How do you use a joint venture for a $15M non-dilutive cash infusion?

Doesn't matter whether you raise at a 200 million or $220 million or $300 million valuation. It's the capital you need to grow in the world I grew up in in venture almost having the IPO. Ring the bell on the New York Stock Exchange was almost the reason you formed a company. That was the victory lap. >> When you were building Shares Post, who was your customer? How are you scaling the >> strategy we pursued was you sold a company for $160 million to Forge Global? Why did you sell your company? For most founders, if you were to ask them, would you invest all your money in this company, no matter how promising? Would you invest all your money in a single company? And nobody in their right mind would say yes. Hey everyone, welcome back to $100 million exits. Today we have Greg Bragger on with us. Uh, currently founder and CEO of Collective Liquidity, but former founder and CEO of Shares Post, who sold 460 million to Forge Global. Greg, welcome to the show. >> Thank you. Good to be here, Jason. Thank you. >> Greg, I want to start just on that point like you sold the company for $160 million to Forge Global, which >> in my eyes, you know, adjacency like competitor uh in the space. Um I want to know kind of why did you sell your company? >> Uh what was going through your mind and uh we'll kind of work backwards from there in terms of how you got there. >> Sure. Well, there there was a few things or at least a couple things that were were going on at the time that that led to the decision to to you know sell to to Forge and uh one was we were just coming to market to do our next round of financing and a kind of a typical venture rack rapper sort of I think it would have been our series D something like that series C uh when COVID uh happened and so there was a you know period when the markets were in freef fall uh there was not a lot of investment happening people were stepping back so that gave sort of pause. Uh and then the secondary markets were uh also, you know, slowed to to a crawl. And so we've been kind of marching and increasing our revenue steadily upwards, but we were looking at a, you know, a quarter where um there were going to be significant challenges because just no no business was getting done during the the call it the scariest part of co. Uh so you know it it was uh you know we were looking for alternatives to financing and thinking that through and at the same time and maybe I could call it the maybe the bigger reason because I think we could have solved that problem. You know I I'd been running the company for more than a decade at that point. Um and I felt I I had kind of taken the model the broker model broker dealer model as as far as I could. Like I I couldn't really see a way to improve upon what we were already doing. Um, and you know, I I think from when we started the company in 2009, you know, the broker dealer model was the was the right fit, right? In in a completely market, you're trying to start from zero. The simplest models uh for liquidity are the ones that make the most sense. So, you know, hire a broker, match buyer, seller, sell shares, take a commission. uh that that that made sense and that allowed us to kind of build, you know, ultimately to doing $10 billion worth of total transaction volume in the time that I was there. Uh but as the market deepened and developed in the sort of astronomical, you know, meteoric rise of the number of unicorns and their total value, you know, things started to change. Uh so things that maybe weren't possible when there were only two or three companies trading um you know became possible when there's a lot more data providers and the market was much deeper. Uh it seemed like maybe there was a I I would even say better but maybe a different way to solve some of the problems than just kind of a brokered stock sale. So it felt like I guess those are sort of the three reasons. one the the markets were in turmoil and those kinds of periods that you know getting big faster. You know partnering with a a you know a company like Forge Global made sense. We could consolidate our capital raising establish you know clearly you know number one position in the market. Two it gave me the chance and a bunch of the people that that were with me at Shares Post and at NASDAQ to start something new with a different model. uh and I thought 12 years was long enough. >> It's a good amount of time to be uh building a company and and growing it. And you you mentioned kind of why Forge Global in terms of bringing you basically effectively a merger to some degree um at that time like what what in terms of the rankings of secondary transactions at the time like where was Forge and where were you guys? Well, it's always difficult because there's no there's no centralized place to go to see who's doing what volume. So, and people sort of famously and to this day still count their transactions in a bunch of different ways. You count buy side and sell side. You count, you know, what what transactions do you take credit for to add to your your transaction volume. But I think we were we were roughly equal. I think we probably, you know, in those quarters were doing more transactions. We had kind of had a larger Salesforce uh a larger kind of trading desk. Um, but I, you know, certainly we were one and two and putting us together at the time made, you know, sense to kind of create the clearly dominant uh secondary marketplace of it of its type. >> I'm very familiar with the brand and it's been a staple in the secondary space for for at least what five plus years or so. Four plus years. >> Forge. Yeah. Well, and Forge had started basically as a firm called Equidate, which was much more of a a forwards platform. we were kind of the broker dealer doing more kind of vanilla, you know, buyer seller transactions for commission. Equidate was more into the SPV and uh forward-based contracts. And so there was also a product differentiation that bringing them together also made a certain amount of sense. >> Nice. And when it came to that type of arrangement, was it more of a merger or was it more of an acquisition? >> Uh well, I I guess we we thought of it as a merger. They may have thought of it as an acquisition but you know at the end of the day you each own a certain amount of the company and I was on the board uh you know until it went public by way of spack but mostly or one of the things that I was super important to me um was where our team would be placed in the the combined uh entity. So uh you know we had some great people there that I think were really industryleading. So Jennifer Phillips ran our broker dealer and our trading desk. And so I was very important that she become the head of trading at Forge. Uh and she just recently left, but she's been there for years. And that was because one, I wanted to make sure that all the the the people on the team had good uh landings and also I just I felt much more confident in the value of the shares if they were running some of the kind of key parts of the business. Well, you know, one thing that um I think is interesting with with the Forge Club story is this perception of merger versus acquisition and how two parties might have two different definitions. Um I see this happen all the time where it's like >> saw in the HR tech space of the transaction I was, you know, intimately involved in where you >> ultimately got classified as a merger because they had raised more money. Yeah. >> But you know, as far as performance and other things, you know, we were a little bit ahead. So when it comes to just like the psychology of dealing with like having that conversation with your