Over the past decade or so, the once-club world of start-up investing has been thrown wide open by a number of innovations, including special purpose vehicles (SPVs), which are essentially emerging venture funds that quickly come together with everyone’s money. types of accredited investors, from institutions to venture capitalists to dentists, to gain a stake in a single private company.
However, as the market has turned sour, many investors are learning the hard way that SPVs are complicated, expensive, and not the sure path to wealth that they once seemed to be. In fact, some of those who started assembling these SPVs were left with nothing for a popular SPV management platform, Securewho announced somewhat abruptly at the end of November that Turning off and that their clients need to find a new home for their funds before the end of the year.
The move has left many upset and furious. Says Eric Bahn, co-founder of the early-stage company. hustle background, who turned to Assure five years ago to set up some SPVs: “We were very unhappy there for a while; the software felt weird to use. But being told that Assure is going to close right before Thanksgiving is the worst possible time. If you’re going to do a search for a new supplier, you don’t want to do it at the end of the year.”
We have reached out to Assure in recent days for comment and have not received a response. We also reached out to Jason Calacanis, an investor who formed an SPV to invest in Assure, then heavily promoted his services in his.”This week in Startups” podcast.
In response to our request for help, Calacanis responded via email to “feel free to ask me on Twitter.”
Based on conversations we had with Bahn and many other Assure customers, the team’s offering was never very sophisticated. Instead, the advantage offered by the 10-year-old Salt Lake City company was that it was competitively priced. While some customers paid $8,000 per SPV, others say they paid even less for Assure’s management of their SPVs, including $2,000 and $3,000 per SPV in some cases.
Compared to AngelList — the investment platform that helped popularize SPV investing and which charges an $8,000 setup fee plus the cost of plugins, including $1,000 for international investments, $2,000 for crypto investments involving tokens, and $10,000 to manage the SPV financial statements: Assure seemed to some like a robbery.
Unfortunately, because Assure didn’t charge more up front, the company relied on a steady stream of new customers to cover all of its operating costs. When the market turned and investors lost their appetite for SPVs, those new customers dwindled to a trickle, causing Assure to close.
Now its downfall is costing Assure customers money at a time when many are already feeling the effects of an economic downturn. Eric Seufert, the sole general partner of Capital of Heracles, an Austin-based pre-seed fund that manages $10 million, says it paid the team $8,000 per SPV it managed on its behalf to service the vehicle over its lifetime. “It was a one-time fee for them to handle all the taxes and stuff.”
Assure is also not reimbursing those fees, no matter how you haven’t kept your promise. “That means we have to pay another fee to another provider,” says Seufert, who says investors in each SPV helped cover the initial cost of running it, but wouldn’t appreciate being asked to do it a second time. “It’s not like I’m going to approach investors and make them pay again,” he adds. “For me, it’s tens of thousands of dollars unexpectedly coming out of my pocket.”
Says one fund manager, who spoke anonymously about his experience with Assure, which managed dozens of SPVs for his company: “As much as Assure talked about its products, it was a service business that had to keep attracting [employees]. When the market slowed down and he was facing churn,” that revenue shortfall killed him.
No one seems to feel sorry for Assure or its founder and CEO, Jeremy Neilson, who was formerly managing director of the Utah Fund of Funds, Utah’s private equity program. On Twitter, Assure customers have variously ventilated about forming a class action lawsuit and his desire to see Neilson behind bars.
Bahn says some of that anger relates to the way the company went out of business, with no apparent regret or explanation for what happened. Also, Assure offered “no real migration path,” says Bahn. “’You’ll figure it out’ was Assure’s message,” he says.
He is not exaggerating. Assure’s surprise November announcement came with just a 30-minute video pre-recorded video in which Neilson flatly informs: “This is a transition presentation from Assure. As you may have heard, Assure is closing down. Assure will return all funds from your SPV to you. So these things are being returned to you. Now you will have the property. You will now be responsible for maintenance and taxes and all post-closing activities. . . of course you can find a third party to help. . .”
Afterward, customers say, the company stopped responding to them almost entirely.
That’s especially worrisome given that not everyone has gotten their money out of Assure. Seufert, for example, says one of his SPVs produced a return for investors in October, but while Assure wrote checks to two-thirds of the people who contributed capital to the SPV, Assure stopped transferring money after that and stopped responding. Seufert even mentioned this week that he was talking to TechCrunch.
After sending Assure a “pleading email begging them to end distributions for the SPV that came out, they agreed to do so,” he says (although as of this writing, that money hasn’t been transferred).
Meanwhile, Neilson’s timing could hardly be worse. Although the newer platforms advertise their related services at this time, Vauban, an online investment platform recently acquired by Carta, has been heavily promoting its services; Meanwhile, Assure pointed clients to the nascent private marketplaces platform. assignments — Other vendors “are not excited to talk to you,” Bahn says, because “they’re already doing audit and tax work for the first quarter.”
They also don’t want to take unnecessary risks from a company that clearly didn’t have its own way.
Bahn was able to turn to AngelList, but AngelList is turning down other managers for their own safety, explains AngelList Venture CEO Avlok Kohli. “We have been guarded about general acceptance of any customer precisely because we are very deliberate about the types of customers and products we want to support,” says Kohli, “and in our opinion, there are some unknown unknowns in the acceptance of products from another provider.”
Unfortunately, that leaves many SPV managers with fewer good options, while at the same time needing to take action quickly.
Jason Burke, the Boston-based founder and CEO of a software platform called the whole stage which paid Assure to manage more than 30 SPVs, is among those still considering the next moves. What Burke knows for sure is that he can’t do anything.
“I think we’ll find some who put on a blindfold and just ignore this for now, but people will regret doing it,” says Burke. “The government, the IRS, is not going to ignore these things. People put money into these SPVs and want a return or be able to write off losses, so it’s up to the union group leader to find a way.”
Seufert hears a lot of the same from other frustrated Assure customers; he started a Slack group for them several weeks ago that now has 35 members. Even so, we are in mid-December and Seufert, who in addition to managing a venture fund also publishes a mobile ad trade blog – he himself is still trying to figure out a plan for his SPVs while juggling his other responsibilities.
There are “a lot of other companies competing for this business, a lot of startups chasing this space,” he observes. But she wonders if, like Assure, they really know what they’re doing. Says Seufert: “How do I know I won’t have to do this again in a few years?”
