114 | How Founders Can Unlock Liquidity Without Triggering Massive Taxes with Greg Brogger

[00:00:00] Have you ever looked at your balance sheet and realized most of your net worth is tied up in a business or an equity position? You can’t actually access on paper, you’re winning in real life. You’re still waiting. And the longer that liquidity event gets pushed out, the more risk and concentration you’re carrying.
Welcome back to another episode of the Vital Wealth Strategies Podcast. I’m your host, Patrick Lauden, and today’s conversation is one I believe every founder, executive, and high earning professional with equity compensation needs to hear. My guest today is Greg Brogger, founder and CEO of collective liquidity.
Greg has spent over a decade at the center of the private markets helping build the modern secondary market for private company shares. Partnering with NASDAQ to create the NASDAQ private market, and now focusing on how founders and executives can unlock liquidity. And diversification without lighting up a massive tax bill.
In this episode, we break down why so many successful operators are unknowingly [00:01:00] overexposed to a single outcome. How long IPO timelines increase both financial and tax risk, and how advanced strategies like exchange funds and structured liquidity can help you diversify. Access capital and deferred taxes all at the same time.
If your business is growing, but your tax bill keeps getting bigger and more unpredictable, this conversation is going to change how you think about planning. And if you’re listening right now thinking, I just wrote a painful check to the IRS. This is your sign to stop reacting and start planning. We’re currently taking on new clients for 2026, and the biggest tax savings don’t come from last minute moves.
They come from intentional multi-year tax strategy. To start that process, head over to vital strategies.com/tax. That page is specifically designed to help a high income business owners and executives understand where they’re overpaying in taxes. And what advanced strategies may be available to reduce that burden going forward.
Again, that’s vital strategies.com/tax. If keeping more of what you earn matters to you, that’s where to start. [00:02:00] And before we jump in, if you get value from this episode or the podcast in general, please take a moment to leave a review. It helps us reach more entrepreneurs. We’re asking better questions about money, taxes, and long-term wealth.
Alright. Let’s get into it. Thank you for joining us here today on the podcast. We’ve got Greg Bragger, the founder, and CEO of collective liquidity. Uh, I’m excited to get into this conversation because there’s, uh, so many unique tax opportunities that, uh, Greg is going to get into today, uh, that, that, uh, oftentimes people, um, in, in certain situations don’t get to take advantage of.
So, uh, Greg, thank you so much for, for joining us here. Great, great. Uh, to be here and thank you for having me, Patrick. You’re welcome. So I, I think about some of the problems and, uh, we’re, we’re thinking about, uh, private company and, and employees that have equity in these private companies and their net worth is kind of locked up in there, you know, and when, if I think of it from a, you know, an investment allocation [00:03:00] perspective, they, they’re, they’re very heavy on the, uh, concentrated position that they don’t have any control over.
And it’s like that, that can be. Somewhat scary, you know, and IPO timelines can be, can be uncertain. You know, secondary liquidity is often opaque and inefficient or unavailable. And so, uh, traditional advisors lack the tools to, to solve this problem. So I think that’s an interesting external problem. You know, internally, they feel trapped by these golden handcuffs.
You know, they’re, they’re great on one hand, but on the other hand it’s just, uh, this, this paper wealth that they, in reality, can’t. Can’t get their hands on and they, they really lack freedom and diversification and flexibility, and they’re probably worried they’re, they’re overexposed to, to one particular outcome.
Yeah. And then philosophically we just think about, um, you know, the people that help create the value shouldn’t be forced to gamble their entire financial future on a Yeah. A single liquidity event that they don’t control. So I’m looking forward to unpacking all these issues. Yeah. Lot, a lot there, that’s for sure.
Yeah. Very good. So, Greg, can you give us a little bit of your, your background? [00:04:00] Sure. Yeah. Uh, so I, I began my career as a securities lawyer at one of the valley law firms, Wilson Sonsini. And that’s so was, it was a great way to break into the venture world and, uh, start working with boards and founders and executives.
And you learned a whole bunch about, uh, the, the way these companies are financed and how they look at issues around secondary liquidity. And, uh, was an opportunity also to, uh, see that world, that sort of ecosystem, which at the time was very kind of. Focused in Palo Alto, Menlo Park, Sandhill Road, uh, and then just see these dramatic changes that happened over the next to 10, 15 odd years.
Um, but just for, for me, and again, back in my background, I didn’t really much enjoy being a lawyer. So I, I left the law just after a couple of years, uh, and went, uh, it has to do business development for an incubator down in Southern California. Just as the sort of.com bubble was in plating. Mm-hmm. So it was a, it was a, it was a wild ride of sorts up and then [00:05:00] down.