board, your team and uh dealing with that uh the moment you have that offer and you guys are collaborating toward towards a transaction like what were some kind of the feelings that were you were dealing with or kind of >> personalities that you were dealing with in terms of getting that over the finish line? >> Yeah. So you know what as I said one of the the key issues for us was we were coming to market to raise capital co happens markets in freefall. So, one of the key considerations would was, you know, could the CEO at um Forge, Kelly Rodriguez, you know, would would he be able to raise the capital to fund the Go Forward, you know, combined entity? And that that came down to to the wire, right? We had a certain time period uh when we signed the deal before the deal closed. And during that time period, there was an obligation on their part to raise capital. And you know it it was a you know a a question for me that was not just does the is there cash in the bank when this thing closes to fund the go forward operations but a big part of the valuation that we gave them was based exactly as you said as your example was based on their ability to raise significant capital kind of a step up from where we'd been in the kind of A and B round to a bigger C and D round. Um and uh it was you know down to within maybe not hours but within a handful of days as to when they actually did kind of cross the finish line on the the promised capital raise. Um and that you know we had board calls where we were definitely thinking about what what's the alternative to this transaction if they don't raise the money. Uh now I guess the good news that came out of that is that Kelly did uh you know in the kind of 2020 2021 time frame uh a great job of raising capital and bringing really large institutions into the company um which uh you know culminated in the spa uh that that was closed. I think it got us I think it was a $2 billion valuation at one point. Now it's since reversed itself rather dramatically. >> Yeah. Exactly. Exactly. But yeah, but I mean, so fundraising was a key concern and that was a, you know, something that was a box that was just barely checked before it closed, then checked in a big way after it closed. >> Yeah. No, that's a tough to go through that experience. And you I'm not sure what you can and cannot share in this situation, but you know, obviously, you know, for the audience that's not looking at Forge Global's public stock, but you obviously had a huge spike um but has since recently this year done a 15 uh 1 to 15 reverse stock split um and is about onetenth or so of that kind of like peak valuation and when or maybe a little bit um uh smaller at that point. So like it when you see that that you you're in 2021, you sell when kind of valuations are at a higher point uh especially you sell for 160 and the company's effectively worth for you know 2 billion down the road like what's what's going through your mind you know just dealing with that roller coaster of especially a spa which obviously has its connotations and then you know the after uh the aftermath of the just the general market collapse thereafter. >> Yeah. Well, I mean it it's you know I'd been in a handful of companies, you know, ventureback companies that had had exits in the past. And so, you know, I'd seen versions maybe not quite as dramatic as the the rise and fall of the stock price at Forge, but I' I'd seen that dynamic happened a bunch. Uh, and it wasn't a novel insight in 2020, 2021 to start to feel like the market was way out over its skis. So, you know, I I I never anticipated the $2 billion valuation. I never, you know, thought of that as the the true value of the company. And so where it leads me and not that I needed more encouragement or another reason to think about founder liquidity, but just you know thinking through ways to generate liquidity along the way to put a floor under the value of your net worth uh was something that was you know as I said not not unique to me. Uh but it it really highlighted for me the in a very personal way uh how important that can be just peace of mind and just making a smart long-term financial plan and not wanting to ride the roller coaster or be at the mercy of the roller coaster. >> So that takes me, you know, let's take a step back. So, you know, we have the acquisition or merger. Yeah. And you know, the IPO or rolls back and everything, but you obviously built a meaningful company. you know, you raised venture, you raised around 20, you know, plus million dollars, uh, over that 10 12 year journey. Um, you know, kind of walk us through that experience of, you know, the early days of deciding to to do this like 2009, >> that's when the markets have completely fallen off like who's thinking about more private transactions, you know, grit real estate was, but uh, how did you come to this conclusion? >> Well, yeah, so it's true. setting it in time is kind of important because in 2009 you know venture you know was not exactly a sleepy backwater of private equity but it was much much smaller than it is today. uh and you know really uh the idea came out of looking at what was happening at Google and its IPO and so you know it just struck me as funny or strange that the founders there didn't want to go public right probably again sort of ancient history now but you know essentially the SEC made Google go public when it had a certain number of shareholders because there's this you know securities rule that if you have a certain number of shareholders you got to start reporting as though you're a public company And basically universally all companies once they have to report as a public company they say I might as well have that benefit. Um but they didn't want to and so they were looking for exceptions and and um uh looking for to to delay the IPO and that just you know in the kind of world I grew up in in venture you you know almost having the IPO ringing the bell on the New York Stock Exchange was almost the reason you formed a company. That was the victory lap. That was the end goal. And yet these guys were like, "No, it's not really what we want." Um, and so I started to think about why that might be the case. And there's a bunch of different structural changes that all kind of created this perfect storm that made me, you know, or convinced me that these companies, this this was not a one company thing that this was going to be the dominant strategy for how companies, venture-back companies got built. And if that was the case, then you know this the the you the employee equity strategy which has been kind of the core of the Silicon Valley model where you give 10 15 20 25% of the company to employees as an incentive. It breaks down because you know individuals employees are not the Harvard endowment. They can't wait 20 30 years for a return, right? They've got to put kids through school, buy a house or start new businesses and there's just going to be this fundamental mismatch. And so though at the time there really wasn't a need for a marketplace to match buyers and sellers because the companies were going public when they were 300 million 350 400 million in valuation. If that was going to be extended significantly you were going to need a platform because you're going to need an alternative source of liquidity. >> Oh it's amazing to have that level of hindsight and kind of see what was happening in the market that early um while everyone else is, you know, scrambling to survive. Um, and so you make that bet and I definitely catch a tailwind because obviously you made the right bet. Uh, private companies stay private longer. Uh, whether that's right or wrong, it's fact and that's what we're continuing to see even