A typical use case is a syndicate. A lead investor finds a deal, sets up an LLC for it, and 30 smaller investors each put $5,000 to $25,000 into that LLC, which then writes one $400,000 check to the startup. The company sees a single clean line on its cap table instead of 30 separate angels, which founders strongly prefer, and the smaller investors get access to a deal they could never have reached on their own.
The tradeoffs are fees and control. SPVs usually carry setup and admin costs, and the lead often takes carry — commonly 20% of the profits — plus sometimes a management fee, so your net return is lower than your gross. You also typically don't get information or voting rights directly from the company; you're a member of the LLC, and the lead handles the relationship. When you measure performance on an SPV investment, it's worth looking at net MOIC and net IRR after those fees, since gross figures can overstate what actually reaches you.