Mm-hmm. But I did have the good fortune to connect with the co-founder. Uh, and we started a couple of companies, really. He was the founder, I was the, the co-founder. Um, and, uh, those, those companies had kind of small to mid-size public exits back in the day. Mm-hmm. Um. But really the, the relevant stuff, I think for our conversation today and, and, uh, for collective liquidity was that in 2009 I started a platform called SharesPost.
Mm-hmm. And that was the first online marketplace to buy and sell what, you know, pre IPO shares of, of, you know, venture backed companies. Uh, and that, that was sort of the right time, right place. That was when, you know, Facebook was still a private company, just on the edge of going public, and there were only a handful of what we now call unicorns.
Of course you mm-hmm. Or now there’s 13 other thumb worth. Somewhere between three and $4 trillion or more. I think that number keeps going up or I know that number keeps going up. Yeah. Um, and so we did about $10 billion worth of total transaction volume across 350 names. It really kinda started the secondary market in this [00:06:00] current called iteration where you have the, the ability to connect with a, a, a buyer online and have a transaction processed while at SharesPost.
We did a couple other interesting things. So we did a joint venture with NASDAQ to create the NASDAQ private market. So I was the initial. President or founder of the NASDAQ Private Market. Um, and we designed the first Tender offer programs, um, and that’s a still a significant source of liquidity to these companies today.
Mm-hmm. Created a, uh, fund called the Share Space 100 Fund, which is a little bit of a precursor to what we’re doing at Collective, kinda a 1.0 version of what we’re now doing, like a 5.0 version. Um. And got that to, you know, was ultimately a little over a billion dollars in assets under management. And then, uh, probably last interesting thing, merged, uh, shares, posts into Forge was on the Board of Forge that went public by wave back.
And then just in this last month or so, it’s been, uh, announced that it would be acquired by Schwab, Charles Schwab. So really about that, to [00:07:00] find a, find a good home for that platform with the kind of resources and the foundation it needs. Yeah, that’s, that’s fantastic. And I, I don’t mean to cut you off, but I, I just think of all of that, that background I think leads so, so nicely into what you’re doing at collective liquidity.
You, you, you understand the private market and how to. Um, come up with a system for valuing those, those shares and all those other things. So, uh, I lo I love that you just didn’t go, you know what we’re gonna do. We’re gonna, we’re gonna create a fund and go, uh, start acquiring these shares and hopefully it all works out so well.
Yeah. I mean the, the problems you, you mentioned at the, at the start of the, the podcast, right? The, the over concentration and the illiquidity. These are the two biggest problems in the, in the venture world for the employees and founders of these companies. And it’s been that way for a very long time.
Back in the days when companies would go public after three or four years, you know, you don’t, people, most people can wait three or four years for liquidity, but now, 10, 11, 12, 15 years or more, um, you know, it seems like a problem we’re solving. So that’s [00:08:00] why I’ve been working on it for now. Better part of a decade.
Yeah. Yeah. No, I, I love this. I, I think this is great. So can you give us, uh, I think if, if it’s okay, can we start with just a, maybe a case study? Yeah. On, on, you know, where this. This situation applies. ’cause we, we’ve kind of danced around some of the, the, the problems and the opportunities, but I, I think it’d be good to really start looking into, you know, here’s, here’s a fact pattern, here’s what the problem is, and then how we can sort of unwind that problem.
Yeah. Uh, tax efficiently. So, yeah. So, so, and, and there’s, there’s obviously more, more than one variant, but, you know, a typical, uh. A client of ours or, or LP or, yeah, LP of ours. Mm-hmm. Um, as someone who’s a, maybe a founder or co-founder or senior executive at a company, a venture backed company, uh, they probably just, you know, maybe cross over 500, $600 million in valuation, or maybe they’re at a billion dollars or more.
Maybe they’ve been at the company for five or six years. And the company’s knocking it out of the park. But just in [00:09:00] this new world, you know, the, the, the dominant strategy for when to go public is significantly further down the road. It’s not a billion dollars anymore. It’s more like two, three or $4 billion.
Mm-hmm. Uh, in order to get the support from, you know, the, the leading underwriters and the support of the market and for it to make sense for you to become a public company and take on all of that burden. So, you know, just one client that we’re working with, uh, they’re, they have two kids, I think two kids.
And, uh, the wife is pregnant, is gonna be delivering. Um, they’ve found a house that is the ideal perfect dream home for them, but they don’t have the liquidity that they need. And even though their company’s doing really well, you know, anybody who’s been through a few different cycles has seen either been at a company that was doing really well and that did less well mm-hmm.
