LP BuyBack
Liquidity
What's the best way to get liquidity from my shares?
Exchange your shares tax-free for a limited partnership interest in our fund and Collective will immediately buy part of that interest back from you for cash. Many employees receive more after-tax cash than they'd get from a stock sale plus retain an interest in Collective's portfolio of leading unicorns.
Transact immediately
Initiate Exchanges and LP BuyBacks at any time - BuyBacks fund as soon as 3 business days after the Exchange is completed
Pay less in taxes
Exchanges into Collective's fund are tax free and most of the sales proceeds from LP BuyBacks are tax-deferred - this compares very favorably to stock sales
Grow your wealth
Your tax savings compound over time in our fund, growing your wealth over the long-term at venture capital rates of return
Tax deferred liquidity for unicorn employees
Employees of late-stage, venture backed private companies often find it difficult to obtain liquidity for their stock or options. Online marketplaces often require lengthy negotiation with buyer(s) and over half the proceeds can go to taxes and commissions. There are lenders that make loans against shares but they lend only a small percentage of the value of the stock and their interest rates and fees can be prohibitive.
Collective has created a unique solution. LP BuyBacks provide shareholders of pre-IPO companies with both immediate, tax-deferred liquidity and long-term wealth creation.
- More Upfront Cash. LP BuyBacks can generate more immediate after-tax liquidity than a stock sale
- Long-term Wealth Creation. Your tax savings then compound in Collective's fund of leading unicorns over time
- Quick and Easy. Collective can transact immediately - LP BuyBacks fund within 3 days of shares transferring into the fund
How an LP BuyBack works
Collective can be the best way to monetize unicorn stock, diversify and build long-term wealth
Exchange into the Fund
Exchange your stock tax-free for a partnership interest of equal value in the Collective Exchange Fund, our diversified portfolio of leading unicorns like yours
Example
If you hold $100,000 worth of shares in a company eligible for exchange, you can swap your shares for a $100,000 partnership interest in the fund tax-free. This diversifies your holdings and so reduces your risk.
Do an LP BuyBack
Then, when you need liquidity, Collective will buyback some of your partnership interest for cash - up to 50% of its value
Example
In our example, Collective will immediately pay you $50,000 to purchase part of your partnership interest. Some of your partnership interest ($12,500) transfers immediately and some of it transfers 30 months later. How much of your partnership transfers then depends on how much the fund appreciates over the 30 months, but you retain a significant part of your partnership interest's value.
Settle Your BuyBack
Transfer the part of your partnership interest you sold and let the remainder compound over time
Example
Finally, 30-months later, if your partnership interest has appreciated and is now worth $125,000, you'll transfer $63,750 to settle your LP BuyBack, leaving you with a partnership interest worth an additional $61,250. The total value to you would be $111,250 (the $50,000 in upfront cash plus the $61,250 in your remaining partnership interest). This is substantially more than you might have expected from a stock sale.
Liquidity Estimator
Compare the proceeds from a Collective LP BuyBack to a brokered stock sale
LP BuyBack
Stock Sale
LP BuyBack
More about LP BuyBacks
No Obligation to Repay
LP BuyBacks are purchases of your limited partnership interest in the Exchange Fund. Your only obligation is to transfer a portion of your LP interest when you enter into the LP BuyBack and again 30-months later. Regardless of the value of the LP interest when these transfers happen, you never have to come out of pocket to repay the cash you received from an LP BuyBack.
Optional Acceleration of Settlement
At any time after the first year, you can opt to accelerate the final delivery of your LP interest and terminate the BuyBack. Once the BuyBack agreement has been terminated, you are free to redeem your remaining LP interest for cash at the end of any quarter or choose to let it continue to compound in value in the fund on tax-deferred basis.
Tax Deferral
Exchanges into the fund do not trigger capital gains tax and tax on 75% of the sale proceeds from the LP BuyBack are deferred. This can compare very favorably to a standard stock sale which can be taxed at state and federal ordinary income rates as high as 46%.
Summary LP BuyBack Terms
- Cash Paid: up to 50% of the value of your Exchange Fund partnership interest
- Initial Delivery of LP Interest: when you enter into a BuyBack, a portion of your LP capital account equal to 25% of the cash paid to you is transferred to the buyer
- Final Delivery of LP Interest: 30 months after entering into the BuyBack, a portion of your LP capital account equal to the cash paid to you plus a Participation Amount (see immediately below) is transferred to the buyer
- Participation Amount: an amount equal to between 10% - 12% of your LP capital account depending on the performance of the Exchange Fund
- Accelerated Settlement: you can accelerate the final delivery of the LP interest and terminate your BuyBack contract any time after the first year without penalty
- Origination Fee: none
- Brokerage Commissions: none