Source: Collective Equity
An innovative British start-up, Collective Equity, has launched the UK’s first equity pooling fund to give liquidity to founders who have their entire wealth tied up in the businesses they create.
Founders and shareholders can invest up to 10% of their equity, instead of cash, into the fund and share in the success of other high-growth, vetted companies. When one or more of the Limited Partners in the fund has a liquidity event, such as an IPO or acquisition, everyone in the fund receives a share of the proceeds. This gives founders multiple opportunities to convert their equity into cash.
Every entrepreneur wants to be the next Martha Lane Fox or Richard Reed but the reality is that it is often many years before they are able to access any of the personal time and money they invest in their start-ups. This can cause unnecessary stress and anxiety, which can ultimately impact the running of the company. Even with successive, secondary funding rounds, liquidity is not always available to the entrepreneur without heavily discounting the value of their investment and is often blocked by existing investors who fear disruption to the cap table.
While founders sometimes swap equity with another founder at an early stage, pool future earnings or create informal exchange funds, this is the first time that multiple founders of UK based, fast-growth start-ups and scale-ups have been able to enter into a legally binding Limited Partnership to pool equity and risk.
The collaboration and networking opportunities that arise from being part of a synergistic support network of founders, who are financially incentivised and aligned with each other's long term goals, has also been an important attraction for founders.
Collective Equity has four co-founders who have been entrepreneurs, supported the entrepreneurial growth journey and researched their challenges over the course of their careers.
Mike Royston is a co-founder at Collective Equity who has spent his career supporting entrepreneurial growth while working at Crowdcube and AngelHub. “Founders take a tremendous risk - not only at the time of setting up their ventures but as they continue to grow them - and the road through to a successful exit is getting longer,” he said. “There are always more challenges around the corner, particularly as we head into a recession. Collective Equity is an important part of the entrepreneurial journey that can expand the value created by the UK entrepreneurial ecosystem.”
Tristan Schnegg, co-founder at Collective Equity, has studied entrepreneurial wealth management extensively. “We believe entrepreneurs should have more opportunities to unlock the value of their equity as they scale their ventures. The game-changing companies they build create employment, stimulate and accelerate economic growth and act as a catalyst for further innovation. However their wealth is only on paper and they often struggle financially for years due to the illiquid nature of business ownership.”
First fund closes Crowdcube Funded Club
The first fund created by Collective Equity pooled £3.76 million of equity from 19 founders and shareholders at 11 high growth, Crowdcube-funded companies including: Magway, the all-electric, zero-emissions, high-capacity delivery system; eco-friendly period care brand &Sisters; and CatchApp Bookings, the intuitive scheduling app.
Darren Westlake is CEO and co-founder of Crowdcube, raising crowd investment for high-growth start-ups and scale-ups, and also a Limited Partner in the fund. He says " By making access to wealth easier for entrepreneurs, Collective Equity is adding resilience and strength to the start-up/scale-up ecosystem. It is an incredibly important part of the puzzle and we were delighted to provide this liquidity opportunity to our funded community.”
Andreas Adamides is founder and CEO of CatchApp and CEO of Helm (formerly The Supper Club). He said, “Being an entrepreneur with all your eggs in one basket can be lonely and stressful, particularly when you’re operating in a challenging economy. I've seen first-hand how amazing things happen when you’re all in it together. Founders are hard wired to support each other to build their ambitions and that provides an instant release of pressure that can keep founders going and generate new innovation.”
Claire Lettice, Founder of &Sisters, says: "In these uncertain times, I firmly believe that the pooling of equity for an invested group of individuals is a no-brainer and a super smart idea. Knowing that the other partners are looking out for cooperation and collaboration opportunities is a welcome support. I am sure that the collective pooling of equity will become an important stepping stone on every start-ups journey and look forward to seeing both this fund and future funds go from strength to strength.”
Future plans include support for founders addressing the climate crisis
Collective Equity has ambitious growth plans. It aims to launch multiple funds each year that are focused on different sectors, stages of growth and countries.
It is currently working on a fund for founders developing solutions to address the climate crisis. Other funds in the pipeline are focused on fintech and female founders.
To join a Collective equity fund, founders must have raised capital in the last 6 months and be backed by some institutional or VC investment. Funds are structured in the same way as a typical VC fund with Collective Equity as the General Partner and founders as Limited Partners based on the value of their equity. There are no management fees or set up costs for Limited Partners, and Collective Equity levies a 15% fee, but only when cash is released by distributing proceeds from one of the companies exiting.