LP BuyBacks Overview

Introducing LP BuyBack

Employees of late-stage, venture backed private companies (“unicorns”) often find it difficult to obtain liquidity for their hard-earned stock and options. They can try to find a buyer on an online marketplace, but, even if a buyer is found, it typically requires lengthy negotiations and half the proceeds can go to pay taxes and commissions. There are lenders that make loans against shares but they generally lend only a small percentage of the value of the stock and their fees can be prohibitive.

Now Collective Liquidity is making a new, better solution available. LP BuyBack provide unicorn employees with both immediate liquidity and long-term wealth creation.

How it works

Unicorn shareholders obtain liquidity from LP BuyBacks in two easy steps. First, they exchange shares into the Collective Exchange Fund, a portfolio of leading unicorns, for a limited partnership interest of equal value. Then, Collective buys back part of that interest for cash. The remaining partnership interest can be redeemed for additional cash after a minimum holding period.

Example

1. Exchange your stock tax-free for a partnership interest of equal value in the Collective Exchange Fund, our diversified portfolio of leading unicorns like yours.
   1. If you hold $100,000 worth of shares in a company eligible for exchange, you can swap your shares for a $100,000 partnership interest in the fund tax-free. This diversifies your holdings and so reduces your risk.
2. Then, when you need liquidity, Collective will buyback some of your partnership interest for cash - up to 50% of its value.
   1. In our example, Collective will immediately pay you $50,000 to purchase part of your partnership interest. Some of your partnership interest ($12,500) transfers immediately and some of it transfers 30 months later. How much of your partnership transfers then depends on how much the fund appreciates over the 30 months, but you retain a significant part of your partnership interest's value.
3. Transfer the part of your partnership interest you sold and let the remainder compound over time.
   1. Finally, 30-months later, if your partnership interest has appreciated and is now worth $125,000, you'll transfer $63,750 to settle your LP BuyBack, leaving you with a partnership interest worth an additional $61,250. The total value to you would be $111,250 (the $50,000 in upfront cash plus the $61,250 in your remaining partnership interest). This is substantially more than you might have expected from a stock sale.

LP BuyBack in a nutshell

• No Obligation to Repay
  • LP BuyBacks are purchases of your limited partnership interest in the Exchange Fund. Your only obligation is to transfer a portion of your LP interest when you enter into the LP BuyBack and again 30-months later. Regardless of the value of the LP interest when these transfers happen, you never have to come out of pocket to repay the cash you received from an LP BuyBack.
• Optional Acceleration of Settlement
  • At any time after the first year, you can opt to accelerate the final delivery of your LP interest and terminate the BuyBack. Once the BuyBack agreement has been terminated, you are free to redeem your remaining LP interest for cash at the end of any quarter or choose to let it continue to compound in value in the fund on tax-deferred basis.
• Tax Deferral
  • Exchanges into the fund do not trigger capital gains tax and tax on 75% of the sale proceeds from the LP BuyBack are deferred. This can compare very favorably to a standard stock sale which can be taxed at state and federal ordinary income rates as high as 46%.

LP BuyBack Benefits

• Upfront Cash. LP BuyBacks can generate about the same immediate after-tax liquidity as a stock sale
• Long-Term Wealth Creation. In addition to upfront cash, LP BuyBacks come with an interest in a portfolio of leading unicorns
• Quick and Easy. LP BuyBack can fund within 3 days of shares transferring into the Exchange Fund.
• Riskless. LP BuyBacks are a sale of part of your partnership interest - there's no obligation to repay your BuyBack sales proceeds.

Summary LP BuyBack Terms

Cash Paid: up to 50% of the value of your Exchange Fund partnership interest.
Initial Delivery of LP Interest: when you enter into a BuyBack, a portion of your LP capital account equal to 25% of the cash paid to you is transferred to the buyer.
Final Delivery of LP Interest: 30 months after entering into the BuyBack, a portion of your LP capital account equal to the cash paid to you plus a Participation Amount (see immediately below) is transferred to the buyer.
Participation Amount: an amount equal to between 9% - 11% of your LP capital account depending on the performance of the Exchange Fund.
Accelerated Settlement: you can accelerate the final delivery of the LP interest and terminate your BuyBack contract any time after the first year without penalty.
Origination Fee: none.
Brokerage Commissions: none.