How can a joint venture fund your startup?

Episode 99 - Greg Brogger Transcript Jason Kirby (11:38.158) Hey, everyone. Welcome back to $100 million Exits. Today, we have Greg Brogger on with us, currently founder and CEO of Collective Liquidity, but former founder and CEO of Sheriff's Post, who sold $460 million to Forge Global. Greg, welcome to the show. Greg Brogger (11:55.427) Thank you. Good to be here, Jason. Thank you. Jason Kirby (11:58.038) Greg, I want to start just on that point. Like you sold the company for $160 million to Forge Global, which in my eyes, know, adjacency, like, you know, our competitor in the space. I want to know kind of why did you sell your company? What was going through your mind and what kind of work backwards from there in terms of how you got there? Greg Brogger (12:21.155) Sure, well, there was a few things or at least a couple of things that were going on at the time that led to the decision to sell to Forge. one was we were just coming to market to do our next round of financing in a kind of a typical venture wrapper sort of, I think would have been our series D, something like that, series C, when COVID happened. And so there was a period when the markets were in free fall. There was not a lot of investment happening. People were stepping back. So that gave us sort of pause. And then the secondary markets were also slowed to a crawl. And so we'd been kind of marching and increasing our revenue steadily upwards. But we were looking at a quarter where there would be significant challenges because no business was getting done during the, let's call it the scariest part of COVID. So it was... We were looking for alternatives to financing and thinking that through. at the same time, and maybe I could call it maybe the bigger reason, because I think we could have solved that problem. I'd been running the company for more than a decade at that point. And I had kind of taken the broker-dealers model as far as I could. I couldn't really see a way to improve upon what we were already doing. from when we started the company in 2009, the broker-dealer model was the right fit, right? a completely market, you're trying to start from zero, the simplest models for liquidity are the ones that make the most sense. So hire a broker, match buyer-seller, sell shares, take a commission. That made sense. And that allowed us to kind of build, to doing $10 billion worth of total transaction volume in the time that I was there. But as the market deepened and developed in the sort of astronomical, know, meteoric rise of the number of unicorns in their total value, you know, things started to change. So things that maybe weren't possible when there were only two or three companies trading, you know, became possible when there's a lot more data providers and the market was much deeper. It seemed like maybe there was a, I won't even say better, but maybe a different way to solve some of the problems than just kind of a brokered stock sale. Greg Brogger (14:44.75) So it felt, I guess those are sort of the three reasons. One, the markets were in turmoil and those kinds of periods of getting big faster, partnering with a company like Forge Global made sense. We could consolidate our capital raising, establish a clearly number one position in the market. Two, it gave me the chance and a bunch of the people that were with me at SharesPost and at NASDAQ to... start something new with a different model. And I thought 12 years was long enough. Jason Kirby (15:20.423) amount of time to be building a company and growing in. You mentioned kind of why Forge Global in terms of bringing you basically effectively a merger to some degree. At that time, what in terms of the rankings of secondary transactions at the time, like where was Forge and where were you guys? Greg Brogger (15:21.316) Yeah. Greg Brogger (15:31.512) Yeah. Greg Brogger (15:40.357) Well, it's always difficult because there's no centralized place to go to see who's doing what volume. people sort of famously and to this day still count their transactions in a bunch of different ways. You count buy side and sell side. count what transactions you take credit for to add to your transaction volume. But I think we were roughly equal. think we probably, in most quarters, were doing more transactions. We had kind of had a larger sales force, larger kind of trading desk. But certainly we were one and two and putting us together at the time made sense to kind of create the clearly dominant secondary marketplace of its type. Jason Kirby (16:19.853) I'm very familiar with the brand and it's been a staple in the secondary space for at least five plus years or so. Greg Brogger (16:27.77) Forge, yeah. Well, and Forge had started basically as a firm called Equidate, which was much more of a forwards platform. We were kind of the broker dealer doing more kind of vanilla buyer seller transactions for commission. Equidate was more into the SBV and forward based contracts. And so there was also a product differentiation