SPVs and Forward Contracts in Pre-IPO Investing

Last reviewed on 27 April 2026

If you have looked at a pre-IPO deal on a platform like Forge, EquityZen, or Hiive, the access structure was almost certainly an SPV or a forward contract. Both let an investor get economic exposure to a private company without holding the company's actual shares. Beyond that, they diverge — on ownership, on fees, on what you can expect at IPO, and on how the IRS treats your eventual gain.

This page sets out the mechanics of each structure, walks a worked example side by side, and lists the questions to ask before signing the subscription documents. It is meant to be read alongside our broader guide to buying unlisted shares.

What an SPV Is

A Special Purpose Vehicle in this context is a single-purpose limited liability company (almost always a Delaware LLC) created by a sponsor to acquire shares of one private company. Investors do not own the company's shares directly. They own membership interests in the SPV, and the SPV owns the shares.

The structure looks like this:

1. Sponsor forms NewCo SPV, LLC.
2. Investors subscribe to the SPV and wire capital.
3. The SPV pools that capital and buys shares of the target company on the secondary market or directly from a seller.
4. The SPV holds those shares for the duration of the investment.
5. On a liquidity event — IPO, acquisition, secondary tender — the SPV converts or sells, takes its fees, and distributes proceeds.

From the investor's seat, an SPV behaves like a tiny single-asset fund. There is a manager, a capital account, an annual K-1, and a fee schedule. Voting rights, information rights, and any Right of First Refusal sit with the SPV manager, not with you.

Where SPVs Show Up

• Late-stage primary rounds where the company will not accept hundreds of small subscribers and a sponsor aggregates them.
• Secondary purchases of large blocks where a single seller wants one counterparty rather than dozens.
• Platform listings labelled "fund-style," "pooled vehicle," or "Series interest."

What a Forward Contract Is

A forward contract in pre-IPO investing is a private agreement in which a current shareholder (typically an employee) agrees to deliver the proceeds of their shares to the buyer at a future liquidity event, in exchange for cash today. The seller still legally holds the shares; the buyer holds a contractual claim on the eventual proceeds.

The mechanics:

1. Buyer and seller agree on a price per share. The buyer pays now.
2. The seller signs a contract committing to deliver, on a defined liquidity event, either the shares themselves or the net proceeds from selling them.
3. The shares stay in the seller's name on the company's cap table, which avoids triggering the company's Right of First Refusal.
4. At the liquidity event, the seller fulfils the contract — usually by remitting cash after the lock-up clears.

Forwards became popular precisely because they sidestep transfer restrictions. If a private company refuses to consent to a direct share transfer, a forward gives the buyer economic exposure without a transfer of record.

Where Forwards Show Up

• Companies with strict transfer policies that block ordinary secondaries (some pre-IPO unicorns explicitly disallow them).
• Deals where the seller cannot, or will not, exercise stock options before sale.
• Platforms that label deals as "forward" or "synthetic."

Side-by-Side: SPV vs Forward Contract

A Worked Example

Imagine a buyer paying $250,000 for exposure to 5,000 shares of a private company at $50 per share. Compare the all-in economics under each structure if the company IPOs three years later at $120 per share, the lock-up clears six months after IPO at $90, and the SPV sponsor charges a 2% setup fee plus 15% carried interest.

Through an SPV

• Setup fee at close: 2% × $250,000 = $5,000. Net invested in shares: $245,000 (effective cost basis ≈ $49 per share).
• Lock-up clears at $90; SPV sells. Gross proceeds: 4,900 shares × $90 = $441,000 (after the SPV manager allocates a small reserve).
• SPV gain over net invested: $441,000 − $245,000 = $196,000.
• Carried interest: 15% × $196,000 = $29,400. Distributed to investor: $441,000 − $29,400 = $411,600.
• Investor return: $411,600 / $250,000 ≈ 1.65× over three and a half years.
• Reported as a long-term capital gain on a K-1 if the SPV held the shares more than 12 months.

