SPV Fees: A Cautionary Tale

The One That Got Away…

Hi, it’s Cheryl. Early in my angel journey, I hesitated pulling the trigger on a pre-seed investment in Pressed Roots, The Drybar for Textured Hair.

I loved the founder, the market, and the potential upside. I even loved the lead investor. But the SPV came with a 10% (one-time) fee. 🤯. It seemed so high. Like an idiot, I got stuck in my head and didn’t invest.

I think about that company at least once a month. Last month, that thought stung special. 18 months after I should have invested, Naomi Osaka co-led their Series A.

The moral of the story? Don’t sweat the fees.

You make your money in early-stage investing out of asymmetrical returns. The winners are so big that they drown out the losses and the fees. To note:

• Consumer credit cards charge merchants 3%-5% in fees.

• A VC fund charges 20% fees. Yep, that 2% management fee is actually “2% per year for 10 years”. Funny how they dropped that from the “2-and-20” tagline.

• If you invest directly on the cap table or via an RUV (a Roll Up Vehicle - essentially an SPV sponsored by the founder), the same fees still apply, but they are paid by the founder….using the dollars you invested….