Or has heard. People’s cautionary tales of what happened with them. And just to kind of put some, some numbers on it, I, I just, I, I, we did this study that I, I, I think, sort of confirmed what most people intuitively understood, but it was interesting to see in the numbers. So we looked at companies, [00:10:00] uh, we, we compiled a list of every company that did a venture round, preferred sock venture, round of a series C round between 2010 and 2015, so a decade or more ago.
Mm-hmm. And we looked at how many of those companies had exited since, and it was only 38%. If you think about a company at a series C round, that’s usually a 50, maybe a hundred million dollars, uh, venture financing. And so the company’s obviously been very successful and probably on a, a pretty significant, uh, path to value creation or to an IPO or to a sale company.
And yet the majority of them don’t exit or haven’t at least a decade later. And so. But here’s the kicker. If, if you had invested in all of those series C rounds, if you put a dollar in all of them, your return would’ve been five, 5.03 x. So you the point being, and again, this is what everybody knows is the winners of those series C companies more than pay for the losers.
But you have to, you have to think of it as an [00:11:00] investor rather than employee. So there’s a reason VCs have 15 or 20 companies in the portfolio or more. It’s because the, the dynamics or the mm-hmm. The, just the, the math of a diversified portfolio in such high risk companies is such that you need to be diversified in order to have confidence that you’re gonna generate wealth over the longer term.
Yeah. Yeah. And I think that’s so true. And I think one of the things that we, we see in business in general is. Uh, a it takes a great operator like that, that’s just absolutely necessary. But there also is other factors involved. Yeah, there is some luck, there is some, uh, economic opportunity. You know, where’s the economy at?
How are, how are dollars flowing to, to different opportunities? Where’s technology going? Are you aligned with all of that? And so, um, you know, it doesn’t, it, it takes more than just a great operator. Yeah. To get to the level that, uh, we’re talking about here. You know, you don’t, you don’t get to a, you know, a half a [00:12:00] billion or a billion dollar or $2 billion valuation without operating well.
So a lot has gone, A lot has gone right in order for you to be in the club. And it’s sort of, it’s the success story that everybody sort of focuses on. So, you know, I think, you know, many people just think that that’s normal. That that’s just mm-hmm. Pretty easy to do. Just start a company and you get tick.
But yeah, there’s, uh, yeah, a lot of, you’re starting with a great idea. You have great execution and you’ve got, you know, I think the things that are, you know, the luck factor, it’s really about timing. Mm-hmm. Right? Because everybody has a great idea. Right. And just, or almost everybody. Mm-hmm. Uh, but the ability to execute it and bring it to market at the time when, uh, the conditions are right and you can raise capital and the product can grow, that’s, there’s some good fortune involved in that.
Yeah. Absolutely. Okay. So going back to our, our, our young family, they’ve got, uh, two kids and one on the way, and they’re like, Hey, we, we’d like to, you know, uh, recognize some of this value and get into our new, new house, right? Yes. For, for [00:13:00] our growing family mm-hmm. To, to do that. So how does that work and how, how does, um, how does collective liquidity decide like, yep, this, this, this investment makes sense for us to, uh, to, to move forward?
Yeah. So, so I mean, start at a high, high level and just kind of talk about what, what an exchange fund is. So collective liquidity operates the private markets only exchange fund. And so what does that mean? What is an exchange fund? So, you know, these, these funds have been around for public company executives or for public securities since the 1960s.
Eaton Vance manages over $500 billion worth of them, and there’s the reason that, as I call it, a wealth management or, or tax optimization strategy. It’s been around for decades and, and been so successful, is that it offers a really, truly tremendous benefit, which is you can take a concentrated position.
Let’s say you invested a million dollars in Apple, whatever, 10 years ago. Now it’s worth $10 million. You wanna allocate out of that. You wanna de-risk your, your winnings. Mm-hmm. Obvious thing to do would be to [00:14:00] sell that $10 million worth of Apple shares, but then you’re gonna pay tax on the capital gain, and so you’d be reinvesting.
On after tax dollars, which is never where you want to be. Mm-hmm. An exchange fund allows you to take that $10 million worth of Apple shares and exchange it for a $10 million LP interest in a diversified fund de-risking you without triggering capital gains taxes. And the longer you leave that 10 million, what starts at $10 million worth of apple, uh, in those shares, those tax savings compound over time.
Mm-hmm. But by the time you’re six, seven, or eight years out, you know, from, from the initial exchange. As compared to what you would have, what you would have in the bank on an after-tax basis compared to just had you sold the stock. It can be two, three times as much, obviously, depending upon the rate of return in the fund.
