Using an SPV for smaller (friends & family) checks in a traditional search fund

June 15, 2025

by a searcher from Massachusetts Institute of Technology - MIT Sloan School of Management in Cambridge, MA, USA

Hi all, I’m in the final stretch of raising my traditional search fund and have a handful of friends, ex-colleagues, and other supporters who each want to write smaller checks ($5 k – 30 k), a mix of US-based and international investors. Rather than receive 10+ wires and clutter the cap table with lots of smaller investors (and K-1s), I’m considering forming a simple SPV that would pool these commitments and invest as a single line item into my search fund LLC. I’d love to hear from anyone who has done this in the traditional search fund context: - How common is it? and how comfortable are investors and lawyers with this structure? - Any gotchas around governance, voting rights, side letters, or pro-rata rights I should keep in mind so the SPV doesn’t spook larger investors? - Any platform/provider recommendations (AngelList, Sydecar, Tribevest, Carta, Mainshares, DIY Delaware LLC, etc.)? If you’ve gone down this path—or decided against it—I’d really appreciate your input. Thank you in advance!

Reply by a professional
from Northwestern University in Chicago, IL, USA

This is a good way to avoid herding cats. To make it work, strip out all voting and governance rights in the underlying search vehicle from the SPV investors. The SPV should be a manager-managed LLC, with you (or a controlled entity) as the sole manager. On the regulatory side, you want to avoid being treated as an investment adviser. That means don’t charge carry or management fees at the SPV level. A modest admin fee or reimbursement for setup costs is usually fine, but anything beyond that risks crossing the line, especially if you're exercising discretion. Tax-wise, foreign investors may trigger U.S. tax issues, but that risk exists whether they invest directly in the search fund or through an SPV, assuming the underlying vehicle is a passthrough (e.g., partnership or disregarded LLC). The SPV may simplify the admin side, but it doesn’t eliminate the underlying tax exposure for non-U.S. LPs. The foreign investor will most probably need some type of blocker entity for that. And lastly, these are just my high level thoughts without looking into any particulars so please consult an attorney before taking any of this advice.

Reply by a searcher
from Williams College in Cambridge, MA, USA

Just one word of warning about the number of different instances that will require you to disclose or have every shareholder sign something down to the individual level. State licenses in some industries, US tax residency, etc. if you’re using all passs through entities, they’re also going to get a K-1 from some entity. If you have non-us citizens as small shareholders, you might also be creating more headaches than it is worth.

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