to this day uh, continue to be. So when you were building uh, shares post like who was your your customer and and how are you you know scaling the business? So uh rightly or wrongly you know I think the strategy we pursued was one where you you look for the customer that has the fewest options and the most pain right the you know the least uh number of alternatives and that was the smaller to mid-size employee right so I mean it always been the case that you know founders and sea level executives by virtue of having the discussions with the venture capital investors at least they could go to their board members that represented funds and say look I've got to buy a house and they would you know some kind deal will get cut at a kind of a one-off. But if you're a, you know, senior director of marketing or, you know, a manager in the, you know, the technology group, a coder, a developer, you really don't have that option. Um, and so, you know, finding a place for them to, you know, connect with a buyer, uh, was was where we started. And the thought being that once we got kind of initial transactions and you know an introduction to the company we could um you know you know kind of swim upstream and get larger and larger transactions because it just made so much sense to us that companies would want their equity compensation the stock options to be really meaningful. That was the only way they could really compete with the public companies like Microsoft and Google that were paying you know twice the salary because they were a wash in cash. So you have to make that equity comp or something. uh and that was the approach uh that we thought they should take. >> And how did you go about getting awareness like were you selling directly to them to basically come join the pro the platform and then how were you then convincing boards and or how are you creating the transaction? How were you creating the liquidity for them? >> Yeah. Well, so so uh it wasn't hard to to source the original sellers, the employee sellers, right? So this is, you know, uh they're easily identifiable on their LinkedIn or where, you know, where they work or other, you know, kind of tech centers. So we we took over the Cal Train station with a, you know, a sea of ads one time, you know, everyone coming in. That was one of more our more fun events. Um uh but you know, convincing the companies was definitely much more difficult than I thought. And so what I realized uh and and maybe it was clear but you know uh you know particularly kind of the old guard venture capitalists of the real traditional sandill road guys really did not appreciate the idea of employee liquidity and you know there are good reasons and maybe I at least from the company or the employees perspective maybe less good reasons for that right so the good reasons are you know does it fragment the cap table do you bring a bunch of retail buyers you know into the And you know the conventional wisdom is that retail buyers are more latigious. Although I'll note that in the whatever I think we you know 12 12 years that I was running shares post there was never and we did 10,000 odd transactions there was never a single lawsuit of any kind filed either against shares post or against any company in connection with our transaction. But but there was this fear that it would happen. >> Um >> I want to stop you there. How many lawsuits did you see amongst the VCs against the companies at that time? I I had I I hadn't done the a search for that but that would be that would be interesting >> probably much higher number >> but but I think you know the VCs there was a circling of the wagons back then so it was sort of a nent marketplace and it was a new idea uh and when they looked at their interest they said this is not in our interests right so so we want to be if not the first among the first to get liquidity for our holdings and we can't sell on these marketplaces so why should they it only you know disincentiv advises those employees and I think you know that that is u you know that's that's reasonable there's logic to it I I don't think it has borne itself out meaning I I think that companies that manage liquidity that that for for their employees and either a NASDAQ tender offer or a forge marketplace or what we're doing at collective you know I think they benefit from the the retention and recruitment capability it's it's you know and and I think the you founders recognized the need to provide that liquidity. So that old guard that argument is I think that ship has kind of sailed like it it slowed the growth of the market really um significantly in the first two three four years but you know that it's like a each year the the the market has moved 10% towards liquidity and so now five six seven eight years later you know there are certainly still companies that prohibit all secondary transactions and liquidity but I think they're probably in the minority at this point. Well, I'm curious to get your take on what I was seeing in the marketplace of secondaries is the stacking of SPVS. And for the audience, you know, maybe give the audience a quick understanding of what an SPV is and then kind of >> what your take is on those. >> I remember I I drafted the the first operating agreements for the first SPVS in the market. I mean, it had been a structure that had been used before, but Cheers Post was one of the first to create it. But essentially, what you're trying to do is solve for the mismatch in size between a buyer and seller. Um, all right. Meaning a seller has a million dollars worth of shares they want to sell and you have 10 buyers but none of whom wants to spend more than $100,000 or invest more than $100,000. So you aggregate them into one entity. It creates a revenue opportunity for the the platform the companies prefer because rather than processing 10 different transactions and getting 10 different shareholders now they're getting one shareholder one transaction. Um, and there I, you know, I think the last I looked there about 40% of the market now is done in SPVS. >> Well, there's also these kind of like SPVS that are set up to kind of have their own independent transactions separate. Uh, the company itself like SpaceX is known for this where SpaceX does not approve primary, you know, like actual direct secondary sales. >> Yeah. >> And so there's SPVS of SPVS trading SPVS. >> Yes. >> Shells of shells like shell to shell to shell. >> Yeah. Um, so I'm kind of curious like do you think that is healthy for the market or do you think that's not healthy for the market? >> Uh, I think it's healthy for the people that participate in those transactions. Obviously they're they're smart, knowledgeable people uh doing making the most of the opportunity that they have. But I mean you just think about the fees within fees within fees uh is is a challenge and then you know the the the diligence that you have to do into each SPV is also a challenge. meaning what what you know and not just I think it was a rare occurrence but there are certainly cases where we were aware that other platforms put together SPVS the company went public the investors of those SPVS expected a distribution of the shares and the manager said well no actually I continue to earn fees if I just hold on these a little bit longer uh I'll find the right time to sell when it's right for me. Uh so you know if you've got three layers of SPVS you better make sure you understand the waterfall from a company exit through to cash or shares in your account. Yeah I I find it horrific to be honest like especially because the access because everyone makes oh we're closing in like a week. Oh we got to act fast. Got to act fast. Like no you can't diligence. I'm