As AI valuations soar into the hundreds of billions, a parallel market of temporary financial shells is proliferating to meet investor FOMO, and many investors are starting to sound the alarm bells that it portends a bubble in the AI gold rush.
Special purpose vehicles, or SPVs, enable investors to pool their money into funding a one-off deal. These mechanisms, which have been around for decades, have been surging in popularity as retail investors scramble for scraps of shares in hot companies like OpenAI, Anthropic, Anduril, and Perplexity.
Many are perfectly legitimate, but some have sky-high fees, opaque structures, and complicated layers of middlemen. Critics warn that in the frenzy to claim a piece of AI’s trillion-dollar promise, less savvy investors may be buying into a scam.
Bill Gurley, the famed venture capitalist behind Uber, Grubhub, and Zillow, has a simple rule: “Friends don’t let friends buy SPVs.”
“They have a ‘stink’ to them,” Gurley told Business Insider via email. “Good founders know this.”
The biggest AI companies have also been advising caution. This week, OpenAI published a blog post warning unauthorized SPVs could make investments worthless.
“We urge you to be careful if you are contacted by a firm that purports to have access to OpenAI,” the company said, warning that in some cases, the “sale will not be recognized and carry no economic value to you.”
Anthropic told investors it was displeased by the prevalence of SPVs in its latest $170 billion funding round — going so far as to tell some VC firms not to use them, BI previously reported.
OpenAI, Anthropic, and Perplexity declined or didn’t respond to requests for comment on their views on SPVs.
BI spoke to 13 founders and investors who described being inundated with cold pitches for SPVs in the top startups.
“It’s a new version of the age-old sort of racket of charging people egregious fees for access to investments they may not otherwise have,” said Ankur Nagpal, the founder of Carry, a personal finance company. “Despite the fact that these investments, on average, don’t outperform.”
Leslie Feinzaig, a founding partner at early-stage VC firm Graham & Walker, described the SPV craze as like the “wild west.”
“AI is going to create multiple trillion-dollar companies, and there’s just a lot of expectations and a lot of hype surrounding it,” she said. “I have an assumption that there’s a lot of grift.”
Layers of fees stacked on more fees
When Mark Klein, CEO of SuRo Capital, first wanted to invest in OpenAI last year, he immediately noticed an alarming trend: Every deal he was offered looked more suspicious than the last. He said the structures were so complex and convoluted that he didn’t even know what he was investing in, even as someone who invests for a living.
More deals have sprouted up lately as OpenAI and Anthropic have opened funding rounds that value the companies in the hundreds of billions. If these companies were public, there would be a liquid market where investors could trade every day. Instead, private companies only raise at certain intervals.
“Between the rounds, there’s utter chaos because there’s no trades happening, and then when the rounds happen, there’s a tremendous amount of FOMO,” said Hari Raghavan, cofounder and CEO of Autograph and former executive at the secondary marketplace Forge Global. “Imagine if the New York Stock Exchange were open one day a month.”
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Raghavan said he found it strange that he was recently offered five different SPVs to the same company over a span of days. (He declined to name the company.)
More alarming, he said, were offers to his father in India — who has little investing experience — in top AI and defense tech companies. He said that “retail investors are not understanding the risks that they’re taking on.”
Typically, investors pay VC firms 2% management fee and 20% of the upside. But with the recent spate of SPVs, managers have been introducing “third-layer” SPVs, which means each layer is charging its own fees — which all get passed on to the investor. Ravhavan said the deals he reviewed came loaded with opaque management structures and onerous fees.
Michelle Lim, a founder and angel investor, said she’s seen fees in SPVs backing AI companies as high as 16%, while Nagpal posted on X about a multi-layered SPV with a 20% management fee.
Venture capitalist Sarah Guo went so far as to describe “the feeding frenzy for ownership in the AI labs” as having “spawned a set of bottom-feeding multi-layered SPV brokers that have no relationship with the company.”
Those targeted for SPVs often do not understand the fees and risks, Nagpal said. Rather, they’re mostly concerned about access to name-brand companies. “Very often it’s a relatively well-off person in finance who wants exposure to AI,” he said.
“It is pyramid-y and it’s definitely people taking advantage of a knowledge asymmetry basically on how these investments work,” he added. “I would bet that a lot of people investing in these don’t understand the net dollars they’re paying in fees.”
Noel Moldvai, CEO at Augment, a marketplace to invest in private shares, said he’s seen SPVs that charge investors a 20% upfront management fee to get access to AI and defense companies.
