Shareholders exchange some of their stock tax-free for an interest in the Exchange Fund's diversified portfolio of leading unicorns. The value of a diversified portfolio is substantially less volatile than a single stock
When the bulk of your net worth is concentrated in a single private growth company's stock, you are exposed to significant financial risk and volatility.
Reduce your risk by exchanging stock tax-free for a partnership interest in the Collective Exchange Fund, a diversified portfolio of leading unicorns.
See your net worth increase over time as the Exchange Fund's portfolio of leading unicorns backed by many of the best VCs earns venture capital returns.
The Collective Exchange Fund is the first exchange fund optimized for unicorn stock. Unicorn employees can exchange their shares for a partnership interest in a diversified fund of equal value without triggering capital gains tax. Whenever partners in the fund need liquidity, they can either borrow non-recourse against their fund interest or, after the first year, redeem their partnership interest for cash.
The fund is comprised principally of unicorn equities, and smaller allocations to real estate and cash
Collective maintains the quality of the fund's equities portfolio by targeting only the strongest unicorns backed by the best VCs
Only shares of approved companies (which represent less than 10% of unicorns globally) are eligible for exchange into the fund
Whenever partners in the fund need liquidity, they can either borrow non-recourse against their fund interest or, after the first year, redeem their partnership interest for cash
For many unicorn employees, Collective is the best way to monetize their stock and reduce their risk by diversifying
Exchange your stock for a partnership interest of equal value in the Collective Exchange Fund, our diversified portfolio of leading unicorns like yours.
If you hold $100,000 worth of shares in one of the companies in our Exchange Fund target portfolio, you can exchange your shares for a $100,000 partnership interest in the fund. This diversifies your holdings and reduces your risk.
Then, with a non-recourse Exchange Loan, receive a tax-free loan for up to 60% of the value of your partnership interest at any time.
In our example, you can immediately borrow $60,000 (less interest) with an Exchange Loan. And because you don't sell your partnership interest for the money - you just borrowed against it - your partnership interest continues to appreciate in value over time.
When the time is right for you, redeem your partnership interest to pay off your loan and keep any leftover value - earning you even more in a tax efficient manner.
Finally, if you decide to redeem your partnership interest when it is worth $150,000, the proceeds would pay off your loan and leave you with an additional $90,000 in cash. The total liquidity to you would be $150,000 (the $60,000 from the Exchange Loan plus the $90,000 in redemption proceeds after paying off your loan). This is substantially more than you might have expected from a stock sale.
Harry Markowitz, Nobel Prize-winning economist
When the bulk of your net worth is concentrated in a single private company's stock, you are exposed to significant financial risk. Though most unicorn employees are excited about their company's future prospects, they also know that the values of high growth, technology companies are extremely volatile (i.e., risky).
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.
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: