Odin’s latest SPV survey argues that the traditional 10-year closed-end blind-pool fund is facing a structural challenge in venture capital. The report says smaller managers are increasingly replacing a single large fund with a hybrid model built around a micro-fund and deal-by-deal SPVs, or special purpose vehicles, in an effort to reduce blended fees for LPs while keeping GPs focused on early-stage investing.
Among 56 GPs surveyed, 84% have either already used SPVs or plan to use them. Of that group, 47 said SPVs are used, or are expected to be used, for follow-on capital.
Why the 10-year blind pool is under pressure
Traditional venture capital has long centered on the 10-year closed-end blind-pool fund. LPs commit capital to a GP for a decade, often longer in practice, and usually do not have decision-making power over individual investments. The GP can then invest within the agreed mandate.
That structure requires a high level of trust. As the article frames it, the model was originally built for early-stage firms managing single-digit millions or low tens of millions of dollars. At that time, by the point a company looked like an obvious opportunity to LPs, it was often already close to an exit.
The market now looks different. Companies raise more rounds, rounds are larger, and LPs have become more sophisticated. Many LPs are former founders or executives with deep strategic knowledge, which lets them identify attractive opportunities earlier and makes co-investment decisions easier.
The report’s argument is that blind pools should not remain the default option forever. They serve a purpose in the earliest phase, when venture investors must form conviction before the broader market does. Once a company starts to show stronger metrics or market position, potentially as early as Series A and at least by Series C in the article’s framing, lower-fee co-investment tools may be a better fit. In that setup, capital costs fall and LPs with aligned interests can gather around the same opportunity.
Odin says the frictions involved in setting up a deal-by-deal SPV have dropped over the past five years as back-office infrastructure improved. Independent GPs and small firms can now use two complementary tools at the same time:
- a small fund that gives LPs diversified exposure to high-risk, hard-to-underwrite early opportunities, described in the article as an options-like basket; and
- selected co-investment opportunities that let LPs increase exposure as a company becomes more compelling.
The article says both approaches still have their place, depending on LP base and GP preference. At the same time, it argues that small managers increasingly need SPVs to access follow-on capital, while some SPV-first managers may be comfortable operating without a fund at all.
“The best investments I’ve been involved in all had weird ownership structures — a little bit added later, plus some opportunistic layers on top. The moment you try to force something as messy as early VC into a rigid model, you end up forcing the wrong way of thinking,” Enrico Melis of Animal Syndication Company said in the article.
The piece also notes that early-stage companies once relied on relationships with large late-stage investors to secure follow-on capital. That strategy has become riskier in recent years as the market has concentrated into fewer companies and those larger investors have narrowed the range of opportunities they want to back. The article adds that there have even been reports of large firms undermining fundraising for smaller funds in an effort to control more of the market.
There is also room, the article says, for mid-sized funds that have enough capital to keep supporting portfolio companies in later rounds. If those firms allocate reserves with what it calls a reasonable process-alpha strategy, they may be able to deliver attractive returns from a larger pool of capital. Still, the report argues that this may not suit smaller firms: scale can weigh on performance, and growing companies inevitably move toward consensus, reducing the agility that independent investors and small partnerships bring at the frontier.
A PitchBook analyst report quoted in the article said: “LP co-investment activity is expected to steadily increase over the medium term. As more institutional investors build internal resources and portfolio infrastructure to co-invest consistently across a diversified set of deals, the gradual institutionalization of direct programs at large LPs will improve the risk-return characteristics of the strategy and expand the pool of LPs able to execute selectively.”
The article says demand for co-investment in venture has become a running joke: everyone wants it, but not everyone seems to know how to use it. It describes that as a likely growing pain as the industry starts to treat co-investment as an ideal standard, similar to what private equity has already done. Better tools, standards and talent may follow as practice matures.
Back-office changes have lowered SPV friction
The piece also argues that a large part of the current appetite for co-investment rights in venture is being driven by FOMO and a blunt application of power-law thinking. In practical terms, when investors come across a “hot” portfolio company, LPs want the chance to buy in directly for both status and IRR optics.
At the same time, the article says this behavior is often opportunistic, and many LPs do not yet have the understanding or process needed to underwrite those investments well. In that sense, LPs are still on a learning curve.
One example cited is that, in a difficult fundraising market, some LPs pressure emerging managers to offer SPVs with zero management fee and zero carry. The article argues that eliminating carry is a poor way to align incentives unless the LP’s main objective is simply to harvest deal flow. It also says this treatment of co-investment helps explain why GPs often default to inflating fund size.
Even with those frictions, the article says co-investment activity will continue to rise. It describes that trend as a natural market response to the desire to maximize access to investment opportunities while reducing blended fee costs.
The author adds that earlier work had already examined how private-equity-style co-investment rights and fee schedules could improve the economics of mega-funds in venture, and says the same logic applies at the smaller end of the market.
A $10 million micro-fund versus a $38.3 million fund
To illustrate the point, the article sets out two hypothetical structures.
In the first, a manager raises a $10 million micro-fund to support 30 initial investments of $250,000 each, then uses deal-by-deal SPVs for selected follow-ons. The SPV terms in that example assume a 2% GP commitment, no management fee and 10% carry.
In the second, the manager raises a $38.3 million fund. That vehicle is large enough to make the same initial investments and the same follow-ons entirely inside the fund, without any SPVs.
The article assumes both portfolios produce the same outcome and return 4x gross. Under that assumption, the micro-fund structure comes out ahead on DPI because fee drag is lower.