Yeah. And so, you know, our, our thought was, look, if, if this makes sense and is such a proven concept for public company executives and, you know, Morgan Stanley has one, Goldman Sachs has one US Merrill Lynch, every Fidelity, Charles Schwab. Um, [00:15:00] then it should make even more sense in the private market. And so why is it, mm.
That’s because people are even more over concentrated, which means they’re even more at risk. Therefore they need diversification even more. And they’re, uh, the appreciation on their shares going from zero to a million dollars if they’re a unicorn and their company value means that the value of that tax yield is even more important.
And if you’ve got really modest return than the tax advantage, isn’t that great? ’cause your gains aren’t that great. But if you’ve got huge gains, it means you’ve got a huge tax if you sell those shares. So just the, you know, the, the very highest level. This seemed like a, a tool that, you know, lots of people could use in the private market.
Yeah. And so that’s why we, that’s why we brought it to market. Yeah. This is fantastic. And I, I wanna, I wanna step back and just talk through something that we, we dis you discussed about taking my, my $10 million of apple equity and moving it to, uh, the limited partnership, the lp, that, that gives me diversification because the, the, the trick is like.
This [00:16:00] is, this is done really well, but we’ve seen businesses that have done really well over time. Mm-hmm. That, that fall off, right? Yeah. Um, the, the, the scariest examples, Enron, right? Like, it was, it was a darling, it was, you know, AAA rated by all the reading agencies. It was doing fantastic. And then, you know, the value went into zero.
But we’ve seen, we’ve seen other darlings, we’ve seen ge, you know, which was a, a fantastic company. I think about, you know, I was. I remember reading Jack Welsh’s book. Yeah. Um, and I’m like, man, you know, GE is where it’s at and it seems like since Jack Welsh has left, you know, this GEs been on this trail off, but this low decline, you know?
Yeah. And it’s like, you know, capturing that, that that appreciation when the market’s, when the, the value’s high, you know, is, is important. And then I can diversify out of that, you know, that risk. ’cause if we look at what the markets have done compared to GE since sort of that high point, I, I haven’t done it.
A deep analysis, but I’m, I’m guessing the markets in general diversification has, has won in that, [00:17:00] that scenario. And so if I, if I think about living in California mm-hmm. And I sell my Apple stock, you know, I’ve got federal capital gains tax at 20%. I’ve got Medicare surtax at 3.8, and then state at 10 13, 13% in California 0.3.
Yeah. So I’m, I’m up to over a third of my gains Yes. Are going to the taxing authority. They didn’t do anything. Well, I shouldn’t say anything. They didn’t do much to contribute to the value of that. Yes. That position, they’re just taking the dollar. So if I can roll those dollars into an exchange fund mm-hmm.
And, and be able to diversify my position, you know, now I can, uh, just continue to, to grow my wealth. Maybe not at the same rate. You know, there, there is a level of, you know, if I want to be on the Forbes list right, of a billionaire, I, I have to have a concentrated position and generally apply some leverage.
Okay. Um, but maybe I’m okay not being on the Forbes list and I just wanna live a very close life. Or maybe there’s a, a middle path, right, where you’re [00:18:00] not trading all of your shares for a diversified position. Right. But you’re cha trading, you know, some, maybe, I think probably, I would guess kinda the average number for us, about 20% of the holdings is the ideal amount for people to, to exchange into the fund.
And really what you’re doing is you’re, you’re, you’re trading kind of, you know, a binary outcome. Like, you know, like you’re putting it all in a roulette table on red or black. Uh, for a, you know, a putting a floor under your net worth that supports your family and your needs over the long term, make sure you’re never gonna necessarily worry about, well, maybe not never, but mm-hmm.
Your, your concern about paying your mortgage, et cetera is greatly reduced or eliminated, but you still have this significant upside. And so that, that’s where I think that really has resonated with most of the, the, the founders and executives that we’ve talked to, they still believe in their company, but as you said, like, what, what happened to ge?
It’s, it’s even more true in the venture world because one, I think the world is just becoming less stable from a business point of view with AI and quantum compute. I mean this, the latest technology, nobody [00:19:00] can really see where things are gonna be five years down the road, and that’s the exit horizon or, you know, five or 10 years for many of these series C companies.
Mm-hmm. Uh, so no one can kind of see around the corners of the, the, the globe or, you know, that far out. Look, you know, competitors emerge that you hadn’t seen someone get to the business that you hadn’t anticipated. The technology moves as regulatory change. So again, anyone who’s been around through a couple of different cycles, you know, could probably list 10 different things or 10 different reasons that 10 different companies that they were sure.
