Latest / The Startup Exit Podcast with Fexingo: IPOs, Acquisitions, and Founder Liquidity Events / Founder Exit Strategies with IPO Lockup Lending
Transcript
- Lucas: So we've talked a lot on this show about how founders get money out before an exit is even official. Tender offers, secondary sales, all of that. But there's a quieter, almost backdoor route that's been picking up steam lately, and it doesn't involve selling a single share. Luna: You mean borrowing against the shares instead of selling them? Lucas: Exactly. It's stock lending, but not the kind where you lend your shares to a short seller. This is a founder taking a loan from a bank, using their locked-up shares as collateral, and getting cash today while keeping the upside if the stock keeps climbing. It's a way to diversify without triggering a taxable sale or violating lockup terms. Luna: I remember that fintech founder from a few months back who did this before his lockup expired. Did that actually work out well for him? Lucas: It did, and it's a perfect case study. He founded a payments company that went public last year, and instead of selling a chunk of his stake the moment the lockup lifted, he worked out a securities lending agreement with a major bank. The bank gave him a loan equal to about forty percent of the value of his shares, at a rate tied to SOFR plus a spread. He used the cash to fund a new venture and diversify into real estate. When the lockup finally expired, the stock had appreciated about twenty percent, so his remaining shares were worth a lot more than when he took the loan. Luna: So he paid interest on the loan, but he didn't miss out on the stock's gains. That's the trade-off, right? Lucas: Right. You're essentially paying for liquidity through interest rather than through giving up upside. And for founders who are bullish on their company's long-term prospects, that can be a really attractive trade. The bank is taking on the risk that the stock falls, because if it drops enough, they'll issue a margin call, and the founder either has to put up more collateral or sell some shares to cover the loan. Luna: Margin calls. That's the scary part. I imagine if the stock tanks, you could be forced to sell at the worst possible time. Lucas: It's the classic double-edged sword. In this case, the founder structured the loan with a conservative loan to value ratio, so even a thirty percent drop wouldn't have triggered a margin call. But if you're aggressive and borrow sixty or seventy percent against the stock, a modest dip could wipe out your cushion. And remember, the lockup itself is a constraint. If the stock is falling, you might not even be allowed to sell to meet the margin call because your shares are still restricted. Luna: So it's not for every founder. It's really for someone who's confident in the company's trajectory and can handle the risk of a loan against a volatile asset. Lucas: Exactly. And it's not just for founders of mega-unicorns. We're seeing more mid-sized companies adopt this strategy too. A few weeks ago, a SaaS company that IPO'd earlier this year had several executives enter into similar arrangements. They're not selling, but they're tapping into their paper wealth to diversify into index funds, real estate, even stakes in other startups. Luna: It's like using your company as a bank, in a way. But a bank that can go down with your stock. Lucas: That's a good way to put it. And it's worth noting that the big banks are actually quite keen on this business. They see it as a way to build relationships with wealthy founders who might later bring them their IPO or M&A work. So they're often willing to offer competitive rates and structure deals that are founder-friendly. Luna: Before we go deeper into the mechanics, let me just say something about this show itself. We're listener-funded, which means no ads and no sponsors telling us what to cover. A small group of you already chips in monthly through buy me a coffee dot com slash fexingo, and that's literally what keeps this podcast going. Lucas: Yeah, it's a pretty simple model. If you get value from these conversations, and you want us to keep doing them three hundred times a year, that's the place to go. No pressure, but it does make a real difference. Luna: And now back to the mechanics. Lucas, how does a founder actually set up one of these lending arrangements? Is it as simple as calling your private banker? Lucas: It's not quite that simple, but it's not far off. Typically, a founder will approach a bank's private wealth management or securities lending desk. The bank will do a valuation of the shares, assess the lockup terms, and run a credit check. They'll also look at the company's fundamentals and the volatility of the stock. Then they'll offer a loan to value ratio, usually between twenty-five and fifty percent, depending on the risk. Luna: And the interest rate is usually SOFR plus a few hundred basis points, right? Lucas: Exactly. In the current environment, with SOFR around four percent, a founder might pay anywhere from six to eight percent all-in. That's not cheap, but if the stock is appreciating at a double-digit rate, it can be a worthwhile cost. And the interest is often tax-deductible if the loan is used for investment purposes, which sweetens the deal even more. Luna: What about the regulatory side? Are there any restrictions on how much a founder can borrow against their stock? Lucas: There are some, but they're not overly burdensome. The main one is that the loan has to be structured as a genuine debt, not a way to secretly sell shares. If the bank lends you money and you default, they can take the shares, but that's a foreclosure, not a sale. So it's important to work with a reputable institution and get proper legal advice. Luna: And what happens if the stock goes up a lot? Can the founder renegotiate the terms? Lucas: Actually, yes. Some agreements have a provision that allows the founder to increase the loan amount if the collateral appreciates. That's a nice feature if the stock moons. But it's not standard, and founders should negotiate for it upfront if they think they'll want it. Luna: Now, we've seen Palantir up almost six percent in the last five days, while Rivian has dropped over three percent. How does that kind of volatility factor into a founder's decision to use stock lending? Lucas: That's a great question. Volatility is a double-edged sword. High volatility means the lender will probably offer a lower loan to value ratio to protect themselves. So if you're a founder of a high-flying but volatile stock, you might only get thirty percent versus fifty for a more stable company. On the flip side, if you're confident the stock is going to recover from a dip, borrowing against it at a low point could be a smart move, as long as you can weather the potential margin calls. Luna: So it's really about your personal risk tolerance and your belief in the company's future. Lucas: Exactly. And it's not just about the stock price. It's also about your estate planning, your philanthropic goals, and your overall financial picture. Some founders use these loans to fund large charitable donations, for example, because the loan proceeds aren't taxable income, and they can deduct the charitable contribution. Luna: That's clever. So it's a way to give back without having to sell shares and trigger a huge tax bill. Lucas: Precisely. And in a way, it's also a way to keep your skin in the game. When you sell shares, you're signaling to the market that you don't believe in the stock. But when you borrow against them, you still own them, and you're showing that you're committed to the long-term. That can actually be a positive signal to other investors. Luna: But what about the psychology of it? Isn't it stressful to have that debt hanging over you, especially if the stock is volatile? Lucas: It can be. But founders are used to risk. They've already taken a huge risk by building a company. A loan against their stock is just another lever. And the peace of mind that comes from having liquidity and diversification can outweigh the stress of the debt. Luna: So, if someone is listening and thinking about doing this, what's the one thing they should remember? Lucas: The one thing is to not over-leverage. It's tempting to borrow as much as possible, but the whole point is to reduce risk, not add to it. A conservative loan to value ratio, say thirty to forty percent, gives you a buffer against market swings. And always have a plan for what you'll do if the stock drops. Luna: And make sure you read the fine print on those margin call provisions. Lucas: Absolutely. The terms can vary a lot from bank to bank, so it pays to shop around. And talk to other founders who've done it. They'll give you the real story. Luna: This has been super helpful, Lucas. I feel like we've opened up a whole new avenue of exit strategy that a lot of our listeners probably hadn't considered. Lucas: Yeah, it's one of those strategies that's becoming more mainstream every year. As more founders look for ways to unlock value without losing upside, stock lending is going to be a bigger part of the conversation. And with the market conditions we're seeing in 2026, it's definitely something to keep in mind. Luna: Well, next week we're going to talk about how founders can use options to hedge their lockup positions, which is kind of the flip side of this. Stay tuned for that. Lucas: That should be a good one. Until then, keep building and keep smart about your exits.