FULL TRANSCRIPT
All right, let's kick off. So my name is Slava Rubin. I'm one of the co-founders of Vincent. We're here to help you to navigate all things alternative investments, whether it's the alternative investment report, Smart Humans, the podcast, our pre-IPO webinar series, and all kinds of other good content. With us today, we have Christine Healey from Healey Pre-IPO. Christine, welcome. Thank you. Good to be here. Yeah. Would you like to give any more background on yourself quickly?
Absolutely. So I founded Healey Pre-IPO, it's a specialty pre-IPO broker service. So I do pre-IPO deals on behalf of investors, day in, day out, help them access the private markets. Before that, I was the portfolio manager of the Destiny Fund on the New York Stock Exchange under DXYZ. And before that, I was a senior director at Forge, which is a large pre-IPO marketplace. Amazing. So you know things about pre-IPO shares, and that's what we're here to talk about today.
So typically in our pre IPO series, we talk about companies like SpaceX or Stripe or OpenAI or Anthropic or Andrel or Glean or any of these. And we've covered all of them one at a time. But often what a question somebody asks is how do we get actually into these deals? What do I need to think about when getting into these deals? What's the right price? What's the right terms? What's the right structures? So we decided today we're not going to speak about any specific company, even though we're going to do a mock discussion later.
we're gonna talk about all the terms and ideas and questions you need to think about when trying to navigate the getting into these pre-IPO deals. With all that said, let's dive in. And first, a word from our compliance department. So this presentation is intended to be educational only. Nothing in this presentation should be construed as an offer to sell securities or solicitation of an offer to buy securities. This presentation does not endorse any particular security or company.
This presentation does not imply any affiliation partnership or other relationship with any companies or issuers mentioned. All investments involve risk and the possibility of loss, including loss of principal in either past performance nor forward-looking information is a guarantee of future results.
All right. So why talk about pre IPO companies? Because there's so many of them. ⁓ Obviously, there's public companies and you can get some Nvidia, which is hot today after its earnings last night. ⁓ Or you could buy some Amazon. You could buy some small caps and mid cap. But actually, there are so many more companies that are private. And you can look at this chart and the 87 percent number is actually how many companies are
doing over a hundred million dollars of revenue. And then you get over a billion dollars of revenue in the actual, I don't know what color is that, lime or greenish type color. These are private companies that have not yet gone public. So yes, you have the cream of the crop ⁓ at the top, which is already public, but there's incredible companies that maybe are even trading as much, if not more than the public companies, might even be worth more.
than the public companies, but for one reason or another are still private. These companies could be worth hundreds of millions, but often the companies we're talking about are worth many billions, if not tens of billions and some even hundreds of billions. So there's a lot of opportunities and pre-IPO companies are a huge space for you to potentially be investing beyond just the public markets. So Christine, anything to add here? Yeah, the way I think about it is,
companies today are staying private longer and longer. They're delaying their IPOs. They're worried about these pressures and obligations of being a public company, like disclosures and other maybe distractions from their mission. So in this world where companies are staying longer and longer is privately building companies where they could reach tens of billions, hundreds of billions, 300 billion in the case of multiple ⁓ top pre-IPO companies today.
all of that value and that growth creation in their company story is entirely in some cases on the private market up to billions, hundreds of billions of dollars. And so all of that growth can only be captured by the investors, whether VCs or individuals that can get in ⁓ before the IPO. And that's really why this is such an interesting.
asset class because you have so much growth that is not available to the public investor in today's world. Yeah, 20 years ago, the average ⁓ IPO was going at a $500 million market cap. Now it's a $5 billion market cap. So there is just a ton of opportunity in that four and a half billion dollar on average difference that now the private investor is capturing as opposed to the public investor. Let's go to the next slide.
So we already talked about this really quickly, but here's a more robust perspective as to why these pre-IPOs shares and investments are available. These companies are staying private longer and they need their liquidity, whether it's the investors want liquidity, the employees are looking for liquidity and they're becoming secondary sellers. The companies still need money before they go public. The IPO markets are challenged here today.
In Q2 2025, the IPO markets are actually opening up just a bit in comparison, but it's definitely not the go-go days that we've seen in multiple windows before. So will we get there? Maybe. But, you know, we have all this momentum of private investments staying private longer, like Christine mentioned. So the delay in the IPO markets and also, like we just discussed, the secondary sellers. There's employees at Stripe that have been there for a very long time. They'd like to
you know, get an exit. ⁓ There's funds that are expiring and they need to get their LPs cash. There's founders that are trying to figure out how to get liquidity themselves for their house or et cetera. So there's all these things that are happening all in unison, which is really how that change of 500 million to $5 billion average, which is a really huge change. And it's really creating these opportunities for the pre IPO investors. All right.
Well, now we have a glossary of terms here because if you're gonna know what you need to do as part of your investing, you need to know some of the facts. So we're gonna go through lightning round here with our expert Christine to understand what are all these terms, because these are the typical terms that you'll understand being used as part of a pre-IPO investment. So ⁓ Christine, what's the cap table?
the ledger of ownership of a company. So I'm either going to be on the cap table with my own name as Slava Rubin or potentially through a structure, I'd be on the cap table, but not of my own name through some other entity. Is that right? And we'll talk about that. Yeah, it's, it's legally who is the owner. So that could be the entity you are invested in, or that could be yourself in the case of a direct transfer. Amazing. Share class. What does that mean?
Typically that's referring to whether you have common shares or a certain series of preferred shares from a primary round that the company does. So if I had ⁓ preferred shares, I would get some sort of extra benefit versus a common share.
That's a longer topic, but ⁓ preferred shares often have some sort of liquidation preference, which is number four. So that gives you a bit ⁓ more protections in a downside scenario. You would be liquidated at a certain price, for example. ⁓ Preferred shares often are more transferable as well, have lighter restrictions on them in terms of secondary market trading. But once a company goes public, typically those differences kind of dissipate.
if a company successfully goes to IPO, there may not be a difference in your economic result. whether you prioritize- Share class really matters if they don't go public, but once they do go public- so. It helps you the most in a downside scenario or for transferability. But if the company just takes off and goes public, it doesn't always matter as much. So in competitive companies, investors-
don't always care that much whether they're getting preferred or common and many are happy to get access through common. Great, liquidity timeline? In this asset class, ⁓ there's a variety. People are drawn to pre-IPO usually because they're hoping for an IPO to get that liquidity ⁓ within the next few years. But some of these companies, SpaceX among others, don't necessarily actively have a plan to IPO publicly reported.
So the liquidity horizon or timeline can be longer, sometimes indefinite or five, 10 years, depending on the company. And you mentioned this, but liquidity preference is in line with the share class. So what does that mean, liquidation preference? Yeah, typically a feature of preferred shares, but it's ⁓ specific terms and priority that you would be liquidated in the event of a downside situation and a bankruptcy itself.
Right. And then I've heard carry. What is that carried interest? What is Carrie? Carrie is a really important one to watch out for. If you're investing in SPV, it's essentially a profit share by the manager. So the most common you'll see is either 10%, zero or 20%. So when, when that investment is eventually liquidated upon exit and when you sell, cetera, ⁓ that means that the manager will retain.
in some cases 10%, 20 % of the profits that you make over your investment amount. An admin fee, what is that? Admin fee is a fee in the fund vehicle that you might be investing in that's often passed ⁓ along to the investor. So that'll often cover things like audit or other ⁓ administrative items other than the management of the actual vehicle.
You mentioned transfer rights a couple of times already. So what is transfer rights? Transfer rights or transfer restrictions are the rules around secondary sales that the company itself places on its stock. So you can sometimes find these transfer restrictions in a stock plan. Sometimes it's in the bylaws. Sometimes it's in an exercise agreement. But you're looking for things like a right of first refusal, a board approval, a co-sale or other
requirements that the company puts in place around how they want the process to go if someone wants to sell. Got it. So it's like how hard or easy it is to actually move your shares to somebody else. Exactly. Most companies have at a minimum a right of first refusal, which adds a 30 day company approval process to a proposed direct transfer. What are preemption rights?
as it says here, right to maintain ownership percentage. So you probably would see that in some classes more than others, probably more relevant for institutional investors than individuals. Great. Allocation risk? Allocation risk is a huge one in these markets. You're talking about risk that the allocation gets canceled, risk that your allocation as an individual investor gets canceled.
So that's a very real ⁓ phenomenon in this market. Not every broker, not every platform, not every seller is as firm and reliable as others. And so there are many deals in this market, unfortunately, that fall down on you. And so there are ways to kind of reduce that. ⁓ Certain structures of deals may have less risk. Secondary sometimes has more reliability than a...
uncertain upcoming primary allocation, for example, and just working with reliable parties with a track record among other things. So very important is number nine, the allocation risk, because new investors sometimes will ⁓ take everything that's offered to them at face value and be let down and then come away very discouraged about ⁓ this market. So it's important to choose who you work with and try and reduce that risk.
You just use a couple of terms that are probably relevant, not on the list. What is primary versus secondary? Primary refers to new issuances of shares by the company itself. So ⁓ when you see a company fundraise advertised, know, NVIDIA or Microsoft has invested in a certain company that's typically talking about a primary fundraise where the company is issuing new shares to these investors.
⁓ Secondary refers to the resale of existing shares by VCs or by employee shareholders of the company. So no new shares are being issued, but those existing shares are being sold to a new investor. Got it. So primary is the share they're coming from the company and secondary, it's coming from a shareholder, not from the company. Correct. All right. Disclosures?
Disclosures, know, things you need to know, things you need to be aware of. ⁓ There's a lot more disclosures with a public company than a private company. So that's something to keep in mind. ⁓ There could be regulatory disclosures or there could be financial disclosures, all types of disclosures, but it's basically covering your bases in terms of information and regulatory pieces as well. ⁓ Minimum investment. I guess that's self-explanatory.
Yeah, minimum investment, huge one in this market. ⁓ A lot of deals through SPVs might be a hundred K minimum or sometimes 200 K or higher, depending on the seller and the structure and those dynamics. Direct deals sometimes have a larger minimum investment because there's no pooling vehicle. ⁓ So that's something to be aware of too, depending on the size that you're trying to target. And deal expenses.
Often the largest expense that you can expect to pay is ⁓ the broker fee on a transaction, which often starts at 5%. ⁓ There may also be the management fee carried interest that we've mentioned on the vehicle. Those tend to be the main expenses. In direct deals, there can be other expenses as well, depending on the specific company. Like some companies require a legal opinion, which can add
few thousand dollars ⁓ to your cost in a deal. And ⁓ many buyers also have their own experts, their own team that they assemble for their comfort, like a lawyer, financial advisor, et cetera. So that's gonna be quite personal as well, but it's good to think about that upfront when you're going into a deal to understand your financial investment. What's the difference between the admin fee number six and the deal expenses number 12?
This fee is typically specific to the vehicle you're investing in. are there fees to administer this SPV that my SPV manager is passing along to me? Deal expenses might be other costs I will take on, whether it's my tax advisor to get comfortable with this, or if any extra fees that the company requires, some do have a transfer fee.
that the company actually charges. So I would just put that in a miscellaneous expense bucket. All right, sounds good. For all those listening, if they have any questions, feel free to use the Q &A section. We'll follow up. Obviously, we just went through a lightning round, and we'll use some of these terms coming up in our mock scenario. Let's move on. Are there any other things you want to mention here, Christine? But you were amazing there. Thank you, thank you. I would just stress that
A lot of these terms and this lingo is very different from public market investing. And that's completely normal. There's a bit of a learning curve there. So it's fine to not have close familiarity with everything. But I would say when you're doing a deal, if there's a term you don't understand or you need more color on, speak up and get that clarity because some of them can be very, very material to your end result. So you don't want to skim over the term carry and
not fully grasp that you might owe a portion of your profits. That's an example where it could be material to your end result. So it's normal not to be an expert on all of these, but speak up and get up to speed so that you know what you're getting. Yeah, we have a good question from the audience as part of a term, dilution and dilution risk. How does that impact and what is that term? For what it's worth, anybody who's watching, this is a great opportunity to screenshot this because there's a lot of good terms here.
Obviously we will archive this and they'll be available, but if you want to just screenshot it for your future reference, feel free. So Christine, what is dilution, dilution risk? So the cap table or the share count of a company is not static. The share count that they have today might not be how the share count looks five years from now. They could do additional funding rounds where again, in a primary round, they might be issuing new shares and that creates more shares over time typically.
And so if you own, let's say 1 % of a company today, hypothetically, well, if that company goes on to fundraise and you don't re-up your position, then the shares that you hold will over time be a smaller and smaller percentage of the total shares that the company has issued if they in fact go on to issue more shares. So that's what dilution refers to where your ownership percentage will naturally shrink.
as the company does more rounds over time and more shares are issued to affect the share count. Yeah, but that doesn't mean that the share price will go down. The share price could very well go up. Dilution is usually more of an institutional concept and really something less that individuals think about as much. But ⁓ obviously, if it goes from a thousand shares in the organization to a thousand five hundred and you had a hundred shares, you obviously went from 10 percent ownership to now closer to like whatever that is, six and a half percent ownership.
but your share price probably went up from, making this up again, from $10 to $12 per share. Again, these are just fake scenarios. All right, let's move on to the next slide. And here are some of the structures. So, the first two structures, direct and SPVs, are the most typical that we'll see individuals be getting into.
The layered SPVs are becoming a bit more common these days. These are usually second layer SPVs. We'll talk about what that means and forwards, ⁓ which are a bit more complicated. So how about we just go through them one at a time? So Christine, what does it mean to be direct? Direct on the cap table is usually the phrase. Direct means that the investor buying the shares will end up directly on the company's ledger of ownership.
So they might be getting a stock certificate in some cases with their name on it. So if I'm buying, then Christine Healey will be the legal owner. I'll be on the company's ledger. And to do that, we would be following the company's designated transfer process. Like most companies have a 30 day right of first refusal where you're submitting to the company, the company's approving the buyer and everything is done really in the company's ⁓ control and process.
⁓ SPV or a single layer SPV. ⁓ I'm doing this via an SPV. The deal is via an SPV. I'm just giving you some examples of how people say it. What is that version, Christine? SPV is a pooling vehicle. So it essentially means that you're put in a dedicated legal entity that is pooling you together with other investors so that your total buying power together is larger and you can access together.
a larger seller to match with you. So it could be an SPV with tens of investors in it, each putting in a hundred K, but together that could be a much larger deal, a few million in some cases to match with a seller for a few million. So it opens up the more opportunities of potential blocks you can go after in this market compared to.
what you could access if you were just going alone and it was just your 100K or just your 250K trying to match with one seller for the exact same size. So direct, my name's gonna be there. It's gonna say Slava Rubin on the cap table. And in SPV, it's gonna say group by entity number one. I just named it for the sake of naming it. My name will be inside group by entity number one.
but it won't be on the cap table, but group by entity number one will be on the cap table, is that right? Correct, so in a direct transaction, your proof of ownership could be a Carta or some sort of stock holding, like an account ledger from one of those stock managers, or it could be a stock certificate in some cases. In SPVs, your proof of ownership is typically your fully executed countersigned
⁓ transaction docs that you signed with that manager. So if that's fully executed and you've been admitted into that vehicle, that's what your proof of ownership typically typically looks like. Awesome. And what's a layered SPV or often it's considered a second layer SPV, ⁓ two layer SPV. What is that? Yeah, so we'll often call it a ⁓ double layer or multi-layer SPV. That essentially means that
investors are being pooled together to invest in an entity that's on the cap table holding shares. So it's essentially a fund going into another fund. ⁓ Now, of course, by virtue of having two vehicles there, it adds a lot of extra diligence because you need to diligence both funds and the relationship between them in more detail compared to just a direct or an SPV transaction.
But you don't necessarily need to fear that structure. It depends on your level of sophistication, how much homework you wanna be doing, because ⁓ you can get better access sometimes quite frankly through double layers. ⁓ It's more likely with a double layer that you will get a zero zero, meaning carry free ⁓ allocation or perhaps a lower minimum compared to a single layer SPV in some of the most competitive companies.
So the benefit is sometimes you get maybe more lenient managers at the second layer level, but the downside or the responsibility that comes along with it is there's a lot more diligence, there's an extra layer of convolution. And so that's not gonna be ideal for every investor. And what's a forward?
A forward is one of the more ⁓ exotic structures where the financial aspect of a transaction takes place today for delivery of shares at a later point once they become fully transferable.
Right, so direct, my name's on the cap table, it says Slava Rubin. SPV, I'm investing into a manager, which was the group buying entity number one that's managing that entity. The second layer SPV, the layered SPV, I'm investing into an entity, let's call it group buying entity number two, that's investing into group buying entity number one that pulled a vehicle that's on the cap table. And a forward, ⁓
My name is definitely not anywhere because I hope that this happens in the future and I'm writing an agreement today that hopefully we'll get exercise in the future and my name will somehow show up into an SPV or a direct in the future. Is that right?
