A Roll-Up Vehicle (RUV) is a special-purpose legal entity consolidating multiple investors into a single entry on a startup’s cap table. It’s commonly used in venture deals, particularly for early-stage funding rounds that involve several small-check investors—angel investors, syndicate members, or micro-funds—who want to participate in a round without overwhelming the startup with administrative complexity.
Instead of each investor entering individually on the startup’s capitalization table (which can cause issues with governance, voting, and follow-on rounds), the RUV acts as the sole investor. All participating backers hold ownership within the RUV, which holds equity in the startup.
This approach is especially popular when:
- Founders want to maintain a clean, manageable cap table
- Investors want access to deal flow but can’t meet a fund’s minimum check size
- Syndicate leads or fund managers want to organize pooled capital for a single investment
- There’s a need to reduce the legal and compliance overhead for both the startup and its investors
How a Roll-Up Vehicle Works
The RUV is typically structured as a Limited Liability Company (LLC), though other entities like LPs may be used in more complex arrangements. A lead organizer or fund manager sets up the RUV, outlines the terms (such as carry, voting rights, and information rights), and raises capital from individual backers. Once the RUV is fully subscribed, it makes a single investment into the startup, usually on the same terms as any other investor in the round.
Benefits of Using an RUV
- Cap Table Simplicity: Keeps the startup’s shareholder list short and easier to manage.
- Investor Access: Allows individuals to participate in deals they might otherwise be excluded from due to minimum investment sizes.
- Streamlined Governance: One point of contact and one set of legal documents simplifies investor relations.
- Operational Efficiency: Reduces the volume of K-1s, tax filings, and communications that would otherwise be multiplied across dozens of small investors.
- Fundlike Flexibility: Offers the structure and benefits of pooled investing without forming a full-blown venture fund.
Key Considerations and Risks
Despite their advantages, RUVs come with specific responsibilities and trade-offs:
- Legal Setup and Maintenance: RUVs must be properly formed, governed by an operating agreement, and maintained in compliance with securities and tax laws.
- Tax Complexity: Since most RUVs are pass-through entities, each investor may receive a Schedule K-1 at year-end. If the startup operates in multiple states, this can trigger multi-state tax filings for each investor.
- Liquidity Constraints: RUVs are generally illiquid. Individual investors cannot easily sell their interests without a planned exit or buyout provision.
- Investor Visibility: Investors in an RUV may not receive direct updates from the startup unless granted explicitly through the RUV’s terms.
For these reasons, handling setup, compliance, tax reporting, and investor communication with care is crucial. The lead must maintain transparency and accuracy to protect the interests of everyone involved.
Wondering how to manage the legal, tax, and compliance burden of setting up or participating in a roll-up vehicle? That’s where Durity comes in. We help startups, syndicates, and investors handle every aspect of RUVs, from formation to multi-state tax filings, so that you can stay focused on investing, not paperwork.
