Latest / The Startup Exit Podcast with Fexingo: IPOs, Acquisitions, and Founder Liquidity Events / How Founders Use Pre-IPO Liquidity Without Selling Shares
Transcript
- Lucas: So, there's a quiet strategy that more founders are using to get liquidity before an IPO without actually selling shares — and it doesn't trigger a taxable event, doesn't require an SEC filing, and doesn't dilute future shareholders. Luna: You're talking about the collar plus loan structure, right? Basically a non-recourse loan secured by the shares, with a collar to limit downside? Lucas: Exactly. Let's ground it in numbers. Take a hypothetical founder at Palantir — ticker P-L-T-R, currently around 130.63. Say they hold two million shares, worth about 261 million dollars. They want to pull out, say, 50 million in cash to buy a house, diversify into other assets, whatever. If they sell two percent of their stake, they trigger a capital gains tax of roughly 23.8 percent — that's nearly 12 million dollars to the IRS. Plus, it's a public sale that gets reported, and the market might read it as a signal. Luna: Right, so the collar structure avoids that. The founder buys a put option at, say, 120 dollars and sells a call option at 145. That puts a floor and a ceiling on the shares. Then a bank lends them 70 percent of the floor value — roughly 50 million — against those pledged shares. The loan is non-recourse, so if Palantir drops below 120, the bank takes the shares, but the founder has no personal liability. Lucas: And the loan proceeds are not taxable because it's debt, not income. The founder keeps the shares, keeps voting rights, and can even repay the loan later by selling shares at a more favorable time. The collar usually expires in three to five years. Luna: So why isn't every founder doing this? I assume there's a catch. Lucas: The catch is volatility. Look at what's happening in the market right now. ARKK, the ARK Innovation ETF, is up 4 percent in the last five days. RBLX, Roblox, up 10.4 percent. These are high-beta names. If your stock is that volatile, the collar premiums get expensive. The put you need to buy costs more, and the call you sell yields less because the implied volatility is elevated. Plus, the bank might demand a lower loan to value ratio because of the risk. Luna: And there's the dividend issue, right? If the stock pays a dividend, the collar might strip that away because you've sold a call, so any dividend above the strike gets captured by the call buyer. Lucas: Right, but most high-growth pre ipo companies don't pay dividends. The bigger issue is that this only works for founders who hold a concentrated position in a publicly traded company or a company that's about to go public. If you're a pre ipo founder with restricted stock, you can't pledge it until after the lockup expires. So the strategy is really for founders who are already public or about to list and have a lockup that's about to end. Luna: But there is a version for pre ipo, right? I've heard of some private credit funds offering loans against founder shares before the IPO, using a 'synthetic collar' based on the latest 409A valuation. Lucas: That's happening, but it's rare and expensive. The 409A valuation is not market-tested, so the lender is taking real risk. I've seen terms like 15 to 20 percent interest rates, plus warrants. It's more of a last resort. The clean version is for public companies or companies that have already filed their S-1 and have a reference price. Luna: Let's talk about a real example. A few years ago, the founder of a big social media company — I won't name which — used a collar to hedge his position before a secondary offering. He essentially locked in a floor and used the loan to buy a vacation property. It worked because the stock was relatively stable. Lucas: Stability is key. That's why you rarely see collars on biotech or crypto-exposed names. Look at COIN — Coinbase, ticker c o i n, up 2.8 percent in five days, but the stock has a beta of over 2. The implied volatility on options is sky-high. A collar would be too expensive to be practical. You'd be better off selling a small portion and paying the tax. Luna: So the ideal candidate is a founder with a large position in a mature, low-volatility stock — think Microsoft or Apple — who wants diversification without triggering a sale. But that's not most startup founders, is it? Lucas: No, it's not. But the number of founders who fit that profile is growing. As more companies stay private longer, the lockup periods are longer, and founders accumulate larger stakes. According to a recent report, the average founder stake at IPO is now around 15 percent, up from 10 percent a decade ago. That's a lot of concentrated wealth. And with private credit markets expanding — we're talking trillions of dollars now — there are more lenders willing to do these structures. Luna: One more risk I want to flag: if the stock goes above the call strike, the founder misses out on that upside. In a bull market, that could be a huge opportunity cost. For example, if our Palantir founder had done a collar at 145 and the stock goes to 200, they'd have to deliver the shares at 145, netting only that amount. The loan is still repaid, but they lose the appreciation. Lucas: That's the trade-off. You're trading upside for downside protection and liquidity. Some founders are fine with that because they're already wealthy enough. Others prefer to just hold and wait. But the collar plus loan is a tool in the toolkit, and I think we'll see more of it as the IPO market heats up again. Luna: And if this episode gave you some useful insight into how you might think about your own equity or just a better understanding of the mechanics, the way we keep these conversations going without ads is listener support. You can find us at buy me a coffee dot com slash fexingo. Lucas: Yeah, that's right. And honestly, it helps us keep the focus on the details that matter — like whether collar spreads are more efficient than straight loans, which we can dig into another time. Luna: So, coming back to the mechanics — one thing I want to clarify: the loan is non-recourse, meaning if the stock tanks, the lender takes the shares and the founder walks away with the cash from the loan. But what happens if the stock just drifts sideways and the collar expires worthless? Lucas: Then the founder keeps the shares, the loan is still outstanding, and they can either repay it, refinance, or roll the collar forward. They've essentially had a low-cost loan for the term, minus the premium they paid for the put. The call premium they received offsets some of that, so the net cost might be only 1 to 2 percent per year. Luna: That's cheaper than a margin loan, which typically charges SOFR plus 2 to 3 percent. And margin loans are callable, while this structure is not. So for a founder who wants to avoid forced selling, this is attractive. Lucas: Exactly. And there's another layer: the founder can use the loan to buy a diversified portfolio, which might even generate returns that exceed the borrowing cost. It's effectively a leveraged carry trade on their own stock. Luna: But that adds risk — if the diversified portfolio drops and the stock drops, they're double-exposed. I'd argue most founders should just take the liquidity and invest in something simple, like Treasuries or a broad market ETF. Lucas: Fair point. The playbook is still evolving. We're seeing more law firms and family offices specialize in these structures. If you're a founder with a concentrated position, it's worth a conversation with your tax advisor. Just know that the collar strategy is not for everyone, but for the right situation, it's a powerful way to unlock cash without saying goodbye to your shares.