just like when all these companies start going public when like Stripe goes public space go public how many people are going to be left holding a bag of like nothing? >> Yeah. that was just like a a shell that sounded like they were actually going to own the you know entity and then not. >> Yeah. Well, and it's very I mean it you need a good lawyer to to do the diligence because the operating agreements are complex documents. >> It also you you got to kind of lad it all the way back up to the company's you know bylaws and provisions and what they'll allow and you know it's it's it can be a challenge. So it's you know certainly layers of at a minimum bureaucracy and potentially worse. Yeah. I could tell there's uh there's definitely some situations where I'm quite confident that there are people running uh these SPVS with mal intent and it's unfortunate uh with whether they actually own the entity or not but also the fee stacking on top. It's like okay you're getting into a 2 and20 vehicle we're going to charge a 7% entry fee into that vehicle and then we're going to charge 2 and 20 on top of it. I'm like how do you make money? >> Yeah, right. Yeah. Yeah. No, it's fair fair question. Um, so with um, yeah, so okay, going back one one deal we talked about while we were before we kind of got on the record here that I thought was really interesting about your story and about your background was what you did with NASDAQ. Uh, you were explaining to me that you did a joint venture uh, with them. Kind of walk us through how that came to be and ultimately how you walked away with $15 million. >> Well, not personally, but yeah. Well, fair enough, right? Uh, and that's just an estimate, but but yeah, that was in that neighborhood. So, yeah. So, I think the time frame I want to say sort of 2011, something like that. So, we founded Shares Post in 2009 when they're just a handful of companies. So, LinkedIn, Facebook, and and actually it's funny. So, we we called Facebook a unicorn. I think most people have kind of forgotten now where that where that word came from, and it was because it was such an exception. And it was such a rare uh you know animal in the in the >> jungle forest wherever >> uh that we we call the unicorn. So there's a handful of them. But then you know the next year you know so it starts with four or five then it becomes 12 or 15 and then it's now 25 or 30. So, and and and the dynamic of the market, why companies were staying private longer was becoming clear. and Bob Griffeld was the CEO at the time at NASDAQ and you know recognized that where this market could go um and the impact it could have on the public markets which was at the time uh you know the the majority of NASDAQ's revenue the listing fees although it was starting to kind of slowly shift to to other products in in the NASDAQ you know empire um but he knew or they knew pretty quickly that They really didn't have the expertise in venture capital, Sand Hill Road, secondary markets of preIPO shares. Um, and because the public equities markets, the way they trade is just radically different. It almost has nothing to do with how private markets trade or or ventureback companies trade. Uh, and so they wanted to kind of lean on us for expertise. So, we did a 50-50 joint venture with them. Uh, they contributed their brand, they contributed capital, we contributed basically team members. And so I was the initial president I think was my title of NASDAQ private market and I got the regulatory approvals to set up an alternative trading system, designed the first tender offers, built the technology, uh ran the first programs and so uh you know it was a it was an entry point for them. Uh I think it it worked well uh from their perspective. Obviously NASDAQ private market is you know become you know the the central provider of of tender offer programs which is a one of the you know variants by which these companies provide liquidity um and they kind of had pole position to that space and then they later bought second market which was the only other um company kind of doing similar sorts of things. So, uh, you know, but about two years after we started it, you know, I I didn't really have much of a desire to work in a large company. Um, wasn't really a good fit in terms of call it corporate culture or my temperament. So, uh, I I was, you know, looking to kind of step back feeling I'd kind of done what I signed up to do. Uh, and just so that they could, you know, because their brand was on it, they really wanted to own and control it, which made sense. Uh, so we sold it back to them and again I my my best recollection is I think that the total consideration was $15 million paid to shares which then allowed us to fund the continued growth of our company without having to dilute uh shareholders with another financing at the time. >> So that's what I want to kind of talk about and educate our audience about was this opportunity came about. You know, most founders think about an enterprise type proof of concept to to collaborate or work on something, but you designed this joint venture structure that then paid a substantial dividend in the end that probably would have been way more than what they would have paid you in any kind of enterprise contract or anything of that sort to go out and build it for. um when you came to like architecting that deal like what what would be some of the things that were like that you can kind of take away and share with our audience that u might be applicable to them for their consideration? >> Well, when you say that deal, do you mean the sale back to NASDAQ of the company? >> More so just like how you set it up like howure you chose chose the joint venture structure. Well, so so my my background is I started my career as a um securities lawyer at Wilsoni, which I'm guessing given your audience, most almost everyone's going to know who they are. Uh but that was a a great way to kind of break into the valley. And I I had the good fortune to to work with a guy named Marty Corman who ran their M&A department and really kind of trained me in among other things joint ventures. And the reality of joint ventures is they rarely work, right? It's very challenging to align incentives certainly over the long term. And so I I was hesitant like we we didn't want to sell shares post but we wanted to you basically you know have NASDAQ's capital and and brand right this is another you know real significant incentive for us was the the companies and venture capital firms were on the fence and and many of them were really resistant to the development of this secondary market. And so, you know, we we looked like, you know, the wild west, you know, of, you know, kind of online broker dealers and never been seen before. There were all kinds of worries about, you know, what our regulatory uh, you know, profile was, what, you know, what our compliance program was. And so, by bringing NASDAQ in, not we don't legitimize shares post, we legitimize the market as a whole. At least that was the strategy. Um, so that that was kind of our our motivation. Uh and then just in structuring it, you know, you you of course you you want to have an exit uh in in mind like how is this, you know, assuming you're not going to stay married and a perpetual joint venture structure for 50 years, what happens if you're successful. Um and so thinking through what that mechanism looks like is super important. And there's, you know, it's again not not any great insight. There's earnouts and things that are tied to revenue and performance that makes NASDAQ feel more comfortable. I guess one of the things that I I really uh you know didn't take into account that if I had to do over again