SPV) has become popular in recent years, increasing collaboration and deal access among syndicate leads.
  

Europe:

• Syndication is growing but less mature than in the US, with about 50% of VC deals syndicated. European syndicate-backed startups show better long-term performance than non-syndicated ones, but overall US startups outperform European ones partly due to more extensive syndication effects.
  
• Minimum investment thresholds can be lower in Europe (sometimes as low as $5,000), democratizing access to venture capital.
  
• Syndicates and SPVs help streamline cap table management and investor coordination, especially in countries with more formal legal requirements like Germany.
  

Regulatory and Tax Considerations

• US SPVs benefit from relatively straightforward formation and tax treatment, especially Delaware LLCs, which are popular for their flexibility and investor familiarity.
  
• European SPVs face more complex regulatory environments varying by country, with additional formalities like notarization and local registrations.
  
• Tax treatment can differ significantly across European jurisdictions, making the choice of SPV structure and domicile important for optimizing investor returns and compliance.
  

Summary Comparison Table

In conclusion, US syndication SPVs benefit from a more mature ecosystem, simpler formation, and broader investor participation, leading to stronger syndication effects on startup performance. European SPVs face more regulatory complexity but are becoming more accessible through new platforms, with syndication increasingly recognized as a valuable tool for venture investing.