SPV Waterfalls and Carry, Explained: What to Check Before You Wire Money

On August 10, 2026, the SEC sued New York investment adviser Adit Ventures Management, its CEO Eric Munson, and three affiliated general partners, alleging the firm sold client funds pre-IPO shares it had marked up in secret and, in at least one case, claimed to own shares of a private company it did not actually hold. Read the SEC's August 10 press release and you'll notice the fraud didn't hinge on anything exotic. It hinged on the plainest question in a special purpose vehicle, or SPV: who gets paid, how much, and in what order, once the shares finally sell.

Why the SEC Is Suddenly Asking SPVs to Prove They Own What They're Selling

In late August and into September 2026, SEC examiners began asking registered investment advisers to produce records proving their SPVs actually hold, or are genuinely exposed to, the private-company shares those SPVs market to investors, according to reporting on a Wall Street Journal investigation relayed by Cryptopolitan. The examinations can run from several weeks to a year and can include document requests and in-person components. Regulators moved after a rise in investor complaints tied to a marketing frenzy around SpaceX's planned public offering and Anthropic's own IPO ambitions.

The scrutiny isn't theoretical. Linqto, a platform that marketed stakes in Ripple, SpaceX, and Anthropic to smaller investors, later found through an internal review that its customers never actually owned the securities they thought they'd bought. Linqto filed for bankruptcy, and the SEC is investigating. Both OpenAI and Anthropic have posted public warnings that any SPV interest, tokenized stake, or forward contract sold without board sign-off carries "no economic value" to the buyer. Anthropic has gone further, stating outright that it does not permit SPVs to acquire its shares at all.

Adit Ventures Management is the case that gives this problem a face and a dollar figure. Per the SEC's complaint, from April 2019 through December 2024 Munson and his firm ran more than 60 funds holding interests in companies including SpaceX and Klarna, raising money from over 1,000 investors. In one instance, the complaint alleges, Munson secured more than $15 million from a single investor by claiming a vehicle he controlled already held 32,000 Klarna shares. It held none. In more than 150 separate transactions between April 2019 and November 2023, general partners allegedly bought pre-IPO shares for themselves and then resold them to client funds at a markup, without the written disclosure and investor consent that Section 206(3) of the Investment Advisers Act requires for that kind of principal transaction. According to InvestmentNews' account of the filing, one general partner bought a SpaceX interest at $420 per share and sold it to a client fund at about $498, keeping a profit near $1,020,000. The firm also allegedly pledged client fund assets as collateral for a $10 million line of credit that helped pay the defendants' own obligations. The matter settled fast: a federal judge in the Southern District of New York entered judgments against Munson and the four affiliated entities on August 11, 2026, permanently barring further violations, with disgorgement and penalties to be set later.

What a Distribution Waterfall Actually Is

When a portfolio company sells, goes public, or otherwise creates a liquidity event, the cash doesn't get sprayed out to investors in simple proportion to their checks. It flows through a defined sequence of tiers, spelled out in the fund or SPV's governing documents, called a distribution waterfall. Nearly every fund and SPV structure builds on some version of four tiers, according to Carta's explainer on how distribution waterfalls work.

Tier one, return of capital. Investors get their original investment back, dollar for dollar, before anyone talks about profit.

Tier two, the preferred return or hurdle. If the deal includes one, typically 6% to 8% annualized, limited partners collect that minimum return on their capital before the manager touches any profit. Most single-company venture SPVs skip this tier entirely; a hurdle is far more common in institutional multi-company funds than in the one-off SPV a broker pitches you on a hot AI name.

Tier three, GP catch-up. If a hurdle exists, the manager then receives a disproportionate share of the next dollars, often 100% of them, until their take equals their agreed carry percentage of total profit generated so far. Without this tier, the manager's effective carry ends up lower than the advertised rate.

Tier four, the carried interest split. Everything left over gets divided between investors and the manager at the agreed ratio. The industry default is 80/20, but SPV carry runs a wide range. Sydecar, which administers SPVs, reports a median carry around 15% across its platform, per its guide to SPV distributions, while established managers on hot deals frequently push carry to 20%, and some single-company SPVs on the most sought-after names charge 25% to 30%.

A Worked Example: $100,000 In, a $250,000 Exit

Say you wire $100,000 into a single-company SPV built to hold a stake in a private AI company. No hurdle. Standard 20% carry. The company eventually has a liquidity event, and the gross proceeds attributable to your position come to $250,000.

Step one, return of capital. The first $100,000 comes straight back to you. That leaves a $150,000 profit pool.

Step two, no catch-up tier. Since there's no hurdle in this deal, the waterfall skips straight to the carry split.

Step three, carried interest. The manager takes 20% of the $150,000 profit, or $30,000. You keep the remaining 80%, or $120,000.

Step four, your total. You end up with $220,000: your original $100,000 plus $120,000 in profit. The manager collects $30,000 in carry, and that number is only the carry line. It says nothing about the fees you likely already paid on the way in.