or at least I would I would consider was just the clash of corporate culture, right? So just the you know all all all of the cliches about the challenges big companies have mixing with little startups. I mean they're cliches for a reason. They're cliches because they're they're true. >> Yeah. Overwhelmingly true. And that that was the case. So and it it just it kind of manifested itself in in you know everything from how we marketed the company to how we built the technology uh and you know obviously the the strategic um direction of the company and the incentive. So I mean NASDAQ, you know, was pursuing this joint venture because they wanted to dip a toe and be kind of first to market amongst, you know, the major exchanges, the London Stock Exchange and the New York Stock Exchange, but they certainly didn't want to put their public market listing business at in in any kind of jeopardy because that was the main revenue stream for the company. And so they were never going to risk losing a potential listing because we did a transaction on NASDAQ private market. So they were very cautious and very hesitant. And so that was why it was it was really I think good for them, good for us to you know for for me to exit for them to take over with their culture, their strategy. We did you know I think it did legitimize the market a fair amount or more than you know it moved the needle somewhat um and provided us funding. So I you know I I I would have taken a different approach to building that business NASDAQ private market than they did and there are a bunch of things that we suggested that they do that they didn't do which I think they would have I wish maybe now that they had uh but um you know all in all it was a it was a important milestone and a success. Well, it's interesting to to have that that kicker in the end where there this is not just terminating a contract. There's, you know, equity has to be bought back. There's a deal that has to be struck and made. And >> um just clarifying point for for my sake. >> Was Shar Post still operating 100% independently? Yeah. >> And had own material value. It was basically the company like we're bringing this together in a completely separate joint venture. So it wasn't like they kind of merged you in and then you know bought you out. >> Yeah. >> You have that independence. >> Well and that was important as well because I think Shares Post at the time was you know a significant percentage of the trading volume which is you know a fraction of what it is today. And so it was in both the interest of Shares Post and NASDAQ for those entities to continue so that Sharespose could bring its transactions to the NASDAQ private market and and bring that volume and that activity and those buyers and sellers and company relationships. Whereas, if we combine them all into one, you'd have a trading platform without a salesforce. >> Real quick, if you're a founder doing over 5 million in revenue and want to know what the best hund00 million plus founders are doing to fuel their growth, then make sure to subscribe to our $100 million exits newsletter. Get the playbooks that are proven on how to fund, grow, and sell your business. I'll even give you a curated list of investors that want to invest in your business. It's totally free. All you have to do is click that link down below, subscribe, do it now. I promise it's worth it. You won't regret it. You got nothing to lose. Go ahead, subscribe now. Back to the show. >> So, yeah, I love this story and I think it's great that um you're able to share this just cuz I I don't hear a lot of joint venture structures with corporate and and how these kind of materialize. So, obviously there's pros and cons, but I think it's another feather in the cap think about or another idea to think about as people go into doing deals. Um, I want to take a, you know, step back into or step forward into uh, sharers post kind of before you saw just walk us through a moment that you felt that things were working, things were going in the right direction and that you made some bets that like hit. >> Yeah. >> What were some of the bets that you made that hit? >> Well, yeah. So, I I'm trying to remember exactly the the time frame. I think it's sort of 2019, early 2020. you know, it just, you know, a bunch of things were going right like we we'd, you know, been we made enough mistakes and had enough time passed that we'd learned from them and fixed some things. It was simple as like website training, rebuilding the technology platform, making it a lot easier for people to transact. Uh, and we invested in building out a sales team. And so we were seeing revenue start to ramp pretty materially. um and uh getting just right on the edge of profitability. And so it was as that was happening, we're thinking about, okay, we're going to wait till we break even um and we get revenue to, you know, whatever kind of new threshold we were looking at at the time and then we'll go do the next round of preferred financing because we felt like, you know, the the we would find a VC or some handful of VCs that were willing to kind of support the idea of a more liquid secondary market for ventureback companies. Um and so I think it was you know just the investment in our growth but then you know like we just hit the wall when COVID happens I think kind of late 2019 2020 and in Q2 the markets are in freef fall and so because we had delayed our financing we're all a sudden feeling like we don't have as much you know as you know the kind of comfortable runway we would otherwise want particularly if we're now looking at a 50% decline in revenue in Q2 of 2020. 20. And so, you know, when it hits the fan, you know, that's when you start to think about maybe, you know, finding, you know, a merger partner or an exit opportunity. But, I mean, I guess the the good news was we had built this sort of market leadership position and a brand uh that made us an attractive partner for, you know, basically a partner that could bring the capital that we didn't have at the time. No, that's a it's amazing story to kind of have that self-reflection like you're hot, everything's going up into the right, everything's going well, you delay a little bit while you can and maximize valuation. I hear that story all the time with founders and it's it's tough to decide. >> Take it when it's hot. >> Yeah. >> And take it early and just forgo the, you know, the delilution that you might have had. >> Yeah. To create that optionality. It's much more important to close a financing than to close the financing at the valuation that you, you know, dreamed you were going to have at that point, right? I mean, it's it's just a binary outcome. It's, you know, if you raise the money, the company's on to the next round or, you know, the next stage. And if you, you know, doesn't matter whether you raise it at a 200 million or 220 million or $300 million valuation. It's it's the capital you need to grow. >> Take take it when it's on the table and >> fair terms. Yeah. Um, I I can't tell you how frustrating it is for me in my position. I work with founders every day on capital and M&A and like we're going to wait. We're going to we're going to we're going to keep going. Like we we don't love these valuations. We're going to like well the market just >> isn't giving you those valuations anymore, right? >> Well, and there's a reason, right? Yeah. The markets are smarter than most individuals. So, >> yeah. And uh you know, I can't tell you how many times where I've seen it where they're like, "Oh, oh, we we didn't raise the money." like, oh, we like, no, now we're scrambling and now now you're a desperate case. Now you're not hot. Now there's fewer terms. Now