You know, it looked like the hottest thing and could do no wrong, you know? And it’s not that they go to zero, very few of them go to zero, but they just don’t exit at any kind of appreciable. Gain over where they were at. Say that serious C mark. Yeah.
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Yeah, this is fantastic. So just to continue this, this story along, I, I, I take, let’s say 20% of my Yeah. Uh, my equity and I’m, I’m ready to, to buy my house and take some chips off the table. Yeah. Help. Uh, [00:21:00] uh, so can you walk us through that process? ’cause how, how do we take the cash and then I assume those, those shares then go into.
Your exchange fund is? Yeah. Yeah. Can you, can you walk us, us through, well, well, yeah. An important point. So, so, you know, we, we really, as I said at the beginning, there’s two problems to solve. There’s over concentration and there’s illiquidity, right? These are the perennial, twin, twin pillars of the venture economy dysfunction.
And, you know, the exchange fund really only solves the first problem, right? So the exchange fund fund itself alone does not provide liquidity. What it deals is, it provides diversification. So I used to own whatever, $10 million worth of whatever, SpaceX. Now I own $8 million of space SpaceX and I have $2 million in a di diversified fund.
Mm-hmm. To provide liquidity, solve that problem. We do, we’ve done a bunch of different things and we’re always in the market looking for kind of the, the, the next sort of, yeah. Call it credit facility, but mm-hmm. I’ll just tell you where we started and can tell you where we are now. So we, [00:22:00] um, partnered with Web Bank, which is a prominent kind of FinTech lender.
Uh, and we said to them, look, there are providers out there, you know, private credit funds that will lend against a single stock position, but it’s risky for the lender. It’s a lot of work to value these companies on a one-off basis. They have to get information from the company. Um, and it’s a challenging product that takes, you know, weeks or months to get to.
Um, and then for that reason, the loan to value ratios were very low and the cost of that capital was very high. Mm-hmm. So what we were able to persuade Web Bank of was look, but. When you lend, not against the shares that the person came in from, but now you’re lending against the LP interest that we’ve issued.
Yeah, that’s diversified. It provides quarterly liquidity. It is priced in an automated way using an algorithm based on market pricing data that’s updated in real time. And so we were able to get them comfortable with a significantly higher LTV. Mm-hmm. And a significantly reduced cost of capital. That and that solution, you know, we’ve actually [00:23:00] exhausted the capital in that facility.
And so then we went onto another one, which is more of a, a forward purchase, and so we can go into the details, but yeah, essentially what we’re out in the market doing is trying to find sort of the, the representative of our community, of founders that own interests, executives that own interest in our fund, looking for the best possible credit terms at, at whatever timeframe we’re in now.
The web bank arrangement was something we entered into Darkwood interest rates were very low, so that cost of capital is very low, and we’ve seen, obviously that’s change. Um, so, you know, that’s our pledge. We’ll, we’ll continue to talk to different, uh, banks and private credit funds to find the best solution for them.
Yeah. Thank you. And, and thank you for highlighting, uh, an error in. You didn’t highlight it, but an error in my statement was, um, you know, I receive capital. Well, I can’t just take capital because now, now I’ve recognized my capital gain and I’m paying tax on those dollars. So it’s like I have to move my dollars into the, the, the fund and then find a, and that was my thought was okay.[00:24:00]
You know, like we use securities back lines of credit on, you know, investment accounts. You know, I, I. You just highlighted how that could be done here and it sounds like that’s something you’re continuing to explore. Yeah. Well, and, and to take your, your example just to kind of make it or simplify it, and I’ll just use the web bank program ’cause we, we’ve talked about it.
But if I am, you know, if I’ve got a a hundred dollars worth of shares or a hundred dollars worth of gain in shares, I could sell them and pay 46% state and federal tax in California, probably paid four, five or 6% to the broker that found me the buyer. I’m gonna net less than 50 cents on the dollar, and then I can go buy diversifying assets with that.
Mm-hmm. But that process takes weeks or months. Yep. By comparison, you can come to collective, you can do the, uh, exchange for a hundred dollars worth of, uh, share value for fund. Mm-hmm. And then the web bank program was at a 60% LTV, so I, I net more money upfront. The loan is tax free. The exchange is tax free.
So not [00:25:00] only did I get more money upfront, but I also have this appreciating interest over time in the fund. Mm-hmm. Ultimately, when I’m ready to down the road, I can redeem that interest in the fund for cash, use the proceeds to pay off the loan and come out way ahead. Yeah. Yeah. That’s great. Now, now you’re just opening up the next level for me.
