- A continuous fund creates one standing vehicle that can accept capital and make investments over time, instead of a new SPV per deal
- Fund level carried interest is generally paid only after the fund returns all called capital or beats a blended hurdle, harder to achieve early than deal-by-deal carry
- Most early stage managers register as an Exempt Reporting Adviser rather than a full RIA, provided venture assets stay under 150 million dollars
- Existing SPV investors generally cannot simply be moved into a new fund without reviewing legal, tax, and regulatory implications first
- Avestor supports both SPV and fund structures so managers can transition at their own pace, per Avestor's About page
For fund managers and deal sponsors, moving from deal-by-deal SPVs to a continuous fund structure can reduce repetitive fundraising and administrative work while creating a more scalable capital base. Instead of creating a new entity, offering document, investor onboarding process, and reporting structure for every transaction, a continuously offered fund provides one standing vehicle that can accept capital and make investments over time. Avestor's Customizable Fund is designed around this concept.
Why Deal-by-Deal SPVs Become Difficult to Scale
A Special Purpose Vehicle is commonly created for a specific investment or transaction, and the structure works extremely well for individual transactions. The problem appears when the number of deals increases, a manager completing six transactions may have to manage six separate entities, multiple sets of offering documents, separate bank accounts, and multiple tax reporting obligations. There is also a fundraising problem, when every transaction requires a new raise, the manager must repeatedly approach investors and complete the subscription process, constantly raising money for the next deal instead of building a repeatable capital infrastructure, often called the SPV treadmill.
Continuous Fund vs Deal-by-Deal SPV
| Feature | Deal-by-Deal SPV | Continuous Fund |
|---|---|---|
| Investment vehicle | Usually new vehicle per deal | One standing vehicle |
| Fundraising | Repeated for each deal | Ongoing |
| Investor onboarding | Repeated | More centralized |
| Administration | Fragmented across entities | Consolidated |
| Carried interest | Deal-by-deal basis | Whole-fund basis, generally after a hurdle |
| Scalability | Can become difficult with volume | Designed for recurring activity |
Neither structure is automatically better for every manager. A single SPV may be the most appropriate solution for a one-off transaction, a continuous fund may become more attractive when the manager has a recurring investment pipeline and an established investor base.
Why Managers Transition From SPVs to a Continuous Fund
The transition usually happens when the operational benefits of consolidation begin to outweigh the simplicity of individual SPVs. Increasing deal volume makes duplicated administrative work more noticeable once a pipeline grows to several deals each year. A growing investor base means repeat investors may not want to complete an entirely new onboarding process for every investment. Recurring investment opportunities, private credit, hard money lending, mortgage lending, real estate, and other alternative assets, make a continuous structure particularly useful. And building a permanent capital base helps a manager think strategically about an ongoing investment platform rather than treating every deal as a separate project.
How Does the Transition Work?
Moving from SPVs to a continuous fund should generally be treated as a new fund formation and operational transition, rather than simply combining existing entities.
- 1. Evaluate the Existing SPV StrategyReview number of annual deals, average deal size, investor count, repeat investor percentage, and administrative workload to determine whether a continuous fund makes economic and operational sense.
- 2. Define the Fund StrategyDetermine the investment strategy, eligible investments, fund duration, investor eligibility, capital commitments, fees, and distribution mechanics, developed with qualified securities counsel.
- 3. Establish the FundCreate a new fund entity and governing documents, typically a Private Placement Memorandum, Limited Partnership Agreement or Operating Agreement, and Subscription Agreement.
- 4. Establish Investor OnboardingStandardize investor registration, KYC and AML procedures, accreditation verification, subscription documents, and electronic signatures, centralizing workflows to reduce repetitive administrative work.
What About Existing SPV Investors?
Existing SPV investors generally cannot simply be moved into a new fund without reviewing the legal, tax, economic, and regulatory implications. Depending on the circumstances, a manager might keep existing SPVs operating until their investments are realized, invite existing investors to participate in the new fund, use the new fund for future transactions only, or operate SPVs and the fund simultaneously during a transition. The appropriate approach depends on the existing documents, investor agreements, and applicable securities laws, this is an area where fund managers should work with qualified legal and tax professionals.
