Liquidity Advance
We've pioneered a new way of providing liquidity to founders using what we call a Liquidity Advance
1
Loan advanced
Up to $2 million is advanced to the founder. This is structured as a loan so no CGT is payable at the time.
2
Security taken
Security is taken over the founder's shares by a transfer of the shares to a custodian. Founder retains full voting control.
3
Loan repaid
Whenever the founder receives proceeds from the shares the loan is repaid.
4
Upside payment
Once the loan is repaid the founder pays between 10-20% of additional proceeds until all of their shares have been liquidated.
Advantages of the Liquidity Advance
Light touch due diligence avoiding the need to place any official valuation on your company
Avoids the need to obtain consent from the company or other shareholders
No CGT payable at the time the loan is advanced to the founder
No change to the company's existing cap table
Founder retains all voting rights and upside potential in the shares
Liquidity Advance v Secondaries
Our Liquidity Advance solves two of the biggest challenges with secondary market transactions
Secondaries
Valuation has to be agreed
A discounted secondary price can cause problems for founders looking to raise primary funds. It also causes problems for current shareholders who may need to mark down any investment off the back of a discounted secondary transaction.
Transfer consent
Many secondaries are blocked by the company and other investors as the purchaser of the shares will be joining the cap table. This means many founders are prevented from selling any of their shares.
Liquidity Advance
No official valution is required
We do not need to place any official valuation on the company as we are taking a percentage of the founder's overall return.
Consent is not required
Our economic interest is in the founder's overall returns and therefore we do not require title to the shares and will not come on to the cap table. This avoids any need to obtain consent from the company or the other shareholders.
How does it work in practice?
Type | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 | Year 7 | Year 8 |
|---|---|---|---|---|---|---|---|---|
Interest | 0% | 0% | 0% | 0% | 0% | 50% | 50% | 50% |
Break Fee | Loan + 50% of Loan | Loan + 100% of Loan | Loan + 200% of Loan | - | - | - | - | - |
Upside | 10% | 10% | 10% | 10% | 15% | 20% | 20% | 20% |
We advance founders up to $2 million in exchange for a % of their future returns called 'Upside'.
The loan only accumulates interest between year 6, 7 and 8.
The Break Fee is an optional payment in year 1-3 if the founder would like to exit the agreement.
After the loan is repaid the Upside is calculated by applying the relevant Upside % to any proceeds received in that year.
Use our calculator to estimate the loan costs
How much would you like to borrow?
What is the estimated EV of your company at exit?
What is your estimated % ownership of the company at exit?
How many years from the date of the loan will you exit?
This is only an estimate and there's a good chance we can provide you with an even better deal once we understand your situation a little better
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Exit Year:
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Loan amount:
...
Your exit proceeds:
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Amount you pay us
(Break Fee not applicable)
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AMOUNT YOU KEEP
(Break Fee not applicable)
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Exit Year:
...
Loan amount:
...
Your exit proceeds:
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Amount you pay us
(Break Fee)
The Break Fee is less than the amount you would normally have paid us so is the cost effective option in this scenario.
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Standard fee
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AMOUNT YOU KEEP
(Break Fee applicable)
...
The results will be displayed here once calculated...
Liquidity Advance Example
Liquidity Advance Loan: $1,000,000
Founder ownership in their company: 15%
Year of receipt of proceeds by the founder
Item | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 | Year 7 | Year 8 |
|---|---|---|---|---|---|---|---|---|
Upside | 10% | 10% | 10% | 10% | 15% | 20% | 20% | 20% |
Interest | 0% | 0% | 0% | 0% | 0% | 50% | 50% | 50% |
Loan + Interest | $1,000,000 | $1,000,000 | $1,000,000 | $1,000,000 | $1,000,000 | $1,500,000 | $2,250,000 | $3,375,000 |
Break fee (% of loan) | 50% | 100% | 200% | - | - | - | - | - |
Optional break fee | $1,500,000 | $2,000,000 | $3,000,000 | - | - | - | - | - |
EXIT EV VALUE | $100,000,000 | $100,000,000 | $100,000,000 | $100,000,000 | $100,000,000 | $100,000,000 | $100,000,000 | $100,000,000 |
Founder exit | $15,000,000 | $15,000,000 | $15,000,000 | $15,000,000 | $15,000,000 | $15,000,000 | $15,000,000 | $15,000,000 |
Loan repayment | $1,000,000 | $1,000,000 | $1,000,000 | $1,000,000 | $1,000,000 | $1,000,000 | $1,000,000 | $1,000,000 |
Founder return after loan | $14,000,000 | $14,000,000 | $14,000,000 | $14,000,000 | $14,000,000 | $14,000,000 | $14,000,000 | $14,000,000 |
Upside payment | $1,400,000 | $1,400,000 | $1,400,000 | $1,400,000 | $2,100,000 | $2,700,000 | $2,550,000 | $2,325,000 |
Founder return after Upside | $12,600,000 | $12,600,000 | $12,600,000 | $12,600,000 | $11,900,000 | $10,800,000 | $10,200,000 | $9,300,000 |
Total payment (loan/interest/upside) | $2,400,000 | $2,400,000 | $2,400,000 | $2,400,000 | $3,100,000 | $4,200,000 | $4,800,000 | $5,700,000 |
Use our calculator to estimate the costs
Simon Campbell
Partner
Simon is a serial entrepreneur and investor having founded 8 businesses and invested in dozens more with several successful exits.
Simon founded The Sandpit, a business builder in 2010 and spent 18 months as COO at P&G Ventures.
Thomas Davies
Partner
Thomas began his career as a lawyer, qualified to practice in the UK and New York.
Thomas has spent the last 15 years working in venture capital, and most recently was the CEO of Forge Europe, the largest secondary marketplace in the world.
The Team
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