So how do I exit the fund? What is the, the opportunity there? So the, the Exchange Fund is an evergreen fund and we do quarterly redemptions after a, uh, a three year holding period. So the public exchange funds, this might be, I just, you, you have a sophisticated audience. I’ll go into a little bit more detail.
Sure. But the public exchange funds take advantage of, uh, an IRS rule that says if you hold your interest for seven years or more, when you get a redemption, uh, in the form of securities, publicly traded securities, that’s tax free too, which is just becomes the most amazing, you know, uh, tax benefit of any, any, uh, call it product or, or wealth management strategy that I’m aware of.
We felt [00:26:00] that, you know, even though we provide liquidity upfront, you know, our LPs, the employees of these unicorns would be, you know, less comfortable with that kind of long hold up holding period. So we made our holding period only three years. Um, but that, I mean, that, that’s something certainly we advise people to consider, uh, when they come into the fund and then we pay them out in cash.
And so one of the things that, that necessarily brings to mind and kind of important innovation, we think too. Our model is, well, how are you valuing our LP interests when I, when it’s time for me to cash out? Mm-hmm. Like, you gave me a price on my shares when I came in and ascribe a value, but what is that?
How does that, you know, relate to, you know, four years down the road when I want to take cash and take cash outta the fund? And so we, we developed an algorithm over the last couple of years that takes in all of the secondary trading data, primary financing, where other funds are holding it, uh, the, the shares on their books and records.
Um, public market comms, private market, m [00:27:00] and a comp, basically everything, every kind of data, uh, point that a, a venture capitalist or investor would consider relevant to valuing shares at a particular moment in time. And we built that into an algorithm. We get transaction data from all the major, uh, private market trading platforms integrated into one value.
And then we use that value to price the shares on the way in, and we use it to value the portfolio on your way out. Mm-hmm. So it’s not, it’s not. You know, really something that, that could be gained, uh, because it’s, it’s basically, it’s an algorithm that runs mathematically based on market data. So, you know, you’re gonna capture the full appreciation in the portfolio.
Hopefully that 5.03 x return that we talked about Yeah. Um, earlier in the show. Yeah. That’s fantastic. And, and one thing that I, just to bring a lot of these things together, I think your, your background in, um, you know, I believe it was share post and, you know, all of these different. Uh, we’ll call ’em, you know, pre IPO businesses.
Yeah. I think that just lends itself so nicely to what you’re [00:28:00] doing here. Yeah. At, at Collective, just because it, uh, you, you’ve got a, a strong background in, in value and, uh, valuation. How, how we value these companies, how we, uh, create liquidity. You know, I, I think all of that is just, uh, so important and, and the transparency for.
The people making this, this major decision is, uh, is critical. Well, it’s, it’s sort of embarrassing in a sense because basically that I’m still working on the same problem I started working on 10 years ago, just means I haven’t, I haven’t done too well in solving the problem, but, you know, hopefully I’ve learned from the mistakes.
And look, you know, the market is more liquid as a result of some of the, the platforms that I’ve been involved in than it was previously. Certainly, you know, before SharesPost or NASDAQ Private market that that is, yeah. Injected billions of dollars into the, the ecosystem. But this just as a measure of how far we’ve come, right?
The, the kind of the volume and secondary markets and liquidity is increasing. I call it a, you know, a, a linear rate, but the value of these e these, the asset class [00:29:00] is increasing geometrically, so, mm-hmm. You have a 4 million, sorry, $4 trillion asset class of late stage venture backed companies. And what I think most estimates are something like 50 to a hundred billion traded last year.
It’s a big number, but as a percentage of the asset class, it’s really just kinda scratching the surface. Yeah. Uh, so, you know, we, we know from those numbers or just, you know, talking to clients and anecdotally there’s a lot of, it’s an enormous trillions of dollars worth of trapped equity value, uh, in these companies.
And so it seems like it’s a problem worth solving even if we haven’t gotten it right yet. Part maybe until now. Sure. And, and I, I think, I don’t know, I I, I just look at the marketplace in general, and, and not that you haven’t got it right, you’re just refining your process to get it, make it better, right?
Yeah. And then that’s the goal of every business is let’s just keep refining to be Yeah. More efficient, more effective, bring more value to the marketplace. So, yeah. Um, I, I’m gonna give you a little grace there and be like, Hey, you know, I think you’re doing a great [00:30:00] job, uh, and just, uh, finding new ways to bring value.
So, good for you. Cool. Yeah. Um, all right. This is, this is fascinating. Is there, I I’m just looking at this going, okay. Um, I, I, I’m holding a concentrated position. Uh, there’s, there’s, there’s risk in that. Uh, I may not, I I think you’re creating liquidity for people being able to exit after three years. That may not be the case in their, their current environment, which I think is, uh, unique.