Technically speaking, the transaction for a forward still happens today. It is purely the delivery that happens later on. Right, but often a forward has risk that it might not happen. It might not go through, right? Even though it might transact today. I've heard there's a lot of risks with forwards. There's certainly a lot of risks. The largest risk in a forward transaction is the counterparty risk because you are relying on that shareholder.
to deliver the shares as contracted when they become transferable. So for example, after an IPO, you're relying on that shareholder to deliver on their promise. And in some cases, if the company has gone up in value a lot from the point of transaction to that exit event, ⁓ you're looking for someone to potentially deliver on those shares, even though financially,
there's maybe an incentive to holding onto them if the valuation is shot up. So there's a very real counterparty risk. there's definitely ways to structure around it and be diligent and have certain ⁓ mechanisms to enforce those contracts, like having in the contract that you'll have power of attorney or other.
other tools to enforce the actual delivery, but there's no shying away from the fact that there are more risky structure, less exotic or more exotic rather less vanilla. you know, not for every investor, definitely. I would not recommend going into forwards unless you are really, really sophisticated risk aware, and it's not going to apply for every case or every company. All right. We have a bunch of questions coming in.
So is a safe note a forward? No, it is not. A safe is a completely different type of structure. Are SPVs typically LPs with a manager serving as GP? SPVs can totally vary how they're set up. It could be somebody that had a lot of allocation because they were on the cap table and now they're exposing some of it. It could be somebody, well, as a of fact, Christine.
⁓ How do you typically see SPV setup? Who's setting them up?
You have active VCs or ⁓ institutional investors that are putting together SPVs sometimes on a deal by deal basis. ⁓ The important thing about SPVs is they are typically company dedicated. So it's not like a normal VC fund that might have however many 20, 30, 40 different companies in the same vehicle. They tend to be single asset most commonly, meaning if you buy a certain company SPV, it just has shares of that one company in it.
most likely. ⁓ So they do tend to be set up or ⁓ operated on a deal by deal basis. ⁓ Could be a VC or other institutional manager. At times it's more of a new school SPV manager. So there are parties in the market that maybe they're VC scouts or maybe they have access through some other ad hoc reason. And they're now putting together SPVs to give access to their
their own network. So you get different layers or different types of SPV manager ranging from just really well-connected people that have figured out how to kind of do this on their own. ⁓ Maybe they're an exempt reporting advisor or they figured out the structure to just ⁓ offer SPVs to their network all the way through the spectrum to professional institutional investors that are ⁓ doing these SPVs regularly as part of their course of business.
Awesome. And then we have a few questions now about risks and concerns. Seems like a lot to worry about here. If I get this exposure through a GP or fund or investment platform, can I leave all their minutia to them? Are there any specific questions I should be asking? The short answer is yes, you can. But obviously picking the right fund manager is its own diligence process ⁓ that you'll have to navigate to decide whether or not you're allocating into a good VC or investor. Obviously, that's different than investing into one specific stock. But yes.
⁓ That is why VCs get paid so that you don't have to deal with this stuff. So it's all having trade-offs as to where, how you navigate it. So is there a risk in these deals that I invest the capital and then years later I found out that they never had the stock or something went bad with the forward contract or fees were higher than disclosed? ⁓ So what are the risks here? So my quick interjection here before Christine answers, is this exactly why I personally suggest
even though it's not investment advice, that you stick to directs and SPVs because directs you're like literally getting on the cap table because somehow you have awesome access. So God bless you. And that's great. Or SPVs, you better know the manager, you better know them personally, and you better be diligent seeing that really clearly. Once you start getting into second layer SPVs and especially forwards, ⁓ now you're dealing with, in my opinion, some sophisticated risk that yes, it could go very well.
But sadly, when it goes poorly, can go very poorly. Christine, what are your thoughts? Four words are typically not a fit most of the time for most investors. So for an average individual investor, four words shouldn't be really part of your vocabulary most often. That's just my personal view. It's yeah, we'll leave it there in terms of four words. ⁓
I agree with you in terms of directs, SPVs, layered SPVs that a lot of due diligence is needed. You got to know who your manager is. You got to know how the vehicle's working. You got to know how the chain of ownership is working. Where I kind of disagree is I don't think investors need to be afraid of a little structure when it comes to getting into an SPV or even a double layer SPV if they are prepared to do the homework and understand them. So if you...
If you only looked to do deals where you had direct access, your universe of deals would be tiny. ⁓ You would probably not get into any of the top most active names right now if you insisted on only going direct. It's just not how it's gonna work. Particularly if you're maybe an 100K style investor, you're not putting in a million dollars. It's very difficult to get good direct access at say the 100K level in most companies.
So really SPVs can be a very good tool as long as ⁓ it's a reliable manager, it's reputable manager, ⁓ it's as clean and ⁓ documented in SPV as possible. So ⁓ the point to stress is really not all SPVs are created equal, not all managers are created equal. And so they can be very ⁓ helpful structures to go into.
potentially could get you lower minimums, potentially could get you, in the case of double layers, sometimes lower fees or lower minimums than a single layer. But there's that extra burden of diligence and discernment. So I don't think you need to shy away, but I think you need to be prepared and diligent. You need to read your docs. Please don't just run your transaction docs through Claude or through some AI. You need to take ownership.
of your diligence and know what you are signing up for because it's a huge financial commitment. So don't be afraid of structure and what your broker is there to do is explain anything that you don't understand ⁓ and help you navigate that process. But if you're gonna go for some of these more abstracted structures, you should be prepared for closer diligence. Awesome. And Christine mentioned allocation risk. If the fund I invest into ends up getting their
not getting their allocation after I wire them the funds, do I lose my funds or do I get them returned back to me? You get them returned back to you, but it's still a very frustrating process. So this actually happens a lot in some of the top most competitive companies where maybe a fund manager is offering ⁓ offering out an allocation to you where the underlying shares have been promised to this fund manager in an upcoming primary round of the company.