that bringing them together also made a certain amount of sense. Jason Kirby (16:52.299) Nice. And when it came to that type of arrangement, was it more of a merger or was it more of an acquisition? Greg Brogger (16:58.678) well, I, I guess we, we, we thought of it as a merger. may have thought of it as an acquisition, but you know, at the end of the day, each on a certain amount of the company. And I was on the board, know, until one public by way of SPAC, but mostly, or one of the things that I was super important to me, was where our team would be placed in the combined entity. So. We had some great people there that I think were really industry leading. So Jennifer Phillips ran our broker dealer and our trading desk. And so it was very important that she become the head of trading at Forge. And she just recently left, but she's been there for years. And that was because one, I wanted to make sure that all the people on the team had good landings. And also I I felt much more confident in the value of the shares if they were running some of the kind of key parts of the business. Jason Kirby (17:52.622) Well, you one thing that I think is interesting with the Forge Club story is this perception of merger versus acquisition and how two parties might have two different definitions. I say this happened all the time where it's like equal size. I saw in the HR tech space of the transaction I was intimately involved in where ultimately got classified as a merger because they had raised more money. But, you know, as far as performance and other things, you know, we were a little bit ahead. So Greg Brogger (18:06.052) Yeah, sure. Greg Brogger (18:15.162) Yeah. Jason Kirby (18:21.303) When it comes to just like the psychology of dealing with like having that conversation with your board, your team, and dealing with that, the moment you have that offer and you guys are collaborating towards a transaction, like what were some of the feelings that you were dealing with or kind of personalities that you were dealing with in terms of getting that over the finish line? Greg Brogger (18:29.68) Yeah. Greg Brogger (18:41.689) Yeah. as I said, one of the key issues for us was we were coming to market to raise capital, COVID happens, markets in free fall. one of the key considerations was could the CEO at Forge, Kelly Rodriguez, would he be able to raise the capital to fund the go-forward combined entity? And that came down to the wire, right? We had a certain time period. when we signed the deal before the deal closed and during that time period there was an obligation on their part to raise capital and you know, it was a you know a question for me that was not just does the is there cash in the bank when this thing closes to fund the go-forward operations but a big part of the valuation that we gave them was based exactly as you said is your example was based on their ability to raise significant capital kind of a step up from where we'd been in the kind of A and B round to a bigger C and D round. And it was down to within maybe not hours, but within a handful of days as to when they actually did kind of cross the finish line on the promised capital raise. And that we had a board calls where we were definitely thinking about what's the alternative to this transaction if they don't raise the money. Now, I guess the good news that came out of that is that Kelly did, you know, in the kind of 2020-2021 timeframe, a great job of raising capital and bringing really large institutions into the company, which culminated in the SPAC that was closed. I think it got his, I think it was a $2 billion valuation at one point. It's since reversed itself rather dramatically. Yeah. Jason Kirby (20:30.221) Little different now. Greg Brogger (20:33.591) Exactly, yeah, I mean, so fundraising was a key concern and that was something that was a box that was just barely checked before it closed and then checked in a big way after it closed. Jason Kirby (20:46.017) Yeah, that's a, it's tough to go through that experience and I'm not sure what you can and cannot share in this situation, but you know, obviously for the audience, that's not looking at Forge Global's public stock, but obviously it had a huge spike, but has since recently in this year done a 15, one to 15 reverse stock split. And as about one 10th or so of that kind of like peak valuation and when, or maybe a little bit smaller at that point. like. Greg Brogger (20:58.416) Yeah. Greg Brogger (21:09.85) Yeah. Jason Kirby (21:14.861) When you see that, you, you're in 2021, you sell when kind of valuations are at a higher point, uh, especially you sell for 160 and the company is effectively worth for, you two billion down the road. Like what's, going through your mind, you know, just dealing with that roller coaster, especially a SPAC, which obviously has its connotations and then, you know, the after, uh, the aftermath of the, just the general market collapse thereafter. Greg Brogger (21:16.635) Mm-hmm. Greg Brogger (21:30.436) Yeah. Greg Brogger (21:37.904) Yeah. Well, I I'd been in a handful of companies, venture-backed companies that had had exits in the past. And so, I'd seen versions maybe not quite as dramatic as the rise and fall of the stock price at Forge, but I'd seen that dynamic happen a bunch. And it wasn't a novel insight in 2020, 2021 to start to feel like the market was way out over its skis. So, I never... anticipated $2 billion valuation. I never thought of that as the true value of the company. And so where it leads me, not that I needed more encouragement or another reason to think about founder liquidity, but just thinking through ways to generate liquidity along the way, to put a floor under the value of your net worth, was something that was, as I said, not unique to me. But it really highlighted for me in a very personal way how important that can be, just a piece of mind and just making a smart long-term financial plan and not wanting to ride the roller coaster or be at the mercy of the roller coaster. Jason Kirby (22:51.959) So that takes me, let's take a step back. So we have the acquisition or merger and the IPO or rules back and everything, but you obviously built a meaningful company. You raised venture, you raised around 20 plus million dollars over that 10, 12 year journey. Greg Brogger (22:58.117) Yeah. Jason Kirby (23:12.973) You know, kind of walk us through that experience of, you know, the early days of deciding to do this, like 2009, that's when the markets have completely fallen off. Like who's thinking about more private transactions? Real estate was what blew up, but how'd you come to this conclusion? Greg Brogger (23:19.471) Yeah. Yeah. Mm-hmm. Yeah. Yeah. Yeah. Well, yeah, so it's true. Setting it in time is kind of important because in 2009, know, venture, you know, was not exactly a sleepy backwater of private equity, but it was much, much smaller than it is today. and you know, really, the, the idea came, was looking at what was happening at Google and its IPO. And so, you know, it, just struck me as funny or strange that the founders there didn't want to go public, right? probably again, sort of ancient history now, but essentially the SEC made Google go public when it had a certain number of shareholders, because there's this securities rule that if you have a certain number of shareholders, you got to start reporting as though you're a public company. And basically universally all companies, once they have to report as a public company, they say, might as well have that benefit. But they didn't want to. And so they were looking for exceptions and looking to delay the IPO. And that just, you in the Greg Brogger (24:29.628) kind of world I grew up in, in venture, you know, almost having the IPO ringing the bell in the New York stock exchange was almost the reason you formed a company. That was the victory lap. That was the end goal. And yet these guys were like, no, it's not really what we want. And so I started to think about why that might be the case. And there's a bunch of different structural changes that all kind of created this perfect storm that made me, you know, or convinced me that Jason Kirby (24:39.989) Yeah. Greg Brogger (24:56.368) these companies, this was not a one company thing, that this was gonna be the dominant strategy for how companies, venture-backed companies got built. And if that was the case, then the employee equity strategy, which has been kind of the core of the Silicon Valley model, where you give 10, 15, 20, 25 % of the company to employees as an incentive, it breaks down because individuals, employees are not... the Harvard endowment. can't wait 20, 30 years for a return. They've got to put kids through school, buy a house, or start new businesses. And there's just going to be this fundamental mismatch. And so though at the time, there really wasn't a need for a marketplace to match buyers and sellers, because the companies were going public when there were $300 million, $350 million, $400 million in valuation, if that was going to be extended significantly, you were going to need a platform, because you're going to need an alternative source of liquidity. Jason Kirby (25:53.293) Well, it's amazing to have that level of hindsight and kind of see what was happening in the market that early while everyone else is, you know, scrambling to survive. And so you make that bet and definitely catch a tailwind because obviously you made the right bet. Private companies stay private longer. Whether that's right or wrong, it's fact. And that's what we're continuing to see even to this day continue to be. So. Greg Brogger (25:57.03) Yeah. Greg Brogger (26:14.492) Mm-hmm. Jason Kirby (26:20.46) When you were building a shares post, who was your customer and how are you scaling the business? Greg Brogger (26:25.884) Yeah. rightly or wrongly, I think the strategy we pursued was one where you look for the customer that has the fewest options and the most pain, the least number of alternatives. And that was the smaller to midsize employee. So