Loon Creek Capital Group (www.looncreekcapital.com) specializes in streamlined group investing services for private investors. Formed in 2010 to address the needs of the local angel community in Boise Idaho, the company has grown to provide services to angel investors across the U.S. The founders are active angel investors, and experts in the unique challenges of investing in early stage companies.
SPV stands for Special Purpose Vehicle, and is commonly used to refer to an LLC that is formed to make a one-time investment in a specific company. Individual investors who wish to invest less than the company’s minimum or who wish to achieve a larger presence on the company’s cap table join the LLC and invest together as a group. SPVs are often referred to by other names including Syndicate, SPE, opt-in funds or sidecar funds.
The Manager leads the effort to invest in the company on behalf of the group. The group members designate authority to the Manager to sign documents on behalf of the LLC and to make certain decisions as outlined in the LLC Operating Agreement.
Loon Creek Capital https://www.looncreekcapital.com/ is the professional Administrator of the SPV. We form the LLC, enroll the SPV members, aggregate funds, coordinate funding and closing of the investment in the company and oversee the SPV until it is liquidated.
A cash reserve is money collected during formation that is held in escrow to be used for future expenses. This avoids extra expense and hassle to your investors of a capital call in the future. If the money is not used, it is distributed back to the members of the LLC upon liquidation. Cash reserves are collected at the Manager's discretion and there are several options available for holding those funds.
The minimum amount to invest in a syndicate is set by the LLC Manager. Loon Creek recommends an investor minimum of $5,000.
Loon Creek
Forms LLC; manages investor subscriptions
Issues Capital Call; collects funds
Closes the Investment
Monitors investment and maintains LLC until liquidation
Investor
Executes online documents to join the LLC
Sends funds via ACH or wire to complete capital call
Receives confirmation of investment
Relaxes until liquidation
Absolutely! If the investment you are making includes regular payments back to the investors or ongoing operations such as capital calls and distributions, our process remains essentially the same as for a standard SPV. The two main differences are: 1. our services during the Administration phase will include capital calls and/or distributions to the investors on a regular basis, and 2. tax returns and issuance of K-1s will be required annually. Our pricing for actively operating SPVs include an annual fee as well.
Funds or SPVs that invest in a Fund: Yes, there will be annual tax returns and K-1s
SPVs that invest in stock or SAFEs: The simple answer is “usually not”. The more complicated answer: K-1s are issued when the SPV files an income tax return. Income tax returns are filed only when there are taxable transactions to report to the IRS. Under our standard model, there are normally no taxable transactions until exit and therefore no tax returns are filed and no K-1s are issued until the exit event.
SPVs that invest in convertible notes: If the SPV invests in a convertible instrument which accrues interest, at conversion the SPV will usually file a tax return covering the interest accrual and will issue K-1s. Once converted to equity, then usually no additional tax returns will be filed until the exit event.
SPVs with recurring revenue or active operations: Yes. Once the SPV has started to receive payments and distribute them to investors, the LLC will be required to file a federal tax return and issue K-1s annually.
Yes. In most cases it will be simpler and less expensive to set up individual LLCs but when it makes sense to use a Series LLC, we are happy to service it.
Usually. Because every LLC is unique, we need to understand our service obligations under the existing LLC. We’re delighted to discuss this with you.
This is a common problem. One way is to consolidate the small investors into an SPV so that collectively they represent one entry on the cap table. We can manage this process for you.
There are several possible fees involved with set up and administration of each SPV. These vary by type of SPV, but in general, the costs include:
The direct expenses of forming and maintaining the SPV. Loon Creek charges per investor for formation services. This is a one-time upfront cost, we do not charge annual maintenance or administration fees throughout the life of the SPV. Should there be tax returns required (we anticipate only one return in the life of the SPV - two when investing in convertible notes) there will be a fee for preparation of that return, and your share of that expense will be invoiced at the time if your SPV does not have cash reserves. Other expenses that may be incurred include attorney fees and federal Form D and state ‘blue sky’ filing fees. Each investor’s share of any such fees will either be deducted from your capital commitment or invoiced separately, at the Manager's discretion.
Management fees. The Manager often charges a fee on top of your capital commitment as compensation for their work to source, vet and manage the deal and the investors. This fee may be deducted from your capital commitment or invoiced separately, at the Manager's discretion.
Carried interest and wind-down fees. The Manager typically earns a percentage of carried interest and Loon Creek earns a percentage of carried interest. Carried interest can be thought of as the net profit on the SPV, which means that if and when there is an exit that generates a return in excess of your initial capital contribution to the LLC, net of costs, you will pay a percentage of the profits of the investment as carried interest. In the event of a bankruptcy, Loon Creek charges a wind-down fee to coordinate a tax return to claim your loss and all services needed to liquidate the SPV.
For more information on specific fees, please contact us.
There are two sets of legal documents you will need to review when you invest through our SPV:
COMPANY Documents: These are the legal agreements related to the equity or debt raise by the company in which the SPV is investing. These describe the terms of the raise and investor rights relative to the security that the SPV is purchasing. It is important to know that while the SPV as a group will have the rights described, you will not hold the Company’s securities directly. You will own your interest indirectly as a member of the SPV, whose sole asset is the Company securities.
SPV Documents: These are the legal agreements related to the formation of the SPV. You will be asked to review and execute an Operating Agreement for the LLC, a Subscription Agreement, and a W9 or W8 to establish your tax status. The Subscription Agreement is a standard form used for you to tell us you want to participate in the SPV, and for us to confirm that you are legally eligible, as an accredited investor, to make a high risk private investment. This document contains a lot of disclosure intended to make sure you understand the risks of making an investment of this type, through this type of structure, in an illiquid security issued by a start-up company. Like the other documents, we strongly urge you to review it with your counsel before you decide to make an investment.
Once you have indicated interest in making the investment, Loon Creek will contact you with 3 tasks to complete:
Complete an online form with basic information about yourself and how you are making your investment (i.e. as an individual, through an entity such as a trust or IRA, etc.).
Sign a digital signature packet that includes the Subscription Agreement and the Operating Agreement.
Send in your capital call prior to the funding deadline.
Once all the investors in the SPV have completed those tasks, the Manager will sign the company’s documents and will transmit funds to close the investment. You will receive a notice that the investment is complete.
The Manager is responsible for any votes or decisions that will need to be made regarding the SPV's interests in the company. Typically the Manager will pass any important decisions through to members about how to vote the shares. If you do not respond to such requests, the vote will side with the majority of members who do respond. If there is no response, the Manager votes at their own discretion.
The right to transfer your ownership in the SPV (and therefore your indirect ownership in the company) is restricted, as is typical with most investments in venture funds and start-ups. There are some exceptions for transfers to an affiliate or family member. See the Operating Agreement for full details.
You will be issued a K-1 by Loon Creek, pro-rata to your interest in the SPV, when there is a liquidity event, a distribution or other taxable activity. Annual tax returns and K-1s are not expected and Loon Creek will notify you each year if you will receive a K-1 or not.
Under the Operating Agreement, the SPV will be perpetual until its interest in the company is sold or liquidated. Loon Creek provides administration and oversight until the SPV is dissolved, however long that takes.
