Collective Liquidity provides unicorn employees with the financial tools they need to turn their company’s equity compensation into a prudent, long-term financial plan. Collective does this first by enabling employees to exchange shares tax-free for an interest in the Collective Exchange Fund, a diversified portfolio of leading unicorns. They can then choose to obtain liquidity by borrowing non-recourse against their fund interest. As compared to a stock sale, the results for employees can be more liquidity in the near term and greater appreciation with less financial risk over the long-term.
Exchange funds generally allow investors to exchange a single stock for an interest in a diversified pool without triggering capital gains taxes. They have been available for public shares for decades. Collective Liquidity is the first to make this proven diversification and tax optimization strategy available for private shares.
The Collective Exchange Fund aims to represent the unicorn asset category by applying a long-term, passive approach to a broadly diversified portfolio of unicorns. Collective only accepts exchanges from 100 leading unicorns backed by many of the best VCs into its portfolio. Prospective exchangers can learn exactly which companies are eligible for exchange by viewing the fund’s Target Portfolio
To provide exchanging shareholders with liquidity, Collective has partnered with WebBank. Shareholders can borrow against their fund interests on a non-recourse basis. Terms for these Exchange Loans are often substantially better than the typical non-recourse loans available to private company employees. Instead of loan-to-value ratios between 15-25%, Exchange Loans are for up to 65% of the value of the shareholder’s shares. Instead of charging 15-25% annual interest rates, Exchange Loans currently charge just 9.90%. Instead of taking up to 45% of the borrower’s stock at maturity, Exchange Loans charge no stock or equity fee.
Because both the exchange into the fund and the loan are tax free, many employees can generate more immediate after-tax liquidity from an Exchange Loan than they can obtain from a stock sale. Even better, the employee retains their Exchange Fund interest, generating long-term wealth on top of the near-term proceeds from their Exchange Loan.
The Collective Exchange Fund is a passive, long-term investor managed by experienced venture capitalists. Collective consolidates a company’s cap table by aggregating many smaller shareholders into a single institutional holder. As a long-term partner to our portfolio companies, we continually strive to be of service by delivering risk management and liquidity solutions that enhance the value of the company’s equity compensation plans. Our experienced staff ensures that Collective’s solutions are a turnkey employee benefit and conform to all company policies and procedures.
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