Fund Structure
Side Car Vehicle
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Quick Answer
A special purpose vehicle created alongside the main fund to accommodate additional capital for a specific deal, typically for LP co-investments or oversized opportunities.
What it is
A Side Car Vehicle (also called a sidecar fund or SPV) is a special purpose vehicle created by a GP alongside their main fund to accommodate a specific investment opportunity that exceeds the main fund's allocation limits or to facilitate LP co-investments. When a GP identifies a deal that requires more capital than the fund can prudently deploy (due to concentration limits or fund size constraints), they create an SPV to pool additional capital from existing LPs, new investors, or both. The sidecar typically invests on the same terms as the main fund and is often structured with reduced or zero management fees and carry. Sidecars have become increasingly common as a tool for GPs to compete for larger deals, offer co-investment opportunities, and maximize their involvement in their highest-conviction investments.
In Practice
A $100 million seed fund with a $3 million maximum check size wants to lead a $10 million Series A in its highest-conviction portfolio company. The fund invests $3 million from the main fund and creates a $7 million sidecar SPV, offering co-investment allocations to its top 5 LPs at zero fees and zero carry. The sidecar invests the remaining $7 million alongside the main fund, allowing the GP to lead the full round.
Operational context
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Why It Matters
Sidecar vehicles allow GPs to capture more value from their best deals without violating fund concentration limits. For LPs, sidecars offer fee-free access to high-conviction investments. However, founders should understand that sidecar structures can add complexity to cap tables and may signal that the lead investor's fund has size constraints.
VC Beast Take
Side cars are becoming the new normal for competitive deals, but they're a double-edged sword. They let funds punch above their weight on hot opportunities, but they also create operational complexity and potential conflicts. Smart GPs use them strategically; desperate ones use them to chase every shiny object. The best LPs actually prefer funds that are disciplined about when they deploy side cars.
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Frequently Asked Questions
What is Side Car Vehicle in venture capital?
A Side Car Vehicle (also called a sidecar fund or SPV) is a special purpose vehicle created by a GP alongside their main fund to accommodate a specific investment opportunity that exceeds the main fund's allocation limits or to facilitate LP co-investments.
Why is Side Car Vehicle important for startups?
Understanding Side Car Vehicle is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
What category does Side Car Vehicle fall under in VC?
Side Car Vehicle falls under the fund-structure category in venture capital. This area covers concepts related to how venture capital funds are organized, managed, and governed.
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