Venture capitalists are so interested in AI startups that they are buying SPVs from each other at high prices

VCs are increasingly buying shares of late-stage startups on the secondary market, trying to get a piece of the hottest—especially AI companies. But they’re also increasingly doing so through financial vehicles called special purpose vehicles (SVPs). Some of these SPVs are becoming such hot commodities that they command premium prices.

While that’s great for the VC selling the SPV, it’s a risky choice for buyers. And all of this is another sign that AI startups are building a bubble.

The secondary market is where existing shareholders, such as startup employees or VCs who bought shares directly from the startup in a fundraising round, can sell some of their shares to others. But because private companies like startups have a say in who can own their shares, many VCs are excluded. VCs who have access set up an SPV and sell access to their shares to other VCs or investors of their choosing, such as high-net-worth individuals who are accredited investors.

However, buying an SPV VC is not buying actual shares of the startup. It is buying shares of an SPV vehicle that controls a certain number of shares of the startup.

“When they buy SPV units, (VCs) won’t own shares in the actual company; technically, they’ll be investors in another investor’s funds,” Javier Avalos, co-founder and CEO of secondary deal tracking platform Caplight, told TechCrunch.

Some are selling for 30% more

While SPVs are nothing new, VCs selling shares at a premium is a new trend worth paying attention to, Avalos said. For example, he’s seen cases where SPVs holding shares of Anthropic or xAI are charging prices 30% higher than what the shares were sold for in the last fundraising round or tender offer, he said.

This kind of buying spree is a way for investors lucky enough to own actual shares to make a quick buck. “If you’re an institutional investor and you get access to one of these companies, you can make 30% immediately by simply setting a higher SPV price,” he points out.

Buying SPVs, even at high prices, can also allow smaller VC firms to potentially reap future rewards if those companies succeed. Smaller VC firms typically don’t have deep enough pockets to have a chance to buy shares directly from a company as part of a fundraising event.

Risks associated with expensive SPVs

However, owning an SPV versus owning just shares is a distinction that makes a big difference.

For example, SPV owners have less visibility into the financial health of the company than true shareholders. They are not direct investors, so they would not have access to the communications the startup has with its investors. They also do not have direct voting rights on the shares, which means they do not have the same influence over the company. In addition, the startup has not agreed to set terms with them individually. Direct VC investors negotiate terms, which include the ability to buy more shares and veto rights in the event of an IPO or acquisition. SPV owners do not have such terms directly with the startup.

The startup will have to significantly increase its value to the investor who paid the 30% premium to turn a profit. And if the voting investors agree to an acquisition that is profitable for them but not profitable for those who paid more for their share in the SPV, the SPV investors will be burned.

Most importantly, the whole point of buying stocks on the secondary market is to get them at a price lower than their current valuation, VC Brian Borton, a partner at secondary trading firm StepStone, told TechCrunch in June.

Investors buying expensive shares of special purpose vehicles obviously know this, but they are betting that these companies will perform well enough to be worth investing in.

Maybe they will. But considering AI is highly valued despite emerging utility and revenue, that’s a pretty big risk.