And so in order for this fund manager to wire to the company on time, they need to go and gather all the individual LPs commitments and funds upfront ahead of their own wiring deadline. So you get this happening where maybe a fund manager has been promised $20 million worth of primary allocation. They then go syndicate that out to a bunch of different investors.
all those investors sign and wire, well, maybe the company changes the allocation they get. Maybe they're being cut in half. They're only getting 10 million now and all of those investors get cut in half or in some cases the allocation might be canceled. So there are a lot of top companies right now where maybe the founders come in last minute and say, actually, I want to take half of the total primary raise for myself. I'm actually going to buy out ⁓
I'm gonna buy out some of that, or if it's a tender, I'm gonna buy out some of that tender allocation myself. And that happens all the time, often very last minute. And that can lead to a lot of frustration for these investors that may have even gone as far as to wire ⁓ for the investment before getting refunded. So one of the ways to handle that specific risk is to invest in deals that are ⁓ coming from a secondary.
of existing shares that are already held by that SPV versus an SPV where the shares are coming from an uncertain future allocation. So ⁓ another question with double layer, you're ultimately paying more in fees or in higher prices, right? Question mark, because SPV. Sorry, go ahead. I got excited about the question because SPV to pay SPV ones fees.
You're not just directly paying the fee, right? So what's the benefit? So that's actually a huge misconception in this market. People people intuitively think if one layer has fees and another layer has fees, then if I go into a second layer, I must be paying double fees. That's the widely held ⁓ view of many people in this market. It is often the opposite. So the reason for that is that.
These first layers tend to have a lot of power, a lot of leverage, very strict minimums. ⁓ And they're very rigid in terms of the fees or the carry that they put on these investments at the first layer. Now, a second layer SPV manager, maybe they are going into a first layer at a very large size and they almost get like a wholesale price at the first layer.
So a second layer manager perhaps is taking $50 million of allocation in a first layer vehicle. They actually might be able to get it zero zero, as opposed to getting it with fees and carry that a 500K investor going into that first layer vehicle might rigidly be required to pay. So you get this phenomenon where actually oftentimes a second layer manager who was able to get this wholesale
structure, maybe they were able to get it zero zero, will be able to pass on that saving to the second layer individual investor. So there's quite a few cases actually, where ⁓ if you go into a double layer, you might be able to get better terms or sometimes better pricing than if you went into a first layer at that same deal size.
All right, we are getting so many questions. It's remarkable. Of all my webinars I've ever done, this is the most questions I've ever seen. We'll answer one here quickly and then we're gonna get into our mock, because I think that'll be helpful for everybody, which is when you talk about first and second layer SPVs, which one is the underlying SPV? That's the first SPV. Great question. That's the underlying one. And then the second is the one not connected to a cap table.
All right, let's go on to our next slide. ⁓ I see all your questions. Thank you everybody. So who's engaged? It's phenomenal. Here are some example companies. So it's easier to get into, for example, Discord or Impossible through direct transfer, but some of these hot names like SpaceX, OpenAI, Stripe, God bless you if you can get direct, that sounds remarkable. Most people are not able to do that. So you go through SPVs. I think that's all we need to cover right now since we spoke so much about structuring.
And let's go into our next slide. All right. So welcome to Big Rocket Co. It's our made up company that we're excited to have a mock scenario here. Christine is Christine and I am Slava. Christine's a broker. I'm an investor and customer who would like to get into Big Rocket Co. So Christine, I'm interested in getting into Big Rocket Co. I've been hearing from my friends that it's doing great work.
⁓ And you said it's possible to get into it. What's the amount of money that I need to invest? So this SPV manager has a minimum of 100K. ⁓ The maximum available right now is around 4 million. Are you the manager? This is your investment? Or how does that work? No, I am not the manager. I am the broker here. So if you wanted to proceed.
I would, you'd sign my agent agreement agreeing to confidentiality and other terms. And then I would introduce you directly to the selling SPV manager, at which point you can review docs, get to know the manager and take next steps when you're ready. Got it. How do you know this manager? I've worked with this manager on secondary transactions over the past three or four years. So I've closed a bunch of transactions with them in the past. Got it. So are they
⁓ Are they only dealing in big rocket co or you're saying they deal with some of these other companies as well? There are secondary spawn. They work closely with a variety of pre IPO companies rocket co and also a few others. Got it. So you think they're trustworthy.
As a broker, I can't say what is a good investment, a bad investment, a good manager, a bad manager, but I can point you to different features of this manager for your own diligence. So this particular transaction is in an audited SPV, which is often helpful. ⁓ The manager has said that they're happy to share historical audits to give you a sense of the type of documentation that you're gonna get when the next year's audit is complete. This manager is also a registered investment advisor.
So you can look them up on the SEC website to review their registration and triangulate a bit more around who the manager is that you're getting into business with. But it's important that you do your own diligence to your level of comfort. So in this negotiation, we'll talk about the financial terms and the generics of it. If you wanted to move forward, at that point, we'll get a full suite of transaction documents and we can double click into some of the granularities on diligence.
Yeah, I saw like four months ago they raised CNBC mentioned there was something like $270 a share or something. And I think you told me it was like $300 a share here. Is that right? Is it possible I can get it for 270 or how was that price come up?
