Setup costs cover the expenses required to form and operate the SPV for its life – including record-keeping, tax reporting, and administrative support.
These costs are paid by the SPV at the time of closing, before capital is invested into the target portfolio company.
Investors indirectly pay a pro rata portion of the setup costs through their interest in the SPV. Note that setup costs do not include state regulatory fees, which are separate, variable costs paid to state securities regulators for required notice filings.
Example:
An SPV is investing into Startup A and raises $200K from investors:
$8K is paid in admin costs to cover the SPV’s lifetime administration
$1,200 is paid in state regulatory fees (typical median on AngelList)
$190,800 is invested into Startup A