Collective

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

  1. What is Collective Liquidity?
    Collective Liquidity is the private market’s first wealth tech platform. With its inventive new solutions, Collective enables unicorn shareholders to easily diversify out of over concentrated positions and typically obtain substantially greater liquidity 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.

  2. Who is behind the company?
    Collective Liquidity management are the founders, board members, and executives of pioneering private market firms including SharesPost and SharesPost 100 Fund, Forge Global and Nasdaq Private Market. They're leveraging that experience to deliver dramatically better liquidity and risk management to unicorn employees, issuers and investors.

  3. What is the Collective Exchange Fund? What’s a Collective Exchange?
    The Collective Liquidity 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 interest of equal value. After the first year, LP interests 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.

  4. What are the benefits of a Collective Exchange Loan?
    Collective Liquidity Exchange Fund LPs can borrow non-recourse at a 60% LTV against their LP interest. Exchange and loan are both tax free, so the borrower keeps 60 cents on the dollar after tax PLUS retains upside in the fund. This can be significantly more after tax and fees than many shareholders receive from a sale or tender. Loans are fully automated and can be initiated immediately and entirely online – i.e., liquidity without brokers.

  5. How do I know if I should do a Collective Levered Exchange vs just selling?
    Collective's Liquidity Estimator (found here) lets you compare the immediate and long term, after-tax liquidity you might expect from a Collective Exchange Loan versus a stock sale.

  6. What if I just want to sell my shares instead of exchanging them?
    If your shares are in companies in Collective's target portfolio (found here), Collective may make you an offer for your shares for cash. To see if Collective has a cash offer for you, click to Receive an Offer and select the cash purchase option when prompted.

  7. What is the timeline for processing a transaction with Collective?
    The information and documents necessary for Collective Exchanges and Exchange Loans typically take 3-5 business days to process once you initiate the transaction from our website. The paperwork is then submitted to your company with a request to transfer the shares into the Collective Exchange Fund. The time it takes a company to transfer the shares varies, but once complete, the exchange is closed and the loan can fund.

  8. 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.

  9. What are the costs / terms of the loan?
    Exchange Loans are available for up to 60% of the value of your shares and have a 12 to 14 month term. Currently, the interest rate on an Exchange Loan is 8.5% with a 2% loan origination fee. Exchange Loans are secured by your LP interest in the Exchange Fund, but are non-recourse to you. That means you never have to come out of pocket to repay them.

  10. Can I see the legal agreements before I sign anything?
    Yes, you can. You can review the 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.

  11. How will the terms of the loan be affected by fluctuation in the Exchange Fund value?
    Collective Exchange Loans are non-recourse to the borrower. That means no matter what happens to the value of the Exchange Fund, you never have to come out of pocket to repay them. However, it is possible that if the value of your LP interest declines far enough relative to the value of your loan, we may have to redeem your LP interest to repay your loan. To avoid this, you generally have the option to exchange more shares or pay down the loan with cash.

  12. 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.

  13. Is there a minimum or maximum number of shares that I can exchange with Collective Liquidity?
    Yes, your Exchange offer will specify a minimum and maximum number of shares you may exchange.

  14. Can you please explain the tax consequences of a transaction completed with Collective?
    Generally, neither an exchange of your shares into the Collective Exchange Fund or an Exchange Loan are taxable events. Later, when you redeem your Exchange Fund limited partnership interest or if the Fund sells your shares, you may have to pay tax on your gain. Note though that if you hold your Exchange Fund interest for seven years or more before redeeming, the Fund can pay your redemption in the form of a tax free distribution to you of liquid securities. Please consult your tax professional about your particular circumstances and the tax implications.

  15. What documents will Collective provide after I complete an exchange for my shares?
    Clients exchanging into the Exchange Fund can always access their Collective dashboard. There, they can view and download all of the legal agreements relating to their exchange and any Exchange Loans they might have received. They can also view information about the Exchange Fund's portfolio and performance.

  16. I’m not in the US but have shares of a US private company. Can I still use the Collective platform?
    At this time, loans from Collective are only available to individuals who are currently residing in the United States. We may provide services to international residents in the future.

  17. I live in the US but I am not a citizen/legal resident. Can I still use the Collective platform?
    Yes.

  18. What happens if I complete a transaction with Collective and my company goes public?
    Once you exchange 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 exchangers 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.

  19. What fees does Collective charge?
    Collective charges no brokerage or other fees to exchange shares into the Exchange Fund though the Fund does charge a 1.75% annual management fee and a 15% performance fee. See details regarding these fees here. Clients taking out an Exchange Loan are charged a 2% loan origination fee.

  20. What is the interest rate on a Collective Exchange Loan?
    Currently, the interest rate on an Exchange Loan is 8.5%. In addition, there is a 2% origination fee applied to the principal amount of the loan.

  21. Can I receive my loan in a currency other than the US dollar?
    At this time, loans are only available in US dollars. We may make other currencies available in the future.

  22. If I change my mind after signing the exchange documents, can I cancel my transaction?
    You may cancel your exchange with written notice to Collective anytime prior to Collective counter-signing your exchange agreement. It usually takes about three business days after you execute your exchange agreement for Collective to counter-sign.

  23. When can I redeem my LP interest in the Collective Liquidity Exchange Fund?
    Your LP interest can be redeemed for cash at NAV at the end of each fiscal quarter after the first full year.

  24. Can I do a second exchange when more of my options vest in the future?
    Yes, you can request another exchange in the future even if you have previously completed an exchange with Collective.

  25. Do I need my company’s permission to do an exchange with Collective? Will my company be notified if I do an exchange with Collective?
    Most companies Collective accepts exchanges from review proposed share transfers and have a defined process to manage them. Collective works with these companies to make sure all of the their questions are answered and ensures that their transfer requirements are satisfied.

  26. 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.

  27. How does Collective select companies for its portfolio?
    Collective Liquidity's Investment Committee endeavors to create a target portfolio of leading late-stage, private growth companies (i.e., "unicorns") diversified across industry sectors. Learn more about the Exchange Fund's target portfolio here.


Important Disclaimer:
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.