Yeah, so the market has been quite elevated in the past few months, especially ⁓ since Trump's election and everything there. There's been quite a resurgence in certain industries from crypto to space and others have seen a huge boost. So I would say the market for recent transactions has been roughly at this 100 billion valuation level.
The seller, unfortunately, is unable to negotiate on that price. So interesting. Do you have other managers that are selling this as well, or is this the only manager that you're working with right now? This is the only manager that's live right now. ⁓ Big Rocket Co. is a relatively active company, so it's possible there will be future deals.
but the transactions don't happen uniformly throughout the year. They can be opportunistic ⁓ and ⁓ not every deal is available at a specific point in time. So this is the one that is active right now. I would say this structure is pretty similar to the structures of deals in big rocket code that I've seen recently. So this is roughly in line with structurally how transactions will go in this company. Got it.
I know the minimum is 100k. If I did like a million, can I get a lower price? Yeah, this manager is actually willing to flex the management fee and the carry for larger deal sizes. So if you can hit a million, they're actually happy to make this a zero zero deal. but not price, but they would move on the management fee and carry. That's correct. Okay, got it. Okay, super helpful. So the management fee and carry so
10 management fee of 1 % carry of 10%. So does that mean I get charged 1 % one time or I get charged 1 % annually? That's a 1 % annual charge. If you wanted to, if you prefer to pay that upfront, I can speak to the manager and see if they would make that a one time upfront management fee so that you don't have to worry about a recurring annual management fee. I'll just see what the seller says about that.
that's super interesting because I personally prefer not to have to like pay things yearly or whatever. So I could just get it done once upfront. How many years would I have to pay? Because it's hard to predict when this would obviously go public. Right. So is it where I would pay two years, three years, or is he asking potentially for like, I don't know, 10 years? Yeah, it could be five to 10 years. Depending. We'll try and negotiate with the seller to see ⁓ to see how low they can get that for you as an upfront fee.
Got it, and then 10 % carry. So I understand very easily. If my $300 becomes $1,300, so I make $1,000 of profit, so that means my $1,000 of profit, I would lose $100 of that profit to the manager, is that right?
⁓ yes, conceptually. So the other thing is, ⁓ oftentimes when the company has an exit and after a typical six month lockup period, most often the actual shares of that now public company will be delivered to the SPV and then onto the individual investors. So the end game for most of the investors is having the actual shares passed on to you to be held in your brokerage account. So then, ⁓ some investors ask, well,
How do I pay 10 % of my profits if I haven't sold those shares yet? The big rocket co now public shares are in my brokerage account. So sometimes at distribution, if shares are being distributed, a quantity of shares are held back to essentially pay that 10 % carry instead of cash. that's why I get 90 % of my shares instead of 100 % of my shares of profit. Yeah, yeah, directionally, that's how it would go.
So ⁓ most investors prefer to hold shares and not be liquidated into cash. So that's hopefully the situation. That's another thing to look out for when you're reading your transaction docs is how will an exit be handled? Is there a possibility that I could be forcibly ⁓ distributed with cash rather than getting my actual shares? We call it ⁓ distributed in kind.
when you receive shares, meaning SPV manager gets shares, they're gonna give you your shares at the end of the day. Most investors prefer that. And that's something that most investors will want to specify and make sure is explicit with that manager or even at times put in a side letter to try and guarantee that they will get shares at distribution and not liquidated into cash. Awesome, super helpful. You mentioned the manager might do zero zero if I did a million dollars. Why would they do zero zero?
but it's really just the incentives to deal with these smaller tickets of 100K or 200K. It's a lot of operational hassle. They also have a limit of 99 investors that can go into this vehicle. And so they're being very selective in terms of the size. But if you can take down a million or more on your own, then they can be a little bit more flexible on the extra fees involved.
Got it. And they probably like, I'm making this up, got the shares at 270 or 200 or 50. Is that right? Yeah, it could be. In some cases, they are acquiring shares specifically to match with this deal in a quite close in timeline. In some cases, they may be already holding the shares in their vehicle for a long time or from a previous funding round or from a secondary years ago. So it just depends.
on the actual source of the shares. And you mentioned to me that I have to pay the 1 % management fee annually, or we could potentially ask if we could pay upfront. What's the more normal thing? Is it where I just pay everything upfront and they take it out of the account, or I literally have to pay annually this incremental fee? It's often paid separately, but it really depends. So there are many, managers that will
do it zero zero, but they'll charge a sometimes substantial upfront fee that kind of compensates for sometimes 10 years worth of management fees. That's very common. But then it's also very common to have ⁓ recurring management fees and carry or to have the management fee paid separately. So it depends really just in terms of the manager, whether that's gonna be subtracted from your holding and paid out of that, or whether that's gonna be paid separately. A lot of investors prefer
that it's paid separately so that the share count of their actual investment isn't diminished over time by paying these management fees. Got it. ⁓ Is this preferred or common? This is a mix of common and preferred held in the SPV. Okay. And ⁓ I know I heard from this webinar before that transfer rights are really important.
Am I able to sell my position or my shares whenever I want?
So this particular SPV manager is quite active in big rocket co. So they do quite a lot of deals and historically they've been very friendly in terms of allowing investors to resell. You'll need their approval and their coordination, but they are pretty friendly in terms of that. Now to invest in private investments, you have to buy to be a long-term holder. That's a regulatory requirement. And so to be conservative, ⁓
across any structure, any private investment, whether it's direct or SBV, you have to hold ⁓ to be conservative for a minimum of six months, but the longer the better. And so you need to be prepared for that. Now, even in a market that's active, like the market for big rocket co, ⁓ there's no guarantee that at that point in the future you want to sell, that there will be a replacement buyer for your position. So historically, it's been an active market where that would be
achievable. But you do take on that risk of will I find a replacement buyer at that point of time? We don't know what the market for Big Rockica would look like four years from now, for example. So that's something to be aware of. Got it. And then so there's a 5 % broker fee. So that's not going for the management. That's ⁓ is that going to you? Correct. The 5 % is the commission for my broker service on this deal. The other fees ⁓
go to the manager and that's specific to what they're selling.