You’re also creating liquidity with, uh, the opportunity to borrow against, uh, the shares, which. I think 60% is a fantastic number. Oftentimes we see with security back lines of credit, uh, for equity positions, 50% sort of the, the upper limit, uh, at times. So that, uh, that’s good for you. Yeah. No, that’s, and that’s gonna, that’s gonna vary, you know?
Mm-hmm. From credit partner by credit partner. Right. But you know, that, that’s, as I said, we’re, we’re always trying to get the, the highest LTV at the lowest possible cost mm-hmm. Of our, our partners. Sure. Um, and that’s, you know, we’ve had [00:31:00] some success there. Yeah. Yeah. No, that’s, that’s fantastic. So I, I’m just thinking through this.
Is there, is there anything else we should be thinking about? Is there anything that, um, you know, when we’re thinking about the potential problems mm-hmm. Uh, that, that could pop up for somebody that, uh, is, is exchanging their shares, uh, into the, the LP that maybe they don’t think about on the, the front end.
’cause this is sounding awfully attractive one. Yeah. It’s a two Good. From my point of view. Yeah. Yeah. Well, so, you know, I think the thing that, you know, after people. They, they, they’ve absorbed the, uh, excitement around the tax savings, and naturally the question becomes, well, what am I investing in? Like, I know what my company’s worth, and I’m super excited about that and I’ve got, you know, great investors and I’ve got traction in the market, et cetera.
But what are all these other companies? How do I get comfortable? Because, you know, right now we’re, we’re working with 30 different companies in the portfolio to, to provide liquidity and diversification to their employees. You know, we’ll probably be at probably 60 or 70 companies by [00:32:00] the end of next year.
Mm-hmm. Um, and so what are those companies? How do, how do I have confidence that, you know, my, my company is not the star of your portfolio and there’s a bunch of other not so high performers, and so the returns that I’m hoping to get, uh, just never materialize. And so we, we take a pretty disciplined approach to our, our portfolio construction in, in a sense it’s the most traditional thing that we do.
So we have an investment committee. That each week we’ll review, you know, two or three companies put in front of them by the investment team for eligibility for exchange. Because one of the biggest problems to solve with an exchange fund, and we’ve seen this historically, and for the public market versions of these, is the problem of negative selection bias.
So the person who most wants to exchange shares of the fund is the person who’s least confident about their future value. Mm-hmm. Uh, and so we need, we need to make sure that we. We don’t let that happen, or, or very, very rarely let that happen. And so the [00:33:00] way we do that is by applying a pretty rigorous filter.
So one companies have to be of a certain size, so $400 million or more, but the average size of a company in our fund is a little over 2 billion. Uh, and that there’s some safety in that just because these are obviously not really startups at this point, but they’ve got product, they’ve got revenue, they’ve got, you know, real financial metrics that we can understand.
And see that there’s, there’s, uh, traction in the business and the, and the likely growth we look for or require that there be certain VCs. So we’ve got a list of, you know, all the kind of usual suspects, you know, top, top decile VCs, um, that you would anticipate. And that, that gives us a confidence that that valuation that we’re using as one of the primary inputs, the, the, the venture, uh, primary financing valuation was.
Set by somebody investing 50 or a hundred million dollars or putting real capital to work, had real expertise in understanding the company was motivated to, to be, uh, to negotiate on behalf of all investors, um, with [00:34:00] some vigor. Mm-hmm. We trust that valuation and we also, that means that we can trust that that company will have access to capital go forward.
Because if, you know, benchmark is putting in a $25 million check today, then they’re gonna make sure that the company has enough runway to reach an exit. And then we, you know, we, we also, um, we avoid companies making them eligible for exchange that have really kind of binary outcomes, right? Mm-hmm. Or astrical downside.
So biotech companies typically are gonna be very valuable or not valuable at all. Yeah. So it’s not to say we’ve turned down a bunch of very, um, uh, exciting companies, but it’s. We are not biotech investors, we are really relying on a diversified fund. So we’re building more something that looks like an index mm-hmm.
Than something that is a stock pickers. Like we’re gonna bet it all on this company. ’cause we’ve done a huge amount of work on it and we believe in this drug. And so similarly, we don’t invest in crypto. We do invest in blockchain [00:35:00] companies, but not in, in Yeah. Uh, tokens. And so that’s one aspect. We don’t invest in highly leveraged companies.