It also acknowledges the trade-off for an emerging GP charging a 2% management fee: less immediate income. Even so, the article says the smaller fund should close faster, put up stronger performance, and make the next fundraise easier. It goes on to argue that if a $10 million fund is more likely than a $38.3 million fund to achieve a higher multiple, the carry compensation gap closes quickly. At the same time, the GP still has salary support and LPs still get access to attractive deal flow.
The piece boils that down to a blunt proposition: income should be tied to performance.
The bigger issue is incentive alignment, not just math
The article then says the numbers are only part of the picture. A micro-fund may win mathematically, but that is not the main point.
What matters more, it argues, is that the GP of a micro-fund is more tightly aligned with the success of the investments. The hybrid structure favors what the author calls missionary GPs rather than fee-driven mercenaries, and that should systematically improve decision-making and returns.
Smaller funds also allow GPs to operate more effectively as independent investors, maximizing the surface area of their distinctiveness. They do not face pressure to make hires that may not be necessary simply to justify fee income. Their fund is also small enough to stay focused on the earliest stage, without being forced into larger and later rounds. The article presents that as an ideal setup for investors who are strongest at the frontier.
Another PitchBook analyst quote in the piece says: “Co-investment rights have become one of the clearest tools for small and emerging managers to demonstrate access to deals and deepen LP relationships. Offering co-investment rights gives LPs a concrete reason to commit capital to lesser-known managers even while they are managing liquidity pressure in the current environment.”
The article says the market is evolving and that smaller managers are getting better at using deal-by-deal terms. It links that shift to fundraising resistance and the broader concentration of capital. In that context, SPVs have become an important lifeline for managers trying to keep supporting portfolio companies in follow-on rounds.
The transition is still incomplete, however. The article says there is more work to do before LPs can accept SPVs more comfortably and capture the performance benefits that can come with them. Part of that is infrastructure, but the bigger issue is education. GPs and LPs both need to understand the standards that exist today and how those standards can improve.
Odin says that was the backdrop for its survey of 56 GPs earlier this year.
The survey page cited in the article is https://spvsurvey.joinodin.com/.
Of the 56 respondents, 51 invest at the Pre-Seed or Seed stage, 80% manage funds smaller than $100 million, and 61% have five years or more of venture experience.
Survey data: 84% already use SPVs or plan to
The article says 39 of the 56 surveyed GPs are already using SPVs. Of those, 16 use them frequently and 23 use them occasionally. Among the 17 not currently using SPVs, another 8 plan to start in the future, bringing current and expected users to 84%.
Adoption is highest among more experienced GPs and among managers running funds in the $50 million to $100 million range. The article’s explanation is that these managers often have networks capable of supplying capital, but not enough reserves inside the fund to fully support follow-on investing.
The leading use case is follow-on capital. Of the 47 respondents who use or expect to use SPVs, 39 cited that purpose.
“Our seed fund invests at the earliest stage. We use a light-reserve model and instead use SPVs directly for growth rounds. That makes a $20 million fund feel much larger for our companies and lets us deploy more capital into winners without running out of money,” Amy Brandenburg of Denver Ventures said in the article.
The report also breaks down SPV economics. Management fees in the 0%-0.5% range are described as the clear norm, cited by 45% of respondents. The most common carry band is 16%-20%, cited by 46%, while 26% charge only 1%-10% carry. Two-thirds of managers pass setup and administration costs through to LPs at cost.
On GP lead commitments, 44% contribute only 0%-0.5%, while just 27% commit 2% or more.
The article says these differences in market practice show there is room to set better standards, improve outcomes and remove friction from the process. The goals it lays out are to lower costs for GPs, make sure they have real skin in the game, keep them focused on the quality of results rather than fee expansion, and reward LP loyalty with pro rata access.
Odin’s template for better-aligned SPV terms
“As a rule, we believe in dancing with the ones who brought you. So while SPVs can help bring in new LPs, existing LPs always get first access to the opportunity,” Dan Kimerling of Deciens said in the article.
For cases where a GP uses an SPV to fund follow-on capital into a company already backed by the fund, the article lays out a suggested template:
- GP commitment of at least 2%
- 0 management fee
- 10%-20% carry
- formation costs borne by LPs at cost
The article adds that there will always be exceptions. If an SPV is unrelated to the fund, GP commitment may be better understood as a percentage of the lead investor’s net worth rather than a fixed minimum.
It also draws a line around misuse. SPVs should not be used to hide the economics of a deal or to insulate fund performance from the consequences of excessive risk. They need to be structured and offered with transparency, honesty, a clear purpose and aligned incentives, the article says.
“An SPV is just a tool. It doesn’t make sense to love or hate them in the abstract. Strong feelings should be reserved for how they are structured, whether there is two-way transparency, and how they are managed,” Helen Min of Articulate said in the article.
What the article says LPs need to do next
The final section turns to LP behavior. If smaller funds perform better, the article argues, then a standard fee structure that pushes managers to scale up is hard to justify.
In that framework, if continued outperformance depends on staying at the right fund size, preserving the same strategy, organizational footprint and target opportunity set, then strong small managers should have room to raise fee percentages rather than simply enlarge the fee base.
That is why, the article says, LPs should expect these managers to use SPVs to handle additional capital when supporting founders. In the author’s view, that arrangement is economically favorable for LPs because it improves alignment and reduces fee drag.
LPs, in return, need to be better prepared to participate in these deals. The article says they must understand the relevant terms, the cost of not honoring commitments, and the portfolio approach needed to capture performance upside. They also need to be willing to compensate successful co-investment with meaningful carry.
The piece ends by saying that as those elements come together over the next few years, the industry should become stronger. In its framing, a shift toward more developed co-investment is an overdue evolution away from overstretched 10-year vehicles and fee incentives that work against the intended outcome.