Frequently Asked Questions about the Collective Exchange Fund and Loans
All you wanted to know about The Collective Exchange Fund and Loans
16th May 2022
What is Collective Liquidity? Collective Liquidity is the private market’s first wealth tech platform. With its inventive new solutions, the Collective platform enables unicorn shareholders to easily diversify out of over concentrated positions and typically obtain greater liquidity up front, and typically more over time than they’d receive from a stock sale – all on a tax-free basis. And because Collective uses a proprietary model to price its offers for unicorn shares, transactions can be initiated anytime directly from Collective’s website.
Who is behind the company? Collective Liquidity management are the founders, board members, and executives of pioneering private market firms including SharesPost and the SharesPost 100 Fund, Forge Global and Nasdaq Private Market. They're leveraging that experience to help deliver dramatically better liquidity and risk management to unicorn employees, issuers and investors.
What is the Collective Exchange Fund? What’s a Collective Exchange? The Collective Exchange Fund is a passively managed portfolio targeting 100 pre-selected unicorns diversified across sectors. Unicorn shareholders de-risk their net worth by exchanging their shares tax free for an LP capital account of equal value. After the first year, LP capital account balances can be redeemed for cash at NAV at the end of any quarter. Exchanges can be initiated immediately and entirely online, unlike the broker-driven, months-long, “manual” process of the existing broker marketplaces. You can learn more about the Exchange Fund here.
What are the benefits of an Exchange Loan? Collective Liquidity customers can apply for a non-recourse loan at a 60% LTV against their LP capital account balance. The Exchange and loan are both tax free, so the borrower gets liquidity tax free PLUS retains upside in the fund. This means less taxes and fees than many shareholders pay during a sale or tender. Loan applications are fully automated and can be initiated immediately and entirely online.
How do I know if I should do an Exchange Loan vs just selling? Collective's Liquidity Estimator (found here) lets you compare the immediate and long term, after-tax liquidity you might expect from an Exchange Loan versus a stock sale.
Can I see the exchange and or loan agreements before signing either or both? Yes, you can. You can review the exchange and loan agreement without signing it. Click to Receive an Offer and follow the prompts until you get to the agreement sections. There you can download and review the legal documents before e-signing them. In addition, Collective representatives are always available to answer your questions. Feel free to schedule a time for a call.
Can I speak with a Collective representative before starting the process? Yes, you can always speak with a Collective representative prior to initiating a transaction on the website (click here to schedule a call). However, we will be unable to provide you with details of your Exchange and/or Exchange Loan until you complete your submission.
What happens if I complete a transaction through Collective and my company goes public? Once you transfer your shares into the Fund, the Fund becomes the legal owner of the shares. The Fund will typically hold your shares until your company has a liquidity event (e.g., an IPO, merger, etc.) at which time the company generally sells the shares once applicable transfer restrictions have expired. Such sales may trigger taxes on your gain on the contributed shares. Whenever possible, Collective works with customers to minimize their taxes and makes distributions to cover any tax obligations triggered by Fund sales. Note that distributions of Fund securities made to Exchange Fund limited partners are not typically taxable.
What are the Exchange Fund fees and when they are due? The Exchange Fund will charge a 1.75% annual management fee and a 15% performance fee. Special promotional pricing is available from time to time.
My company was not on the list of available companies. How can I be notified if/when they are included in the future? Click to Receive an Offer and input your company's name when prompted and make sure to opt in for email or text notifications. If/when Collective adds your company to its target portfolio, we will contact you to see if you are still interested in an Exchange or an Exchange Loan.
The information contained herein has been prepared solely for informational purposes. This document does not constitute an offer to buy or sell or a solicitation of an offer to buy or sell, any interest in any fund, which be made only when a qualified investor receives a confidential private placement memorandum (“PPM”) describing the offering and related subscription agreement. Prospective investors should rely solely on the PPM, and should not rely on this presentation in making an investment decision. This presentation does not constitute a part of any PPM. Nothing contained herein constitutes investment, legal, tax or other advice, nor is it to be relied on in making an investment or other decision.