Do you want to be nice and make that fee lower for me since I'm I know you so long
I can't flex it below around the 500K level at that point, I could flex it, but at the 100K level, I'd have to be pretty firm at the 5%. So if I invest more, it potentially can come down like the manager, is that right? Yeah, potentially, potentially. But you know, how I'm gonna try and make up that fee is helping you negotiate on some of those points that you mentioned. Like, can we get an upfront management fee? Can we try and negotiate that upfront management fee down? So that's how we're gonna...
try and save you a bit. Also, this manager usually charges $5,000 for the admin fee, but I've negotiated to get that down to $3,000 for you to try and save on that upfront capital commitment as well. Awesome. So I just want to know exactly how much money I need to have for this 100K investment and how much is going to be invested for me. So if I do a 100K investment, do I then put these fees on top?
or does it get taken out of the 100K? How does that work? So let's say you did a 10 % upfront management fee. You'd be looking at a hundred thousand commitment. Sorry. You'd be looking at- 1 %? Oh, you're saying 10 % upfront because- saying if you arrange to pay 10 years worth of management fee upfront. So you are basically saying I'm going to pay 10 % upfront. Got it. Okay. That would suck if I to pay 10 years. So 100K for the capital commitment. You'd be looking at
10k to cover all your management fee in this scenario. Yeah, of course you got your 3k there. And then you've got your broker fee, the broker fee is based on the 100k amount. So I don't charge a broker fee based on you know, management fee or other fees layered on top. So in this case, the broker fee would be 5 % of the 100k or 5000. Right. So is that does that mean I would need $118,000 to put 100
$100,000 to work or if I put $100,000 in I would have $82,000 at work
Yeah, you'd have $118,000 cash that you're putting forward. The amount at work would be the $100,000. Yeah, okay, great. And if I only wanted to put in the $100,000, would you just take it out of that and it would be then $82,000 at work? Yes, this particular manager will allow you to do $100,000 all in rather than $100k plus fees layered on top. That's going to vary deal by deal. So some managers
have a hundred K minimum and that's the principal amount for the deal where you have to hit that hundred K and then the amount is layered on top. Okay. So just so everyone understood in the box. So I want to put a hundred thousand dollars to work. I don't want to put less cause I like round numbers. I want to pay my management fees upfront because I don't want somebody asking me for money every year. So I'm going to pay the 10 years upfront, which is a hundred and $10,000. It's $3,000 of admin fees. So it's a hundred and $13,000 and it's a 5 % broker fee. So it's a hundred and $18,000.
Are there any other fees that if I paid that 118, am I cleaning clear and either make money or not on my investment?
⁓ Those are the main fees to be aware of. If you wanted to have a tax advisor or a lawyer or another professional in your court to help you get comfortable in any of these points, that's an extra expense that's gonna be based on your personal situation. ⁓ But possibly that could be the total. One thing to keep in mind, especially in an SPV is again, to read the docs and to know if there are any ongoing fees. So one thing you wanna watch out for, are there any fees upon distribution?
So upon exit, I wanna make sure they're not charging anything additional for delivering the shares. And that's something that you can also specify sometimes in a side letter or at a minimum, just ask the manager and get clarity on that. What else should I ask for? ⁓ sorry, what else should I ask for in a side letter? wanna potentially sell down the road. Ideally, you don't wanna have to pay the manager something for that too. ⁓ And...
You also want to make sure that if you're paying a 3K admin fee, that that's the lifetime cap ideally that you'll ever pay for admin fees. So you want that specified that that 3K is your lifetime cost limit for ordinary costs. So if there's any kind of confusion or the docs aren't explicit about any of these points, you can ask for a side letter that ⁓ kind of supersedes the overall
tens or hundreds of pages of docs and specifies, I want to get shares paid in kind upon ⁓ distribution. Do not liquidate me into cash. It specifies I'm paying a 3K lifetime cap on expenses. I will not be charged any ongoing ordinary costs. It can specify I'm paying 10 % management fee upfront and there will be zero ongoing annual management fee ⁓ or anything else that you want.
explicitly in writing for your comfort, that's what you'd put into a one or two page side letter with the manager. Sometimes I hear different versions. mean, here I know there's just one version, which is the $300 per share and the one in 10. But sometimes I hear there's like, like you said, potential for a zero zero if it's a million, or maybe it's a $330 a share. If I did zero zero, how should I think about those trade offs? Like, let's say it's my 100k.
and this manager for some reason said they would do 330 for zero zero at a hundred K I just made that up. How should I think about that trade off? Yeah, I mean, you want to run the numbers and you want to think about it from your personal viewpoint, your personal needs, your personal, your personal viewpoint on where that company will go and so on. So I encourage people to think about structures with an open mind because you don't want to be paying
such a higher price to get zero zero that actually economically you might be better off at a lower price with some carry on it. You know what I mean? So if the price is equal, zero zero is typically a better option, but there's different scenarios. What if the manager will give me a cheaper price if I take the one in 10? So at that point you want to run the numbers and see the different scenarios to keep an open mind about which one is going to be better for you financially.
a lot of my investors will disproportionately prefer zero zero because they tend to be these upside focused investors. So if they really, really believe in this company, they really don't want any kind of share to the manager in the form of carried interest that will take away from their economic exposure to this, the upside of this company. But I also have some investors that are really focused on
having an aggressive and low entry price and they might be willing to accept some carry to get to a lower entry price. So that's very personal.