the valuation is even worse. >> Yeah. >> Um, and you know, there's always a there's always a time and moment where everything's going well where every VC is looking at you and being like, oh, we should do this deal. Um, and I see founders, no, we're going to we're going to wait. And then, >> yeah, one all it takes is one month of plateau or worse and uh all those term sheets that would have been are no longer. So, um, definitely empathize there. So, you end up selling for 160 million. Congratulations. Um, and Forge goes public. Obviously, quite the the turmoil which we discussed. Um, but most people would hang up their hat. >> Yeah. >> Go sit on a beach, think about, you know, fun activities with family or whatever. But you decide to go back at it. >> Yeah. slightly different approach but you know similar market uh tell us a little bit about uh collective. Yeah. So I think you know part of the reason for for the merger or sale of the company was COVID and capital raising but part of it was also I think for me a recognition that I'd spent you know again more more than a decade building that company. So I I kind of felt like I everything I had to give to that business, every idea I had that fit within a broker dealer kind of platform or alternative trading system I had given and it still you know it it it still didn't feel like it it solved the problem basically and you could you could look at this from a bunch of different angles right so if you think I don't know what the latest estimate is of percentage of the market that turns over but if if you're looking at say three or four trillion dollars worth of aggregate market cap and you've got only maybe a hundred billion that's just a number I'm just making up right now uh that that is trading on the secondary platforms is still such a you know tiny fraction so there's something that's you know clearly not working in and even anecdotally like we all know founders that are in really attractive companies backed by the you know highest quality VCs but just still can't you know find liquidity for their for their shares uh and this is sort of an age-old problem right I mean back to like when I started my career even you a decade before shares post uh I've been around ventureback companies and just seen the you know the challenges that employees and founders had given that they had to go years waiting to see whether their shares are going to be worth something and and have it be kind of a binary outcome. And so I thought what would be really useful and different and a successful business would be an alternative to selling the shares that would be accepted by companies that acted you know and this is me on my soap box we this is a little bit uh I don't know philosophical and and what our customers care about is something much more tangible which we can talk about but uh is you know basically a utility that sits within the middle of the venture ecosystem where those that have too much risk princip with the employees can lay off that risk and return for liquidity and diversification so they can create a floor under their net worth and create a you know really sensible long-term financial plan uh and a way for those that didn't have access uh maybe they they couldn't write a $50 million check to Sequoia or uh otherwise you know couldn't couldn't find a a point of entry uh could take more risk so you know there just a clearing house of you know access and risk and so that that's really the the the highest level desire that we had in thinking about collective and then we we found this vehicle called an exchange fund that had been around in the public markets for a long long time uh but had never been ported into the private market and that became kind of the the lynch pin and and the key to what we do today. >> Yeah. So walk us through that. How does that work? >> Well, first I'll just tell you what an exchange fund is because it's it's if you're not a public company person that has a a good financial adviser, you might not know. Um, but they've been around since the 1960s. And essentially what they allow you to do is to take an appreciated position into stock and most likely an overconentrated position that you want to diversify out of. You want to reallocate. Maybe you bought Apple 10 years ago and now it's worth 10 times what you paid for it and you're overweight in Apple for where it is today. So you want to get out and you're, you know, the natural, you know, choice would be just sell your Apple shares and then take the cash proceeds and reinvest. But the problem is you pay tax. And so the exchange fund allows you to take those, you know, say $100 worth of Apple shares and exchange it for a $100 interest in a diversified fund without triggering capital gains. And if you know, and so I think Eaton Vance is was bought by Morgan Stanley, but they're the largest uh kind of best known manager of these kinds of funds. They manage $500 billion or that's the consolidated basis they report uh is their AUM. So it just, you know, if it's been around that long, decades, and it's grown that large, there's something there. And it just seemed to us like if it makes sense for a public company executive, it makes even more sense for a unicorn founder, right? Because typically they're even more overconentrated. The bulk of their net worth is tied up in their company and they've had even greater appreciation in the value of their shares. So they've gone from zero to a billion dollar valuation. And so the ability to do that trade or to diversify without paying tax on that appreciation is even greater. But hadn't been done before. So there's a bunch of legal and tax and other issues that we had to solve in launching it. But once you've done that, you now have the sort of alchemy that can exist that benefits all the parties in the market, which is I take a single position, I exchange a $100 position in my unicorn, I get a $100 LP interest in a diversified fund. I can do things with a diversified fund or I can make a plan based on a diversified fund in a way that I can't if I'm on the roller coaster that is a single stock. I can borrow against it. I can sell sell the interest back. I can um I could contribute the LP interest into a donor advised fund. I could contribute into a charitable range or trust. it becomes a security or an asset that is usable in many different kind of traditional wealth management contexts in a way that a single concentrated position in a private illquid stock is not. So just for taking a quick overview explanation here. So if I am whatever I'm the CMO but not the founder of a company. I maybe got 1% of the company at its like series A or something or seed. Um and now it's worth maybe like 5 million you know dollars. That's what that 1% of that I got would you know be worth hypothetically at the last valuation. So to give myself as you speak a floor. So, it's like, hey, $5 million is awesome. That would be life-changing money for most people. I, you know, but you can't do anything with it. You're maybe still not getting paid full market salary or whatever. Um, and you just want to you want to take a little edge off, but you still the company. So, maybe you >> 20% of your shares like a million dollars. >> Yeah. Exactly. >> So, where does that mill So, what what am I putting that million dollars into? So now I I've lost my interest in I've lost that million dollar interest in my company in exchange for um what what vehicle the vehicle what was it going into? >> Yeah. So and there was just one um point of clarification. So so >> yeah so so you take that million dollars worth of shares in your company you exchange it for a million dollar LP interest in the fund. Other founders similarly