Software is eating the world, including the venture industry. Carta and Assure have made it easier than ever for people to band together on deals. AngelList's venture arm debuted new ways to create rolling funds. But the latest startup to challenge the incumbents in the space is Allocations, a Miami-based startup that's making it easy to create and close special purpose vehicles, or SPVs, in hours.
"If you look at Pinduoduo and group shopping, SPVs are group investing," said Kingsley Advani, Allocations' founder and CEO. Instead of one investor having to cough up millions, multiple people can write smaller checks in an SPV and invest as a cohort. It's a trend that's taken off in 2021 as investors compete to get into hot startups.
"Typically for a company like Robinhood or Coinbase or SpaceX back then, if you're an individual, you'd need to do $5 million on your own. SPVs let you dice that up and you can come in with much smaller minimum checks," Advani said.
Launched in 2019, Allocations is emerging from stealth having raised $4 million at a $100 million valuation. Investors include people like r/WallStreetBets founder Jaime Rogozinski and DoNotPay founder Joshua Browder, who not only invested, but also used Allocations to raise his own fund through the service, Advani said.
Allocations is targeting sub-$10 million private equity transactions and is focused on SPVs and funds to start. It's also eyeing a Regulation CF product to allow startups to crowdfund on the service (that one requires more financial regulations to jump through before it can launch). So far, customers have used its platform to create SPVs to invest in startups like Pipe, Relativity Space and BlockFi.
"It allows people to have access to an investment that they wouldn't usually have access to," Advani said.
Advani should know: He got his start investing in tech companies through SPVs. He had done some early investing in bitcoin around 2013, but in 2017, he started an investor group with friends on a Slack chatroom to co-invest in deals. The process of creating an SPV was challenging, and frustrated, Advani decided to build his own tools to make it easier.
"If you look at the $2.9 trillion raised annually [in private equity], only a small subset is done digitally or with technology companies. Most of it is done with lawyers, manual accountants and manual compliance, so there's a huge growth of the digital providers," he said.
Allocations is currently doing $4 million in ARR from the fees it charges for SPV and fund formation. Its ambition isn't to take over fund management and SPVs for bigger firms, but to target emerging fund managers and angel investors. It'll have to compete with existing providers, like Carta and Assure, but as SPVs become more popular, it only grows the pie of who can invest.
"The product is not for Big VC. It's about making a more equitable private equity market and putting investments in the hands of more people," Advani said. "I feel like the VCs have guarded the VC industry for too long, and now the long tail of investors have the chance to participate."