How Carried Interest Changes Between SPVs and Funds
SPV carry is typically paid on a deal-by-deal basis, meaning a manager can earn carry on a single successful asset regardless of how other deals perform. Fund carry is generally paid only after the fund returns all called capital or beats a blended portfolio hurdle, meaning winning investments must offset underperforming ones before carry is earned. This makes fund level carry harder to achieve early on, a real economic tradeoff managers should understand before transitioning, alongside typical management fees commonly cited around 1.5 to 2 percent and a preferred return commonly cited around 6 to 8 percent.
Regulatory Registration: ERA vs RIA
Most early stage fund managers register as an Exempt Reporting Adviser rather than a full Registered Investment Adviser. Under the venture capital exemption, this generally keeps regulatory paperwork lighter if managed venture capital assets stay under 150 million dollars. State notice filings and annual state compliance fees generally still apply regardless of ERA status, exempt status is not the same as no regulatory obligation at all.
Legal Documents and Vendor Infrastructure Needed
Launching a continuous fund typically requires a Private Placement Memorandum detailing the investment strategy, risks, and terms, a Limited Partnership Agreement as the binding contract between the General Partner and Limited Partners, and a Subscription Agreement for investors to legally commit capital. Managers also generally need a fund administrator to track capital calls, NAV calculations, and distributions, an audit firm to produce annual GAAP-compliant financials, and legal counsel to draft the LPA and manage ongoing blue sky filings.
How Avestor Supports the Transition
Avestor offers infrastructure for managers using both SPV and syndication structures and fund structures, allowing managers to select an approach that fits their stage of growth. Its Customizable Fund is designed around a continuous offering model where investors can potentially select individual investments within the broader fund framework. The platform supports fund formation, investor onboarding, KYC and AML workflows, electronic document signing, investor reporting, capital calls, distributions, and investor portal access, helping managers move toward centralized operational infrastructure without giving up the ability to present individual investment opportunities to investors.
Continuous Funds for Private Lenders
The continuous fund model can be especially relevant to private lending and mortgage fund managers. A hard money lender originating 30 loans per year creating a new SPV for every loan can end up with dozens of entities and separate administrative processes. A continuous lending fund instead provides a standing vehicle through which capital is raised and deployed across eligible loans, supporting a revolving loan book where proceeds from repaid loans can be redeployed into new opportunities according to the fund's governing documents.
What Does It Cost to Make the Transition?
The cost depends heavily on the fund structure, legal requirements, jurisdiction, fund size, and services selected, covering legal and fund formation costs, securities counsel, state registration fees, fund administration, accounting, tax reporting, and technology. A continuous fund can have higher upfront formation costs than creating a single SPV, but the economics may become more attractive as deal volume increases because the manager isn't repeatedly recreating the same infrastructure. The important question isn't simply which structure costs less, it's which structure produces the lowest total operational cost relative to expected deal volume, capital raised, and investor activity.
When Should You Consider Moving Away From SPVs?
Several signals suggest it may be time to evaluate a continuous fund, repeatedly raising capital from the same investors, a predictable deal pipeline, managing several active SPVs, investors asking for a simpler experience, administrative work taking time away from deal sourcing, and wanting to build a long term investment platform rather than individual transactions. If several of these apply, it may be worth evaluating a continuous fund structure with legal and fund administration professionals.
Authoritative Resources
Related Avestor Resources
Frequently Asked Questions
Key Takeaways
- A continuous fund structure creates a standing investment vehicle that can support ongoing fundraising and multiple investments without a new SPV per deal.
- Fund level carried interest is generally harder to achieve early than deal-by-deal SPV carry, since winning investments must offset underperforming ones first.
- Most early stage managers register as an Exempt Reporting Adviser, provided venture assets stay under 150 million dollars, though state filings still apply.
- Existing SPVs don't need to disappear immediately, managers can transition gradually while continuing to operate existing investments.
- Avestor's Customizable Fund supports managers using both SPV and fund structures at their own pace, per its About page.