situated are doing the same thing. So it's basically hence the name collective right it's a a collective of founders and and tech executives from the best companies and so that that is one call it limitation it's the strength and the limitation of our model right so in order for you to be excited about exchanging your million dollars with a a company you believe in for a million dollar LP interest you have to have a lot of confidence that the fund that you're exchanging into is of the highest quality and it's hard you know if looking ultimately to have a hundred companies in the portfolio. It's hard to do that at a seed or series A or series B stage. So we, you know, need to filter the companies that are eligible for exchange into the fund. And it's really of all the different things that we do, we answer that question. We solve that problem in the most traditional way. We have a bunch of super smart, super experienced, super successful venture capitalists and investors that sit on an investment community or committee uh and say, you know, if looking at the portfolios of Andre, Sequoia, Benchmark, Excel, basically all the kind of, you know, famous VCs that are are enormously respected for good reason. We look at their portfolio and we pick just the winners from those companies and we make those eligible for exchange because that gives a founder confident that confidence not necessarily in our investment decision-m but they believe in Sequoia and Andre and others and so that you know one of the the first and maybe the biggest problem that you need to solve as an exchange fund is the adverse selection problem. If we didn't have that requirement, if we didn't have that filter of of making, you know, defining companies that are eligible and by implication those that are not, you would say any crappy company comes to this fund, trades the shares, these guys earn management fees off of whatever comes in. And yet, nonetheless, ultimately, I have to get liquidity for my interest. This is much bunch of crappy company. It's not going to be nothing's ever going to materialize. So, I I guess let me take a a step back here. So I'm I'm exchanging my So I'm in ABC Co. We're worth 500 million backed by the best. My stock's worth 5 million, whatever. Um now I'm giving my million dollar value in purchasing an LP interest amongst uh similar private companies. So it's all p it's all still private. So, how do I get a million dollars cash or is that like a service you add on top of that in terms of like maybe you lend against 50% of the portfolio value or things of that sort? >> Exactly. So, about 40 anywhere from third to 40% of our customers do just the exchange just for the diversification just to derisk their position and they're happy. I mean essentially they're taking a $100 worth of company ABC putting into a fund tax deferred or taxfree effectively and are you know have good reason to expect that that $100 interest is going to appreciate at v long-term venture capital rates over the next six five seven 10 years whatever their investment horizon is. Um and that's you know the that's something we feel great about. That's that's a really solid that's a real significant benefit to that customer. you know, peace of mind, diversifying their assets, creating an investment program outside of a single company makes all the sense in the world. But, you know, twothirds roughly of the company of the the employee, shareholders and founders that come to us, they're like, "But I also need I also need cash and I need cash today." So, what we have done is work with a variety of different partners um to create different forms of liquidity. And it's not really a sort of one-sizefits-all. So the the program we started with was with web bank uh and that was a a program where they'd lend at a 60% loan to value ratio. So I got $100 of ABC traded for $100 LP interest in the fund. I can then take $60 out in a non-reourse loan at a no stock fee at a relatively low interest rate. So that was a a remarkable program. we've exhausted the capital in that program and so we're now talking to other banks and so you know we think of it as our job is to continually be in the capital markets on behalf of our LPs sourcing the best financing available. So we're partnering with banks that offer basically lower LTVs now but at a lower cost of capital but they're recourse loans. We partnered with a private credit fund that provides a higher LTV, non-reourse, but it's more expensive capital. And those programs are going to come and go as we exhaust them. Um, you know, maybe we'll find the perfect partner that allows us to scale to hundreds of millions of dollars. But right now, you know, we're basically offering two flavors of liquidity. Lower LTV, lower cost. Higher LTV, higher cost. >> That makes sense. And, you know, gives people the flexibility what's priority for them in that moment. >> Exactly. How much liquidity do they need? Yes. >> Yeah. And also know things I always have to point out for for people. It's like, oh, I don't want to pay 10% interest or whatever. Um, but you would pay 15 to 25% cap gains if you were to have the right to sell. Um, you know, just taking off right from the top. though. >> Well, and you know, most people don't have it as their, you know, time in their day given they have a day job, uh, to like be talking to 10 different credit funds, three different banks, four different. So, that's what we >> and they won't get underwritten anyways, like it'd be possible for me. And if we by consolidating a group of you know founders and and clients that everybody wants. If we can't get you a lower cost of capital because we make essentially nothing on we just kind of pass through the equity or in some cases with some banks we just hand them directly to the bank. Um and we're not even part of the transaction. If if we can't find you a lower cost of capital it's because it doesn't exist. And it's because even though you're super confident in your, you know, your company ABC, um, you know, an investor might have more caution. >> 100%. Uh, yeah, I think that's the the reality. You know, it's good that, you know, people are blind by their passion for what they're building and think it's the greatest thing ever, but credit's a different game than adventure and it's underwritten very differently and pricing is very different. Um but it's great that something like this exists to give optionality to those that were fortunate enough to get employed by some of the best companies in the world. >> Yeah. >> Uh but then are stuck with that burden because like you know especially if you're in the valley uh it's just cost of living is astronomical. Like threebedroom two bath house is like3 million. >> Yeah. No let me tell you just uh just uh my PG& bill like $1,500 a month. So yeah I need an option package just to pay my utility bill. Uh yeah, cost of living that's that's a whole other rabbit hole we we don't uh really cover on this podcast in terms of cost of living. But um you know I think for for the audience here today you know what would be one thing that you want to share with them about your background about your experience that you think would be applicable to you know founder that's doing a couple million in revenue thinking about you know what's next? >> Yeah. Well, I I mean uh I just I I've made enough mistakes in my life that I got many lessons to share. I guess trying to look at it from a positive perspective. But I guess you know actually Jason, you and I were talking about a little bit before the show started. You know this I think particularly with young founders that that there's so much attention paid to the the venture capital approach to building a