Layer in the fee stacking that's typical of SPVs. A one-time setup or "acquisition" fee of 2% to 5% is common; at 3%, that's $3,000 taken at subscription, meaning only $97,000 of your original $100,000 was ever actually deployed. Some SPVs also charge an annual administrative fee, often around 1% to 2% of committed capital, which on a two-and-a-half-year hold could run another $5,000 to $6,000. Combine the setup fee, the admin fee, and the $30,000 in carry, and an investor who thinks they're netting $220,000 on a $100,000 check often lands closer to $210,000 to $212,000. That's a real-world drag of roughly $38,000 to $40,000, or about a quarter of the headline $150,000 profit, once every layer is counted.

The Double Promote: Paying Carry Twice Without Knowing It

The math above assumes your SPV holds the shares directly. Many don't. A growing share of retail-facing SPVs are actually feeder vehicles into a fund of SPVs, meaning your SPV buys a limited partner interest in a second entity that itself holds the underlying shares and charges its own carry. When that happens, you can end up paying carry twice on the same dollar of profit, a structure sometimes called a double promote.

Run the numbers. Suppose the true underlying exit, at the level of the fund that actually holds the shares, produces $280,000 in gross proceeds against your effective $100,000 commitment, a profit of $180,000. That fund's own manager takes a standard 20% carry on that profit, or $36,000, before anything moves down to your SPV. The SPV receives what's left: $244,000. Now the SPV's own waterfall runs on top of that. Return of capital first: $100,000 back to you, leaving $144,000 in profit at the SPV level. The SPV manager then takes its own 20% carry on that $144,000, or $28,800. You net $100,000 plus $115,200, for a total of $215,200.

Add up both layers of carry: $36,000 at the fund level plus $28,800 at the SPV level equals $64,800 taken from a true underlying profit of $180,000. That's a combined effective carry rate of 36%, nearly double the 20% figure printed in your subscription agreement, because that document only discloses the carry your SPV charges, not the carry the fund beneath it already took before your SPV manager ever saw the money.

Why the Adit Ventures Markup Is a Red Flag Wherever You See It

The alleged SpaceX markup in the Adit Ventures complaint, buying at $420 a share and reselling to a client fund at about $498, is worth dwelling on because it doesn't show up anywhere in the waterfall math above. A markup baked into the purchase price raises your cost basis before tier one even starts. You never see it labeled "fee" or "carry." It just quietly shrinks the profit pool that tiers two through four ever get to divide, and unless the fund documents disclose the manager's ownership stake in the shares before the sale and get your written consent, that kind of principal transaction is exactly what Section 206(3) of the Advisers Act exists to prevent. The SEC's complaint alleges Adit's general partners ran more than 150 of these transactions over roughly four and a half years without the required disclosure. If a manager can mark up the shares before the waterfall even begins, the advertised carry percentage tells you almost nothing about what you'll actually keep.

The Documents and Questions to Demand Before You Wire Money

You don't need a securities lawyer to ask for the following, though it helps to have one review what comes back.

• The subscription agreement's distribution or waterfall section, in full, not a summary deck. Confirm the carry percentage, whether a hurdle exists, and whether there's a catch-up tranche.
• Written confirmation of exactly how many shares the SPV holds and at what price, plus proof it sits on the underlying company's cap table or has a documented, board-approved right to those shares. As Forbes has reported, layered SPV structures can obscure who really owns what, and companies like SpaceX and Anthropic have both moved to restrict or reject transfers they haven't approved.
• Recent SPV bank statements or a purchase confirmation showing the actual price paid for the shares, so you can compare it against any price quoted to you.
• A complete fee schedule covering setup fees, administrative fees, carry, and, critically, whether the SPV invests directly or through another fund or SPV that charges its own carry.
• Disclosure of any transactions between the manager (or entities the manager controls) and the SPV, including any resale of shares the manager or an affiliate previously purchased.

In my view, a manager who can produce all five of these within a day or two is probably running a clean operation. A manager who needs weeks, or who tells you the cap table proof is "proprietary," is telling you something too, just not directly.

For more on this, see our coverage of SPV Meaning: What a Special Purpose Vehicle Is and How Angel Investors Actually Use One and Carried Interest Waterfall Explained: How GPs Actually Get Paid.

Frequently Asked Questions

What is carried interest in an SPV?

Carried interest, or carry, is the share of investment profit the SPV's manager keeps after investors get their capital back, typically 15% to 30% on venture SPVs, on top of any upfront or annual fees the manager also charges.

How is an SPV waterfall different from a full fund's waterfall?

A single-deal SPV usually runs a simpler waterfall than a multi-company fund, often just return of capital followed by a straight carry split with no preferred return or catch-up tranche, while institutional funds are more likely to include a hurdle rate before the manager earns anything.

What is a double promote and why does it matter?

A double promote happens when an SPV invests into another fund or SPV that already charges its own carry, so investors effectively pay carry twice on the same profit, which can push a combined effective rate well above the 20% figure printed on the subscription agreement.

How can I check whether an SPV really owns the shares it is selling?

Ask the manager for documented proof of the SPV's position, such as cap table confirmation from the underlying company or its transfer agent, plus recent SPV bank statements showing the purchase, since the SEC's own 2026 examination push exists precisely because that proof is often missing.

Author Disclosure: Jeff Barnes, MBA has no personal position in any company, fund, or platform named in this article. Angel Investors Network has no current commercial relationship with any party mentioned. AIN provides marketing and education services, not investment advice. Past performance does not guarantee future results. All investments involve risk, including loss of principal.