FTJND
PROFI
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Creativesolutionforfounder
liquidityproblem
EBEXCHANGE
FUNDS
www.ebexchangefunds.com
Location: SanFrancisco
Founded:1999
Management Team:Managing
Directorand FounderLaurence
Albukerk;Vice PresidentDavid
Lipa;and VentureAdvisorsJohn
Parsons,LauraRoden,PhilSchlein
andStevenKaolan.
Goal:Createspartnershipsthat
enableentrepreneurswho are
accreditedinvestorsto pool their
pre-lPOstock.Oncethe portfolio
is created,entrepreneurswno
contributetheir stock become
limitedpartnersin what is essen-
tiallya venturefund,as the
investorsshareproceedsfrom all
of the companies'lPOs, mergers
and acquisitions.
Funds: EBis currentlyaccepting
entrepreneursinto its fourth fund,
EBXlV with a targetedcloseof
July2008.EBcloseditsthird part-
nership,EBXlll,in December
2007with 30 comoanies
ByAlexanderHaislip
Writer
Senior
A small San Franciscofirm is
pitching a creative solution to
entrepreneurswho face increas-
ingly long waits before they can
achieveliquidity.
The firm, EBExchangeFunds,
lets entrepreneurs contribute
someoftheir common stock to a
larger pool, from which they each
share distributions when any of
the companiesin the pool goes
public or is sold.
EBExchangelaunchedits fourth
fund in March and hopesto hold a
final closeon a sidecar investrnent
fund of tens of millions of dollars
bylate summer,saysfounderlarry
Albukerk He expectstopool shares
from 20 to 30 startups.
The firm's first three funds
brought in between 50 and 75
executives nationwide from as
many as 35venture-backedstart-
ups,Albukerk says.He declinedto
revealthe sizeof the funds.
SteveLarson,CEOofKrugle,a
searchenginefor computercode,
is amongthe entrepreneurswho
invested in EB Exchange'sthird
fund. He thinks it's a great idea.
"Havingbeentlrough situations
where a lot of myfamily's wealth
and savingswere in a single stock,
having the opportunity to dive$i-
fy that with people who were in
the sameboat as me seemedlike
a great idea," saysLarson, who
started four companiesprior to
I(rugle and spent three years as a
ventureparhler at StPaulCapital.
"I think [Albukerk] has got a
good formula becausehe sort of
picks companieswho havealready
been vetted becausehe picks
them from the portfolios of B+
and above VCs." Larson adds.
"From an entrepreneur's stand-
point, it gives you a wonderful
opportunity to diversifyyour risk."
EBExchange'snewfund comes
asVCslook for innovative ways to
keep their founders and startup
executives happy.The time it
takesfor a companyto reach liq-
uidity can be a problem for first-
time founders. Firms such as
TudorVentureshavetouted their
willingness to provide cash to
founders as they go through
investment rounds. Similarly, The
FoundersFund has designateda
special class of stock, which it
calls "SeriesFF,"that is designed
to offer a little cashto its entrepre-
neurs before any liquidity event.
As a former entrepreneur him-
self, Albukerk is sensitive to the
needsoffounders.He foundedtwo
VC-bad<ed companies,VlslUeInteF
activeand Summlttoglc, prior to
startingEBExchangein 1999.
"If we could give [entrepre-
neurs] some diversification and
cash,that helps them a lot, espe-
cially people who have left the
company or have been there for
eight or nine years,"he says."If
they sell off7O%to 75%oftheir
holdings,they still havethe poten-
tial for a really big upside."
The EBExchangefunds got off
to a slow start, but have since
taken off. Albukerk's first fund.
calledElevenBaskets,held stock
from 11 companies, none of
which has had a liquidity event
yet. One promising company in
the portfolio is San Francisco-
based OpenTable,an Internet-
enabled restaurant reservation
service that some analysts pre-
dict will go public soon.
OpenThblehas raisedmore than
$110million in tunding. Albukerk
declined to say how much
"lf we couldgive
[entrepreneuffi]
somedivenification
andcash,that
helpsthema lot"
LanyAlbukerk
Founder
EBExchangeFunds
OpenTablestock EB Exchangei
owns,but notes:"It should more I
than return the fund." I
The firm's secondfund. raisedin
2002,}:ad26 companiesrepresent-
ed in the pool. Albukerk saysthat
frnd hashad 15liquidityevents,six
ofwhidr retumed cashto the fund .
It would qualify as "top quartile"
when comparedto venture funds
of the samevintage, he says.Two
ofthe successfulcompaniesin the I
fund are semiconductorcompany
Nextlest, which went public and
was later aquired for $325million
by Teradyne, and HR company
TriNet, which was bought out by
GenerafAtlantlc tn 2007.
It is too earlyto knowhowwell
EBExchange'sthird fundwill do,
since it only finished raising it
last year.
Albukerk notes that even small
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returns can have a big impact for an entrepre-
neur.Forexample,ifan entrepreneur'scompa-
ny fails, he or shewould be thrilled to get just
$500,000from stockin an IPOallocatedto him
or her through the fund, he says."To the gqn
that have had an IPO,the difference between
$65 million and $60 million doesn't mean
much," he says,"but the difference between
zeroand half a million isbig for everyoneelse."
EBExchangecollectsno managementfee.
It fronts the money to organize the fund and
prepare the legal documents,benefiting only
on the back end ifthere are liquidity events.
Albukerk would not say how much carry
the firm collects,describingit only as"signiF
icantly lessthan industry standards."
Albukerk saysthat the EBExchangemodel
suitsinvestorsfrom a tax perspective.A con-
tributing executivedoesnot haveto liquidate
his orher common sharesto participatein the
pool, sothere are no capitalgainstaxesto pay,
he says.Capital gains are only paid by pool
members when they receive a check from
one of the fund's portfolio companies.
In addition to monitoringthe fund, Albuk-
erk looks to engageits participants in net-
working events to help them benefit from
each other's knowledge and connections.
EBExchangehasalreadyhostednetworking
eventsat a Ferrari dealershipand a hotel in
SiliconValley.
"I've told a coupleof peopleabout it-that
it shouldbe high on their to-dolist becauseit
just makes intuitive sense,"sayslarson. 'As
this becomesmore known,Iarryz'sgoingto get
more competition. If I were stil a VC, I d be
thinking of doing this to stay competitive."