SpaceX SPV Investors: True Holdings Emerge Only After Lock-up Lifts

SpaceX’s imminent public debut is overshadowed by significant uncertainty for some investors who backed the company through Special Purpose Vehicles (SPVs). These individuals remain unaware of their exact share entitlements, with some even questioning whether they will receive any shares at all.

While SPVs, which enable multiple parties to pool capital for a single investment, are a long-standing practice, SpaceX's public offering represents an unprecedented scenario due to the extensive layering of these investment vehicles. The intense demand for SpaceX allocations in recent years has frequently led to investors within one SPV forming subsequent SPVs from their shares, creating intricate structures that can be stacked four or five layers deep.

This complex, multi-layered SPV model will face its first major test of legitimacy with SpaceX's market entry. Notably, other prominent companies like Anthropic and Anduril have recently announced their decision to disallow such convoluted structures.

According to nearly a dozen SPV managers and secondary market investors who spoke to TechCrunch, backers in lower-tier vehicles may discover they own fewer shares than they anticipated, or in rare instances, receive no shares whatsoever.

For most of these investors, the precise number of SpaceX shares they possess will remain unknown until the company’s rolling lock-up periods, scheduled to unfold over approximately four months, begin to lift. This delay is due to SPV managers being unable to distribute shares to their investors until they themselves gain access to the stock, as sources informed TechCrunch. Lock-up agreements are standard post-IPO measures designed to prevent insiders, including employees, friends, family, and venture investors, from selling shares for a set period, thereby mitigating excessive selling pressure on the stock.

Justin Ernest, founder and managing partner of Sabertooth Capital, a firm primarily investing in first-layer SPVs, clarified that the initial SPV layer will have a 30-day window to distribute stock to its investors. Consequently, the next layer down will likely not receive its shares for another 30 days, meaning each subsequent layer must wait even longer. Ernest estimates that investors at the very bottom of these SPV chains could face an eight- to nine-month wait for their final share disbursement.

An anonymous secondary investor revealed to TechCrunch that some investors in "messy" multi-layered SPVs will be surprised to find that a portion of their expected shares will be "eroded by fees" retained by the SPV itself.

Ideally, SPV managers should maintain transparent communication with their investors from the IPO date onward. However, as the secondary investor noted, "Problem is you have a communication train with each person only knowing what’s going on in the layer above them," highlighting a significant challenge in information flow.

In essence, the structural ownership within these vehicles has become so convoluted that even the most well-intentioned SPV sponsors may inadvertently mislead their investors.

The paramount concern for investors in downstream SPVs is the potential complete non-receipt of their allocated SpaceX shares.

This apprehension is amplified by recent events, such as Giovanni Pennetta, manager of Sestante Capital, receiving a four-year prison sentence for fabricating access to non-existent allocations in the defense technology company Anduril.

Naturally, there's a fear that Pennetta is not an isolated case of a deceptive sponsor. Investors at the lowest tiers of these structures were inherently required to verify the legitimacy of every manager above them. Yet, given the often disorganized nature of these deals, it’s probable that some buyers failed to thoroughly vet the entire chain.

Illustrating these risks, Nick Davidov, founder of venture firm Davidovs Venture Collective, posted on X last month: "A friend just shared in confidence – they bought SpaceX through a 2 layer SPV in 2021. The returns are supposed to be worth any fees, the only problem – the SPV manager stopped responding to emails or calls." He further noted that the investor has been unable to contact the SPV manager for a year.

Idan Miller, managing partner at the secondary market Unicorns Exchange, is convinced that additional fraudulent actors will be exposed once lock-up periods expire.

Miller conveyed to TechCrunch, "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," signaling a potential wave of revelations.