I definitely recommend follow-on via SPV rather than the originating fund. And if you really want to be a good fiduciary to your LPs, you might consider pushing your SPV carry back into the originating fund (or at least some of it).
Another strategy which may make sense if your initial check size is at least $500K-$1M is to make your initial investment via SPV from the very beginning (where your fund is 100% of the SPV capital). Then you can use the SPV both to follow-on in subsequent rounds, as well as perhaps transfer some of the fund ownership to other SPV LPs (or even your own continuity vehicle) in order to generate liquidity / DPI for the fund. Obviously there are some tradeoffs here for TVPI vs DPI, however you can more efficiently manage liquidity within the SPV by keeping the same entity on the cap table.
SignalRank has done 45 follow on financings for seed stage partners since mid 2023. We create the SPV, fund it and offer carry, outside of the partnership fund. It preserves their main fund yet delivers additional carry.
I definitely recommend follow-on via SPV rather than the originating fund. And if you really want to be a good fiduciary to your LPs, you might consider pushing your SPV carry back into the originating fund (or at least some of it).
Another strategy which may make sense if your initial check size is at least $500K-$1M is to make your initial investment via SPV from the very beginning (where your fund is 100% of the SPV capital). Then you can use the SPV both to follow-on in subsequent rounds, as well as perhaps transfer some of the fund ownership to other SPV LPs (or even your own continuity vehicle) in order to generate liquidity / DPI for the fund. Obviously there are some tradeoffs here for TVPI vs DPI, however you can more efficiently manage liquidity within the SPV by keeping the same entity on the cap table.
dave you are selling our product for us
SignalRank has done 45 follow on financings for seed stage partners since mid 2023. We create the SPV, fund it and offer carry, outside of the partnership fund. It preserves their main fund yet delivers additional carry.
As we discussed several years ago Keith, I think this is a great model!