SpaceX will go public for the first time on Friday, and some investors who backed the company through special purpose vehicles (SPVs) still don’t know how many shares they’ll be entitled to or whether they’ll get any shares at all.
Investing through SPACs, where multiple parties pool their money to invest in a single company, has been around for a while. But SpaceX represents an unprecedented case of an IPO with multiple layers of these vehicles. Because demand for SpaceX allocations has been so high in recent years, SPAC investors have occasionally formed a new SPAC from their shares, creating a stacked structure sometimes four or five layers deep.
SpaceX will be the first major test of the legitimacy of a multi-layer SPV. In recent months, Anthropic and Anduril announced that they would no longer allow these structures.
Roughly a dozen SPV managers and secondary market investors who spoke to TechCrunch said that backers of lower-level vehicles may find they own fewer shares than they thought, or in rare cases, may not get any shares at all.
In most cases, these investors won’t know how many SpaceX shares they actually own until the company’s ongoing shutdowns, which are scheduled to take place over the course of about four months, begin to lift. This is because the SPV managers will not start distributing shares to investors in these vehicles until they have access to the shares themselves, sources told TechCrunch. Lock-up agreements prevent insiders, including employees, their friends and family, and venture investors, from selling shares for a specified period after the IPO to prevent excessive selling pressure on the stock.
The Tier 1 SPAC will have 30 days to distribute shares to its investors, said Justin Ernst, founder and managing partner of Sabertooth Capital, a firm that primarily invests in Tier 1 SPACs. Therefore, the next tier likely won’t get their stock for up to 30 days, meaning the car below will have to wait longer to get the stock to its backers. For final drainage, the lower SPV may have to wait eight or nine months, Ernst estimates.
A secondary investor, who requested to remain anonymous, told TechCrunch that some investors in “messy” layered SPACs will be surprised to learn that some of the shares they expect to receive will be “eroded by fees” held by the SPAC.
Ideally, the SPV manager communicates its vehicle to investors as of the IPO date. “The problem is that you have a communications train where everyone only knows what is happening in the layer above them,” the secondary investor said.
In short, the structural ownership of these instruments has become so complex that even well-intentioned SPAC sponsors may end up inadvertently misleading their investors.
The biggest concern for SPV investors is that they may not get any shares in SpaceX.
Giovanni Pennetta, director of Sestanti Capital, was recently sentenced to four years in prison for fabricating access to non-existent allocations at defense technology company Anduril.
The fear, of course, is that Benita isn’t the only dishonest shepherd out there. Investors at the bottom of these structures had to confirm that every manager above them was legitimate. But given the chaotic structures of these deals, it’s possible that some buyers haven’t scanned the entire series.
“A friend just shared a trust – they bought SpaceX through a two-layer SPV in 2021. The returns should be worth any fees, only problem – the SPV manager has stopped answering emails or calls,” posted Nick Davidov, founder of investment firm Davidovs Venture Collective. On X last month. He wrote that the investor had not heard from the SPV manager for a year.
Aidan Miller, managing partner at secondary market Unicorns Exchange, is convinced that a few more bad actors will be uncovered once the lock-up period is over.
“Once the stock lock is removed, and these SPACs start selling stock, there will be some vehicles that will be exposed as scammers or scammers,” Miller told TechCrunch.
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