“Usually what’s going to be happening is each layer is going to be adding 5% to 10% in management fees, plus 10% or 20% carry,” Raghavan told Business Insider. He said that the fees could end up becoming so high that, even if the company’s value doubles, an investor could see as little as a 25% profit compared to 80% for a direct stake.
One person involved with an investment fund, who spoke to Business Insider on the condition of anonymity, said he sends cold LinkedIn messages and emails to potential investors to see if they’re interested in the fund’s SPVs. He said the SPVs can charge 2% management fees every year for up to five years, which could add up to 10%.
He said that the fund, which he wouldn’t name, has SPVs to invest in valuable AI companies, like Perplexity and OpenAI. In his cold outreach, he mentions the company’s valuation, the SPV’s fee structure, and the minimum investment. If the potential investor is interested, he’ll then connect them to the fund manager, who will share diligence documents.
Many of the potential investors he’s contacted, he said, have expressed interest in the deals.
Lack of transparency
According to Feinzaig, another concern with multi-layered SPVs, is that the further away the investor gets from the original investment, “the less clear it is where you fall when that company does actually have some kind of liquidity event.”
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“Who knows where in the waterfall you would ever be,” she said. “Who’s responsible for calling you?”
Shashi Tripathi, managing partner at Nurture Growth Fund, said he’s been approached repeatedly to invest in SPVs, including one to invest in buzzy AI search company Perplexity with a 10% management fee. When he’s questioned who the original investors are on the top of the layers of the SPV, they’ve refused to divulge that information, he said.
It’s often impossible to know who controls the layers, making it tricky should investors want to cash out, Raghavan said. Worse, with such a complex web of underlying entities, investors may have no idea whether they’re being exposed to bad actors. While the first couple layers could be legitimate, he said, “layer number three could be a complete fraud.”
Gurley sees the rise of SPVs as antithetical to the notion of being a venture investor, who he believes should be more tied to a company’s fate.
“It feels a bit like you are ‘monetizing your relationship’ versus ‘making a bet,’ Gurley said, using a poker analogy to explain the risk of all upside without having skin in the game.
”For an investor that puts none or very little of his money upfront, the SPV is a ‘free roll,’ Gurley told Business Insider. “You collect the management fee, and if it works, you get paid. If it fails, there’s no cost at all. So it promotes very risk-seeking behavior.”
Many SPVs are legitimate
The number of SPVs on Carta, a private investment platform, increased 116% from 2019 to last year. Despite the many concerns over SPVs, some investors defend them as an effective way for a broader set of investors to access companies — when they are done legitimately.
After passing on multiple SPV deals that looked suspicious, Suro Capital’s Klein eventually invested in an OpenAI SPV offered by ARC Invest last year. He said he felt comfortable with the deal because ARC owned it and he knew exactly what he was getting.
“I’m hopeful that the evolution of the SPV business has come and that there are legitimate people who have legitimate access and are able to package it in a way that provides access for a larger group of folks,” Klein said.
If his firm had wanted to invest directly in OpenAI, he said the minimum check size would have been $250 million. Since he didn’t have that much to invest, the only option was an SPV.
According to one angel investor, who requested anonymity, “If the only way for me to buy OpenAI shares is to pay performance fees and annual fees, I see why people want to get in.” But, he added, if an investor holds these investments for five or six years, “the fees will eat half your money or half your return before you even get a dollar back.”
Bhavya Kashyap, an angel investor in San Francisco, said she understands why people could be lured by these deals: the job market is difficult, and home ownership continues to feel increasingly out of reach.
The rise of these lucrative AI companies, coupled with a desire to find additional ways to make money, has created an environment, she said, where “you have tertiary groups of people who understand how these investment vehicles work, and are taking advantage of the situation.”
“It’s like a mad race going on in the AI space where people just don’t want to be missing out,” said Tripathi, the Nurture Growth Fund managing partner. “But they’re not realizing all this layering and the dilution.”
Meanwhile, from the company’s perspective, SPVs help raise lots of money quickly; OpenAI is reportedly raising $40 billion and CEO Sam Altman has spoken about needing to fund trillions of dollars worth of infrastructure. “Everyone wants to buy the shares at this time, and so it’s great for the companies issuing capital,” said the angel investor who requested anonymity. “They’re raising at great valuations.”
As investors continue to throw billions of dollars into these AI companies, there’s fear that a bubble could be forming — and that the investors scurrying to get access now could one day lose significant amounts of money.
“If AGI doesn’t come to pass sometime soon,” Kashyap said, referring to the race among AI companies to achieve artificial general intelligence, “I wouldn’t be surprised if this whole thing pops.”
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