Through a Forward Contract

• Buyer pays $250,000 at signing for the right to 5,000 shares' worth of proceeds. No carried interest; the seller's spread is already in the price.
• At IPO + lock-up, the seller sells at $90. Gross proceeds owed to the buyer: $450,000.
• Platform or escrow fees, plus any settlement adjustments, often shave 1–3% off — assume $9,000. Net to buyer: $441,000.
• Investor return: $441,000 / $250,000 ≈ 1.76× — slightly better than the SPV in this scenario because there is no carried interest.
• Tax treatment depends on whether the contract is settled in cash or shares and on when constructive receipt occurred. Often reported as short-term capital gain unless structured carefully — talk to a tax professional.

Two takeaways. First, headline price-per-share is not the right comparison; carried interest and spreads matter. Second, the forward looks better in this scenario but assumes the seller remained employed, did not file for bankruptcy, and the company's transfer language did not catch the contract.

Counterparty Risks Specific to Each Structure

SPV-Specific Risks

• Sponsor quality. The SPV manager controls voting, distributions, and any consents the company asks for. Read the operating agreement before relying on the brand of the platform that listed the deal.
• Fee creep. Some SPVs add ongoing administration fees, "performance fees" tiered above the carry, and reimbursable expenses. Aggregate the lifetime cost, not just the headline carry.
• Forced exits. If the SPV cannot extend its term, it may sell at a worse price than a patient holder would.
• Pro-rata rights. SPVs rarely pass through pro-rata participation in future rounds, so dilution accelerates.

Forward-Specific Risks

• Seller default. If the seller leaves the company, fails to exercise their options on time, or has the shares clawed back, the forward unwinds in unpredictable ways.
• Transfer-restriction enforcement. Some companies' equity documents prohibit "synthetic" transfers and define forwards as a deemed transfer. A breach can void the seller's shares or trigger the company's repurchase right.
• Tax ambiguity. Forwards have been the subject of IRS scrutiny because they can be used to defer or recharacterise gains. Conservative structuring is essential.
• Settlement risk at IPO. The seller must actually sell post-lock-up at the agreed terms. Disputes about timing, brokerage choice, and net-of-tax obligations are not unusual.

How to Choose Between Them

There is no universal answer. Use the following decision criteria, in order:

1. Can you actually buy the shares directly? If yes, and you can absorb the minimum, direct ownership beats both SPVs and forwards. Move down the list only when direct purchase is not on the table.
2. Does the company permit secondary transfers? If yes, an SPV is usually cleaner than a forward because the structure is well understood and the chain of title is documented.
3. If transfers are blocked, who is the seller? A long-tenured employee with vested, exercised shares is a much safer forward counterparty than a still-vesting employee whose stock could revert.
4. How long until exit? Forwards with an open-ended exit window pile up risk. SPVs at least have a defined sponsor responsible for managing time and renewals.
5. What is the all-in fee load? Compute total fees-and-carry against expected gross gains under realistic scenarios — not just the IPO-pop case.

Due Diligence Checklist Before Signing

Before committing capital to either structure, work through this list:

• Read the operating agreement (SPV) or the forward purchase agreement end-to-end. Pay attention to indemnities, dispute resolution, and unwind triggers.
• Identify every fee: setup, ongoing, performance, settlement, and reimbursables.
• Confirm the seller's authority to sell — exercised options, vested status, no outstanding clawback.
• Get clarity on the cap-table treatment. Will the company recognise the deal? Does it have a record of approving similar structures?
• Understand tax reporting before close. Ask which forms you will receive and when.
• Assess what happens if the company stays private for 7+ years. Renewal terms, fee step-ups, forced sales — they all matter.
• Stress-test the downside. If the IPO never happens or comes in at a down round, what do you actually receive?

For more on platform-level mechanics, see our platform comparison. For tax treatment of eventual gains, the tax-implications guide covers QSBS, AMT interactions, and capital-gains rules. The glossary has short definitions of SPV, forward contract, ROFR, and 409A for quick reference.

Bottom Line

SPVs aggregate capital and trade simplicity for fees and a layer of intermediation. Forward contracts preserve the cap table and trade simplicity for counterparty and legal risk. Neither is universally better. The right structure is the one that fits the specific company, the specific seller, and the specific exit timeline you are betting on — and the only way to know that is to read the documents and price each scenario.