Defer Taxes
Why use an exchange fund to diversify?
Because exchange funds enable you to diversify without triggering capital gains tax or incurring brokerage fees. These cost savings compound in the fund tax-deferred at venture capital rates of return.
Diversify to Reduce Risk
Greatly reduce the risk of being overconcentrated in a single illiquid stock by diversifying
Exchange to Defer Taxes
Use an exchange fund to diversify to avoid triggering substantial capital gains tax and brokerage fees
Compound the Savings
Compound the value of the savings at venture capital rates of return tax-deferred
Diversify to Reduce Risk
Greatly reduce the risk of being overconcentrated in a single illiquid stock by diversifying
Exchange to Defer Taxes
Use an exchange fund to diversify to avoid triggering substantial capital gains tax and brokerage fees
Compound the Savings
Compound the value of the savings at venture capital rates of return tax-deferred
Why is Collective the best way to diversify?
Before Collective Liquidity created the first exchange fund for private company stock, the only way to diversify was to sell the shares underlying your options and then use the proceeds to buy other assets (e.g., a basket of public securities, real estate, bonds, etc.). Due to taxes and commissions the end result is that for every dollar of stock you sell, you may have less than 50 cents left to purchase diversifying assets.
However, when you trade unicorn stock for a partnership interest in an exchange fund, it's not treated as a sale under U.S. tax laws and so no capital gains tax is triggered. Further, exchange funds don't charge brokerage fees. So, unlike with a stock sale, you get a full dollar's worth of a diversified portfolio for every dollar's worth of shares you exchange. And the dollar value of that difference compounds over the time you stay invested in the fund.
Save up to 46% on taxes
Compared to a stock sale, which is typically taxed both on the state and federal level, an exchange into an Exchange Fund doesn't trigger capital gains taxes
Save up to 6% on broker commissions
Collective is not a broker and doesn't charge brokerage fees
Create long term wealth
The difference in long-term financial outcomes between diversifying with an exchange fund and diversifying with a stock sale can be enormous
This hypothetical illustration shows a $630,000 (90%) difference in value over time between (a) selling shares and investing the after-tax proceeds in a diversified portfolio vs. (b) exchanging on a tax deferred basis into a diversified portfolio. It makes the following assumptions:
The stock has been held less than a year by a California resident and has a current value of $500,000 with a tax basis of $50,000
Applicable federal tax rate is 35%; state tax rate is 11%; brokerage fee on stock sale is 6%
The return on both the proceeds from the 'Sell Holdings and Diversify' and the exchange approaches is 15% annually net of management and/or performance fees
*Please see additional important disclosures regarding this chart on the About the Exchange Fund Page
Estimate Your Wealth Over the Long-Term
Compare results of diversifying with an exchange fund vs. stock sale
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Disclosures
This information relating to the Collective Liquidity Fund, LP (the "Fund") has been prepared solely for informational purposes, is not complete, and does not contain certain material information about the Fund, including important disclosures and risk factors associated with an investment in the Fund, and is subject to change without notice. It does not constitute an offer to buy or sell an interest in the Fund, nor shall there be any sale of a security in any jurisdiction where such solicitation or sale would be unlawful.
The Fund's limited partnership interest will not be registered with the U.S. Securities Exchange Commission or other regulatory authority. Investors will be required to verify their status as an "Accredited Investor" pursuant to Rule 501 of Regulation D to participate in any offering of the Fund's limited partnership interests. No securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through Collective Liquidity, Inc. or Collective Asset Management, LLC (collectively, "Collective Liquidity").
Limited partnership interests in the Fund are not insured by the FDIC and are not deposits or other obligations of Collective Liquidity and are not guaranteed by Collective Liquidity. Limited partnership interests in the Fund are subject to investment risks, including possible loss of the principal invested.
Prospective investors should consider the investment objectives, risks, fees and expenses of the Fund carefully before investing in the Fund. This and other important information are contained in the Fund's Confidential Private Placement Memorandum ("PPM"), which can be obtained by contacting Collective Liquidity.
Investment in the Fund involves substantial risk and any offering may only be made pursuant to the relevant PPM and the relevant subscription application, all of which must be read in their entirety. No offer to purchase securities will be made or accepted prior to receipt by the offeree of these documents and the completion of all appropriate documentation. The Fund intends to primarily invest in securities of private, late-stage, venture-backed growth companies. There are significant potential risks relating to investing in such securities. The Fund is not suitable for investors who cannot bear the risk of loss of all or part of their investment. The Fund is appropriate only for investors who can tolerate a high degree of risk and do not require a liquid investment. The Fund has no history of public trading and investors should not expect to sell limited partnership interests in the Fund. No secondary market exists for the Fund's limited partnership interests, and none is expected to develop. The Exchange Fund has a limited operating history, and its performance is highly dependent upon the expertise and abilities of its manager. There is no assurance that the Exchange Fund's investment objectives will be achieved, and results may vary substantially over time. This is not a complete enumeration of the Fund's risks. Please read the Fund's PPM for other risk factors related to the Fund. Although the manager of the Exchange Fund will value its portfolio using the Private Market Valuation Algorithm, it can be difficult to obtain financial and other information with respect to private companies, and even where the manager is able to obtain such information, there can be no assurance that it is complete or accurate. Because such valuations are inherently uncertain and may be based on estimates, the manager's determinations of fair market value may differ materially from the values that would be assessed if a readily available market for these securities existed.
The information contained herein does not constitute a recommendation or advice by Collective Liquidity. You should consult your own tax, legal, accounting, financial or other advisers about the information discussed herein based on your specific risk profile and financial situation, including the suitability of an investment in the Fund, with Collective Liquidity, or any product managed by Collective Liquidity.
The information contained herein is for informational purposes only. This material contains the current opinions of Collective Liquidity and such opinions are subject to change without notice. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.