SpaceX is set to make its public debut on Friday, but 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. However, SpaceX represents an unprecedented case of an IPO with multiple layers of these vehicles. Due to high demand for SpaceX allocations 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.
This has created a complex web of ownership, making it difficult for investors at the bottom of these structures to determine their true holdings. 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.
The first-layer SPV will have 30 days to distribute stock to its investors, said Justin Ernest, founder and managing partner of Sabertooth Capital. 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. However, this is not always the case, as a communication train with each person only knowing what’s going on in the layer above them can lead to unintentional misleading of 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.
Investors at the bottom of these structures essentially had to confirm that every single manager above them was legitimate. However, given the messy structures of these deals, it’s likely some buyers didn’t vet the entire chain.
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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