company. uh and it's you know it it it can work fabulously well and everyone focuses on the success stories for for good reason right so meteoric growth there's not a problem and then there's a you know an enormous public exit and you know people are are making 50 hundred million dollars or more but just the the you know I've I've heard it compared to kind of being put on a treadmill right when you do that venture financing and you're kind of handcuffed to the front of the venture because once you take that venture money you you are a venture capital company, right? So, the certificate of incorporation, your board structure, the control provisions that come with the venture financing appropriately because it's high-risisk capital and the venture capitalists need to make sure that they get a return for their investor. So, they're putting their protections and safeguards, but it it it ties you to that treadmill. And if you do a series A, if you don't break even, you better be able to do a series B. And so, there's a certain amount of growth that needs to happen between and then the B and the C. and you're you're kind of is like you kind of have to run the table in order for that to be a really successful outcome. And but by running the table I meaning you're, you know, you can make one mistake, probably not two. you can have, you know, one, you know, down quarter, two down quarters, but if you lose momentum, then things like the liquidation preferences that you locked in up front, um, you know, and if you have to do a down run and the dilution anti-dilution protection that kicks in, um, you know, it's it's it's not pleasant and you can lose a lot of value for the common holders, which are typically the founder and the employees that you thought you had built. And so, you know, I'll just talk about the way we're we're managing collective, having done this a couple times and had the benefit of, you know, a little bit of liquidity along the way. You know, I found a couple of great uh partners um that had invested alongside, not large amounts of money. We're still kind of we're we're kind of beyond the proof of concept, but we're kind of pre-scale or on the edge of scale. So hopefully you know we'll be this question of can we do a venture financing will be relevant to us you know next year or something we'll consider but there is an alternate route which is raising not venture money in a more traditional kind of um you know non-preferred stock kind of basis which is you know it's traditional private company the ways like sole proprietorships have been built and it's using debt uh that is you know available to you as as an alternative to the venture the venture approach so I Don't don't be locked into I'm going to be Google or Facebook or whatever the company. Maybe SpaceX is a better way to look at it, you know, given the uh the opportunity. And it also typically if you're a founder, one of the things that you think about is how long am I going to be able to control the direction of the company? And certainly a venture financing for most founders uh not for Elon but for most founders uh is you know you're starting a clock on how long you're going to be basically you know unilaterally dictating the direction of the company because ultimately um you know you give up board seats you give up uh you know controls um and uh you you know find that you're not in the driver's seat in the way that you thought you should be. Well, you're you're preaching to the choir here because this is what I do every day is help founders realize that there are other paths than venture. And what's hard for I think a lot of founders to realize is sure they might have raised a C to series A, maybe even series B, but like you said, like there's certain expectations that come with that. If you're off the momentum train and or you could be doing everything perfect, but your market fouls out of favor like if you're an ARP a couple years >> Yeah. >> zombie plague. >> Yeah. Uh, you know, so many things can just derail that are out of your control. And that's also why, you know, I want to just kind of wrap us up going back to this >> create your floor. Like I see so many founders that are putting everything on the line. You know, they have nothing to give them any kind of support or you know cushion. And while be that might be the right motivation for some, it's definitely not for for most. And uh you I designed my you know founder history and career pattern to like get to a floor as fast as possible. Like when I built and sold you know Walmart I mean uh liquid sky to Walmart. it was the intent to sell in as short a period of time as possible to kind of create that that floor. Um, and I think more and more founders need to think about having that floor because it just gives you a different type of mindset to build and scale a company in a very different way than maybe um if you're in a state where I need to get a six-figure salary right away otherwise, you know, I can only do this for three months, six months, a year, >> right? Yeah. >> Yeah. Uh very very different mindset to build a company in. Well, and it it it can allow you to take risk, right? Meaning, if you you know, if you're if there's no liquidity along the way, uh, and you get your first acquisition offer, you know, you may feel like you're compelled to take it. But if you've taken enough off the table in the interim or, you know, previously, you can say, "No, I'm I can go another two years, three years and, you know, bring these new ideas to the business that that no one's had a chance to see yet." But you know it's uh yeah the ability to manage your risk or choose your risk. I mean if you for most founders like if you were to ask them would you if you step back and you're not an employee you're not connected to this company would you invest all your money in this company no matter how promising would you invest all your money in a single company and nobody in their right mind would say yes. Yeah, delicious. >> Well, in all fairness, he's got like 10 now. So, >> exactly. Um, yeah, but it it uh it gives you certain freedom uh to to choose um your path that you know the absence of liquidity creates desperation under difficult circumstances. It's the unknown unknowns um that that that can occur. you know, new technology, competitors, COVID, um, you know, all kinds of things can disrupt the the golden path you thought you were on and then it's too late. >> Yeah. Well, Greg, it's been an absolute pleasure to have you on the show today. Uh, what would be the best way for founders to learn more about Collective or learn more about you? >> Well, thank you. Uh, yeah, just come to the Collective Liquidity website. You know, hopefully, actually, we just launched a new website today. We're pretty pleased with it. But uh yeah, hopefully this got good information on there can can kick off a conversation. Um and I'm always happy and anybody in your audience I'm happy to talk to directly. So uh you know put a put a call in or leave us an email. There's all kinds of ways obviously on the website to connect with us. >> Perfect. So if uh if you're listening and you stay this whole time, awesome. If you want to talk to Greg, just leave a comment down below uh and I'll reach out to you to set up an intro to to Greg. Um Greg, thank you again. Look forward to getting this out to to our audience. >> Thanks, Jason. Cheers. >> If you were inspired by today's episode, then go ahead, watch this next episode. Promise it's worth it. And if you really enjoyed this last episode and you want to connect with the guest I had on today, make sure to leave a comment down below telling me why you would like an intro to this guest and I'll make it