SpaceX's SPV Investors Face Uncertainty Over Share Holdings

The company's public debut on Friday will bring unprecedented complexity to its special purpose vehicles, leaving some investors uncertain about their true holdings.

Investing through special purpose vehicles (SPVs) is not a new concept, but SpaceX represents an unparalleled case of an IPO with multiple layers of these vehicles. The demand for SpaceX allocations has been high in recent years, leading to the creation of structures that can be stacked four or five layers deep.

This multi-layer SPV structure is a major concern for investors, as they may not know how many shares they're entitled to or whether they'll even receive any shares at all. Nearly a dozen SPV managers and secondary market investors spoke to TechCrunch, revealing that backers in lower-tier vehicles might find they own fewer shares than they think, or in rare cases, not receive any shares at all.

The first-layer SPV will have 30 days to distribute stock to its investors, while the next layer down may have to wait longer, and the final disbursement may take up to eight or nine months, according to Justin Ernest, founder and managing partner of Sabertooth Capital. This delay in share distribution can lead to a communication breakdown, making it difficult for investors to know what's going on in their vehicle.

The biggest concern for downstream SPV investors is that they may not get any shares in SpaceX. In a recent case, Giovanni Pennetta, the manager of Sestante Capital, was sentenced to four years in prison for fabricating access to non-existent allocations in the defense tech company Anduril.

The fear is that Pennetta is not the only deceptive sponsor out there. 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.

When it comes to purchasing through SPVs, investors need to be aware of the potential risks and complexities involved. It's essential to thoroughly research and understand the structure of the SPV before investing. As the saying goes, 'you don't know what you don't know.'

• Investors in lower-tier vehicles may own fewer shares than they think or may not receive any shares at all.
• The first-layer SPV will have 30 days to distribute stock to its investors.
• The next layer down may have to wait longer, and the final disbursement may take up to eight or nine months.
• Deceptive sponsors may be revealed once lock-ups expire.
• Investors need to thoroughly research and understand the structure of the SPV before investing.