Over the last decade or so, the once-clubby world of startup investing has been cracked wide open by a number of innovations, including special purpose vehicles (SPVs), which are essentially pop-up venture funds that come together quickly with monies from all kinds of accredited investors — from institutions to VCs to dentists — to nab a stake in a single privately held company.
Yet as the market has soured, many investors are learning the hard way that SPVs are complicated, expensive, and not the sure-fire path to riches they once appeared to be. In fact, some who began assembling these SPVs were just left high and dry by a popular SPV administration platform, Assure, which announced somewhat abruptly in late November that it is shutting down and that its customers need to find a new home for their funds by the end of the year.
The move has left many scrambling, and furious. Says Eric Bahn, a co-founder of the seed-stage firm Hustle Fund, which turned to Assure five years ago to set up some SPVs: “We were very unhappy there for some time; the software felt janky to use. But to be told Assure is shutting down right before Thanksgiving — it’s the worst timing possible. If you’re going to run a search for a new provider, you don’t want to do it at the end of the year.”
The shutdown is also costing Assure customers money at a time when many are already feeling the pinch of an economic downturn. Eric Seufert, the sole general partner of Heracles Capital, an Austin-based pre-seed stage fund that is managing $10 million, says he paid the outfit $8,000 per SPV that it managed on his behalf to service the vehicle over its life span. “It was a one-time fee for them to handle all the taxes and all that.”
When Assure said it was shutting down, however, it added that it wouldn’t be refunding those fees, no matter that it didn’t deliver on its promise. “That means we have to pay another provider another fee,” says Seufert, and while investors in each SPV helped cover the initial cost, “it’s not like I’m going to reach out to investors and have them pay again,” he adds. “For me, that’s tens of thousands of dollars unexpectedly that’s coming out of my pocket.”
We’ve reached out to Assure in recent days for comment and haven’t received a response. We also reached out to Jason Calacanis, an investor who formed an SPV to invest in Assure, then heavily promoted its services on his “This Week in Startups” podcast.
In response to our request for help, Calacanis replied via email to “feel free to ask me on Twitter.”
Based on conversations we had with Bahn, Seufert and numerous other Assure customers who spoke with us on background, Assure’s offering was never the sophisticated option. The advantage that the 10-year-old, Salt Lake City firm offered was that it was priced competitively. Whereas 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 that charges a setup fee of $8,000 plus the cost of add-ons, including $4,000 for follow-on investments, $1,000 for international investments, $2,000 for crypto investments that involve tokens, and $10,000 to manage the SPV’s financial statements — Assure seemed to some like a steal.
Alas, because Assure didn’t charge more upfront, the company relied on a steady stream of new clients in order to cover all of its operating costs. When the market turned and investors lost their appetite for SPVs, those new clients slowed to a trickle, prompting Assure’s shutdown.
Says one fund manager, who spoke anonymously about his experience with Assure, which managed tens of SPVs for his firm: “As much as Assure talked about its products, it was a services business that had to keep bringing in [employees]. When the market slowed down and it was facing churn,” that revenue shortfall killed it.
Not that anyone feels sorry for Assure or its founder and CEO, Jeremy Neilson, who was previously a managing director at the Utah Fund of Funds, the state of Utah’s private equity program. On Twitter, Assure customers have variously vented about forming a class action lawsuit and their wish to see Neilson behind bars.
Bahn says that part of that anger ties to the way the company shut down — without apparent contrition or an explanation of what happened. Further, Assure offered “no real migration path,” says Bahn. “‘You’ll figure it out’ was the messaging from Assure,” he says.
That’s no exaggeration, seemingly. Assure’s surprise November announcement came only with a 30-minute-long pre-recorded video in which Neilson reports flatly: “This is an Assure transition presentation. As you’ve heard, Assure is shutting down. Assure will be handing back to you all of your SPVs funds. So these things are being handed back to you. You’re going to now have the ownership. You’re now going to be responsible for maintenance and be responsible for taxes and all post-close activities . . . of course you can find a third-party to assist . . .”
Afterward, customers say, the firm stopped responding to them almost completely.
Not everyone has gotten their money out of Assure, either. Seufert says one of his SPVs produced a return for investors in October, but while Assure issued checks to two-thirds of the individuals who contributed capital to the SPV, Assure stopped wiring money after that and became wholly unresponsive to Seufert until he mentioned this week that he was talking with TechCrunch.
After sending Assure a “pleading email to beg them to finish the distributions for the SPV that exited, they have agreed to do that,” he says, though of this writing, that money has not been transferred.
Meanwhile, Neilson’s timing could scarcely be worse. Though newer platforms are advertising their related services right now — Vauban, an online investing platform recently acquired by Carta, has been promoting its services heavily; Assure meanwhile pointed customers to the nascent private markets platform Allocations — other providers “aren’t excited to talk to you,” says Bahn, because they are “already doing tax and auditing work for Q1.”
They also don’t want to take on unnecessary risk from a company that clearly did not have its ducks in a row.
Bahn, for example, was able to turn to AngelList, but the company is turning away many other managers for its own safety, explains AngelList venture CEO Avlok Kohli. “We’ve been reserved about blanket taking on any customer precisely because we are very deliberate about the types of customers and products we want to support, and in our view, there are some unknown unknowns in taking on products from another provider.”
Unfortunately, that leaves a lot of SPV managers without a lot of good options while also needing to take action quickly.
Jason Burke, the Boston-based founder and CEO of a software platform called All Stage that paid Assure to manage more than 30 SPVs on his behalf, is among those still mulling over his options. What he knows for certain is that he can’t do nothing.
“I think we’ll find some who put a blindfold on and just ignore this for now, but people will regret doing that,” says Burke. “The government, the IRS, isn’t going to ignore this stuff. People put money into these SPVs and they want a return or to able to write off losses, so it falls to the syndicate group lead to find a path.”
Seufert hears much of the same from others of Assure’s frustrated customers; he started a Slack group for them several weeks ago that now counts 35 members. Still, it’s mid-December and Seufert — who in addition to managing a venture fund also publishes a mobile advertising trade blog — is himself still trying to figure out a plan for his SPVs as he juggles his other responsibilities.
There are a “bunch of other companies vying for this business, a bunch of startups chasing this space,” he observes. But he wonders whether, like Assure, they really know what they are doing. Says Seufert, “How do I know I won’t have to do this again a few years from now?”
Frustration and anger after SPV platform Assure dumps users at the curb ahead of holidays by Connie Loizos originally published on TechCrunch