So you get the idea we’re, we’re. What we’re offering our partners, our exchangers, our customers, is the ability to de-risk their position by investing in some venture portfolios that can be expected to generate venture like returns. Yeah. But it is not a swing for the fences, it is not a spray and prey in early stage companies.
Uh, so that, you know, we, we, we published the number, our target returns at a 15% IRR annually. I personally hope and expect that it will be more, it seems like we’re heading into, you know, really good timing right now for us in the market. We talked about good fortune, so mm-hmm. We didn’t always think that in, in 2022 and 2023.
Yeah. But now in 2025, it’s starting to look like things are coming together. I love it. Yeah. Greg, this is, uh, this has been great. So I, I, I’m just going to recap a few things that we, we’ve talked about, you know, [00:36:00] we’ve highlighted some of the problems as, as, as a founder or executive at, at some of these companies that are on, you know, taking VC money that are, you know, have a nice valuation.
But a lot of my, my balance sheet, my net worth is held in this, uh, the seal, liquid stock. Yeah. And so, uh, you create an opportunity to, uh, diversify that risk and also create some, some liquidity, uh, which I think is. Um, incredible. And, and if we think about what, what happens if we do nothing? You know, you remain concentrated, illiquid, and exposed to a, you know, a single outcome.
Yeah. Which, uh, can be, you know, when we’ve got years of investment in this value creation mm-hmm. Uh, that can be, that can be a little scary. But if we think about it on the other side, if we, if we take action and we go, all right, let’s, let’s diversify a piece of, of what we’re doing here, uh, create some op optionality, some peace of mind.
And then wealth can become intentional, right? Like I can, I can be more focused on where I’m taking my, my dollars in line. You can afford [00:37:00] risk, right? You can afford to take risks. You can say, I’m gonna stay private another two or three years because my whole financial life is I’ve, I’ve got a floor. And so therefore I can really optimize the shareholder outcome for myself and for my investors as well.
Yeah. No, I, I, I think this is, this is great. And so I, I think, you know, talking through next steps, I think this conversation is a, is a great place for people to start. But, uh, yeah. Uh, going to collective liquidity.com and, uh, just on your homepage, there’s, there’s opportunities there for people to connect with your team or even have their shares valued.
And I, I think that’s a, a fantastic place to start. Uh, I, I think you’re. Your website’s well done. It’s well organized. I think people should spend some time, uh, uh, digging around on there and just, uh, it’s, it’s a great place to start and understand this process and figure out, uh, so do I qualify? What is my, what are my shares worth?
And then, uh, I think connecting with, with Greg’s team is, uh, uh, a great, I just, one other thing I’d say is just, you know, if, if, you know, as you said, there’s an automated path [00:38:00] through the website where you can get information about the value of your shares, what our bid price would be, kind of right up front without talking to anybody, but.
Excuse me, for lots of people, you know, they’re, they’re, they’re nervous and a little bit, you know, unfamiliar with the private market and how it works. And all I’d say is that when you talk to people on our, you know, our customer representatives, they’re happy to be really more consultants to you. And if our solution isn’t a fit, you know, if they think a brokered sale makes the most sense, or we, we know every broker in the market, we get data from every broker in the market, and so we’d be happy to refer you to.
With the best person we can think of for your particular situation. So we’re just, we’re happy to help. Yeah. Yeah. No, and this is great. And I, I love that you, you’ve identified this niche in the marketplace that’s unserved and the fact that you’re, the, the private markets only exchange Fund is, is fantastic.
So, uh, and I think you’re. Your background just is, is well positioned to, to bring value to people in this, uh, this space. So we hope, yeah, this is, this is [00:39:00] good. Greg, is there anything else we should, we should touch on before we wrap up? No, I just, uh, wanted to thank you. I mean, you, you, you kind of led us through a conversation.
I think we got kind of all the, the major least high level points out there, so, you know, thank you very much, Patrick. Yeah, no, thank you. And I, I just think about what success looks like in, in this scenario. Uh, you know, the, the entrepreneur or the executive is no longer trapped by, by timing your market cycles.
They’ve got clarity around their liquidity and just confidence, uh, in their, their entire financial architecture. And I, I really do love tax efficiency. And what you’re doing here is, uh, is a fantastic way to, uh. Really create wealth in a tax efficient manner. So yeah. Greg, this has been great. Thank you so much for joining us here today.
Thanks, Patrick. Cheers. Alright, thanks. Alright, that wraps up today’s episode. Thank you so much for tuning in and spending part of your day with me here on the Vital Wealth Strategies Podcast. I hope this conversation gave you real value and a new way to think about liquidity, concentrated risk, and how [00:40:00] tax strategy plays a critical role in building long-term wealth.
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