SpaceX SPV investors won’t know their true assets until post-IPO lockups are lifted

SpaceX makes its public debut on Friday, and some investors who backed the company through special purpose vehicles (SPVs) are still unsure how many shares they are entitled to or whether they will get any shares at all.

Investing through SPVs, where multiple parties pool their money to invest in one company, has been around for some time. But SpaceX represents an unprecedented case of an IPO with multiple tiers of these vehicles. Because demand for SpaceX allocations has been so high in recent years, investors in an SPV have occasionally formed a new SPV from their shares, creating a structure that was sometimes stacked four or five layers deep.

SpaceX will be the first major test of the legitimacy of multi-tiered SPV. In recent months, Anthropic and Anduril have announced that they will not allow these structures.

Nearly a dozen SPV managers and secondary market investors who spoke to JS said lower-equity backers may own fewer shares than they think or, in rare cases, receive no shares at all.

In most situations, these investors won’t find out how many SpaceX shares they actually own until the company’s rolling lockups, which will occur over a period of about four months, begin to be lifted. That’s because SPV managers won’t start handing out shares to investors in these vehicles until they get access to the shares themselves, sources told JS. Lock-up agreements prevent insiders, including employees, their friends and family, and venture investors, from selling shares for a certain period of time after an IPO to avoid excessive selling pressure on the stock.

The first-tier SPV has 30 days to distribute shares to its investors, says Justin Ernest, founder and managing partner of Sabertooth Capital, a firm that invests primarily in first-tier SPVs. As a result, the next tier likely won’t get its shares for another 30 days, meaning the underlying vehicle will have to wait even longer to deliver the shares to its own lenders. The bottom SPV tier may have to wait eight to nine months for the final payout, Ernest estimates.

A secondary investor, who asked to remain anonymous, told JS that some investors in “messy” multi-tiered 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 will communicate with the investors in their vehicle from the IPO date. “The problem is you have a communications train where each person only knows what’s happening in the layer above them,” the secondary investor said.

In short, the structural ownership of these vehicles has become so complex that even the best-intentioned SPV sponsors can end up inadvertently misleading their investors.

The biggest concern for downstream SPV investors is that they may not get shares in SpaceX.

Giovanni Pennetta, the manager of Sestante Capital, was recently sentenced to four years in prison for falsifying access to non-existent allocations at the defense technology company Anduril.

The fear, of course, is that Pennetta is not the only deceptive sponsor. Investors at the bottom of these structures essentially had to confirm that every single manager above them was legitimate. But given the messy structure of these deals, it’s likely that some buyers haven’t vetted the entire chain.

“A friend just shared in confidence – they bought SpaceX via a 2-tier SPV in 2021. Returns should be worth the cost, only problem – SPV manager stopped responding to emails or calls,” wrote Nick Davidov, founder of venture capital firm Davidovs Venture Collective. at X last month. He writes that the investor has not heard from the SPV manager for a year.

Idan Miller, managing partner at secondary market Unicorns Exchange, is confident a few other bad players will come to light once the lockups are over.

“Once the lockup on the shares is lifted and these SPVs start selling the shares, there will be some vehicles that will be exposed as scammers or fraud,” Miller told JS.