⁓ Do broker fees get paid by the seller or the buyer?
Usually a buyer should expect to pay a broker fee. There are some cases where I might be able to get a nice ⁓ broker fee from the seller. And in some cases, I won't need to charge a buy side fee, but in general, you should expect to pay a broker fee as the buyer going into the deal. How can I confirm that this SPV actually has these shares that they say they have?
You should ask for as much as you can in terms of documentation. So you can ask, what will I receive in terms of proof or shares? Can I see the share certificates or the stock purchase agreement that that vehicle used to purchase the shares? ⁓ Any documentation you can get will just give you a fuller picture of the ownership and really the more the merrier. Sometimes the leverage you have as a smaller ⁓ buyer, let's say a hundred K buyer.
is less and these companies or the SPV managers can be a bit cagey about giving a full suite of ⁓ documentation, especially in sensitive companies. So that's something to be aware of. ⁓ You don't always get everything when you're a smaller investor, but you may as well ask and the more information you can get ⁓ really the better. So you can ask for if there's a stop holding statement, maybe the entity has a Carta, ⁓
holding statement you can look at, maybe it's a stock certificate, maybe it's a stock purchase agreement. ⁓ You can look at historical audits in some cases, or maybe this manager is a registered investment advisor that can help give you a bit more comfort. the more pieces you can ask for the better, you may not get all of them, but you should just ask for everything and look at the suite of information you have and then make a personal decision as to
if the information provided is enough for your comfort level. So I have a bunch of questions here about secondary markets platforms, which you worked at one of them.
So each have their own kind of pros and cons.
I was an early employee at Forge. I worked both in San Francisco and Hong Kong.
So the market right now is very fragmented.
there's a lot of people like myself that have their own proprietary relationships in this market, whether sellers, fund managers, family offices, et cetera. So ⁓ in this fragmented market, unfortunately, there isn't one place you can go that has access to everything. And so which broker, which boutique brokerage, which platform you go to is gonna be a function of...
What companies are you looking for? Which brokers kind of specialize in those kinds of names? What size are you targeting? Are you going in at 100K or 500K or are you trying to go in much smaller? ⁓ And really, there's a personal style element to it. So you wanna work with someone that can explain these terms and explain these structures in a way that works for you, someone that's responsive to you and it's gonna be.
be there to support you in this process. So that's going to be personal depending on how you operate and who you click with as well. Here's an interesting question that came up. Do you know where we can get a list of these brokers?
In terms of the more boutique brokers, unfortunately, I'm not aware of any centralized database or way to search those. And that is, I think, the challenge in this market. Because some brokers are better than others, and there might be some phenomenal boutique brokers out there. ⁓
it can be hard to find them. So there's a lot of word of mouth and a lot of referrals in terms of finding those specialty brokers that specialize in one area of the market that you might be looking to get into. Great. Small tactical question. You mentioned I could get my 10 % fees upfront, but if then they exit in five years, do I get that rebated as a question from the audience or am I just lost on that?
I suspect you would be lost on that, but that's going to depend on the case because equally it's possible that the company or Big Rocket Co. won't go public for much longer. And so you could benefit if you've paid, let's say a fixed 5 % upfront fee based on five years and then it extends longer. I would say probably you don't get refunded. Awesome. Is there any other question I should ask Christine about Big Rocket Co. because you've been pretty comprehensive.
Those are the main ones that come to mind. So at a high level, you want to get information on your manager. You know, are they an RIA? What's their background? How are they sourcing these shares? What's their activity in the market? Like, do I trust them, ⁓ et cetera? And then you want to know the financial terms of the deal, those intuitive elements. So what class of shares is in the vehicle? What is the pricing I'm entering in at? What is their carry, ⁓ et cetera.
So those are the elements to kind of keep in mind. And then there's the structural points of what will I receive document wise on what is actually owned here? What is the chain of ownership of shares with this SPV? Awesome. Well, we got here a list of questions. We went through it in the mock. We got so many questions from the audience. Thank you very much. Let's go to the next slide, which is, I think you kind of saw here kind of the roles.
I was the investor, clearly I need to do my due diligence, understand the terms, navigate the decision and understand this is not something you could flip probably in a week or two or five or a thousand. You gotta be long-term thinking. And Christine is and was the broker for the mock and is in real life, know, sources the sellers, explains the structures, works on your behalf, tries to streamline the process. ⁓ Anything else you wanna add there, Christine?
I think that's a good overview. Again, I think if you're gonna be getting into this market, be prepared for the diligence, but you also don't need to be intimidated by it. So your broker is there to help you understand the structures, to make sure you're prepared, to help you navigate deal deadlines and everything strategically. And that's where they specialize, to try and make this easier and more simple for you. So you don't need to be intimidated, but you do need to be prepared. And ultimately you're the one.
you know, taking on the financial risk, you're the one making the decision as to what you want to buy and if you want to participate. ⁓ So you can take ownership of that. You know, it's great to have a view and to know what you particularly want and to be convicted in it. And it's an exciting market if you can if you can be prepared and aware. Amazing. Well, that brings us towards the end of our conversation. Christine, you are awesome.
Thank you for bringing such an educated perspective, obviously from all of your experience and then being such a trooper to go through the mock. ⁓ Clearly the audience enjoyed it just through engagement. I've never seen so many questions, which obviously means it's a complicated world that lots of people are interested in. So feel free to listen to this again on Replay and Archive. And obviously we share with you the terms, the mock and the questions, but thank you everybody for joining.
