Frequently Asked Questions about the Collective Exchange Fund and Loans
All you wanted to know about The Collective Exchange Fund and Loans
Collective · 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 relating to the Collective Liquidity Exchange Fund (the “Fund”) has been prepared solely for informational purposes, is not complete, and does not contain certain material information about the Fund, and is subject to change without notice. It does not constitute an offer to buy or sell an interest in the fund or the provision of investment management or advisory services, 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 interests will not be registered with the U.S. Securities and Exchange Commission or other regulatory authority. Investors will be required to verify their status as an accredited investor to participate in any offering of the Fund's limited partnership interests. No securities commission or regulatory authority has recommended or approved any investment in or the accuracy or completeness of the information or materials provided by or through Collective Liquidity Asset Management, LLC or any of its affiliates (collectively, “Collective Liquidity”).
All loans issued by WebBank, Member FDIC. Interests in the Fund are not FDIC insured, are subject to investment risks and may lose their value. Interests in the Fund are not deposits and are not guaranteed by Collective Liquidity.
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 is 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 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 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 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.
Nothing contained herein constitutes investment, legal, tax or other advice, nor should it be relied on in making an investment or other decision. Please consult your tax and or legal counsel for specific tax or legal questions and concerns. 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 are not guaranteed. No part of this material may be reproduced in any form, or referred to in any publication, without express written permission of Collective Liquidity.