it's been the case that founders and C-level executives, by virtue of having the discussions with the venture capital investors, at least they could go to their board members that represented funds and say, look, I've got to buy a house. they would, you know, some kind of deal would get cut at a kind of a one-off. But if you're a, you know, senior director of marketing or, you know, a manager in the, you know, the technology group, a coder or developer, you really don't have that option. And so, you know, finding a place for them to connect with the buyer was, was where we started. And the thought being that once we got kind of initial transactions and In the introduction of the company, we could kind of swim upstream and get larger and larger transactions because it just made so much sense to us that companies would want their equity compensation, the stock options, to be really meaningful. That was the only way they could really compete with the public companies like Microsoft and Google that were paying twice the salary because they were awash in cash. So you have to make that equity comp worth something. And that was the approach that we thought they should take. Jason Kirby (27:53.869) And how did you go about getting awareness? Like, were you selling directly to them to basically come join the platform? And then how are you then convincing boards and, or how are you creating the transaction? How are you creating the liquidity for them? Greg Brogger (28:01.606) Yeah. Greg Brogger (28:08.578) Yeah, well, so it wasn't hard to source the original sellers, the employee sellers, right? So this is, know, they're easily identifiable on their LinkedIn or where they work or other kind of tech centers. So we took over the Caltrain station with a sea of ads. One time, you know, we were coming in, was one of our more fun events. But, you know, convincing the companies was definitely much more difficult than I thought. And so what I realized Jason Kirby (28:26.988) Nice. Greg Brogger (28:38.716) And maybe it was clear, but particularly the old guard venture capitalists of the real traditional San Diego road guys really did not appreciate the idea of employee liquidity. there are good reasons, and maybe I'll list from the company or the employee's perspective, maybe less good reasons for that. So the good reasons are, does it fragment the cap table? Do you bring a bunch of retail buyers into the company? conventional wisdom is that retail buyers are more litigious. Although I'll note that in the whatever, think we, 12 years that I was running shares posts, there was never, and we did 10,000 odd transactions. There was never a single lawsuit of any kind filed either against shares posts or against any company in connection with our transaction. But there was this fear that it would happen. Jason Kirby (29:28.128) Yeah, I want to tell you that how many losses did you see amongst the VCs against the companies in that timeline? Greg Brogger (29:33.278) I hadn't done the search for that, but that would be interesting. But I think, you the VCs, there was a circling of the wagons back then. So it was sort of a nascent marketplace and it was a new idea. And when they looked at their interests, they said, this is not in our interests, right? So we want to be, if not the first, among the first to get liquidity for our holdings. And we can't sell on these marketplaces. So why should they? Jason Kirby (29:37.974) Yeah, probably a much higher number. Greg Brogger (30:03.128) disincentivizes those employees. And I think that's reasonable. There's logic to it. I don't think it has borne itself out. Meaning I think the companies that manage liquidity for their employees in either a NASDAQ tender offer or a forged marketplace or what we're doing at Collective, I think they benefit from the retention and recruitment capability. Greg Brogger (30:32.769) founders recognize the need to provide that liquidity. So that old guard, that argument is, I think that ship is kind of sailed. Like it slowed the growth of the market really significantly in the first two, three, four years. you know, that it's like each year the market has moved 10 % towards liquidity. And so now five, six, seven, eight years later, you know, there's certainly still companies that prohibit all secondary transactions and liquidity, but I think they're probably in the minority at this point. Jason Kirby (31:03.5) I'm curious to get your take on what I was saying in the marketplace of secondaries is the stacking of SPVs and for the audience, you know, maybe give the audience a quick understanding of what an SPV is and then kind of what your take is on those. Greg Brogger (31:10.108) Yeah. Greg Brogger (31:15.468) Yeah. Yeah. I remember I drafted the first operating agreements for the first SPVs in the market. I mean, it had been a structure that had been used before, but SharesPost was one of the first to create it. But essentially what you're trying to do is solve for the mismatch in size between a buyer and seller. Meaning a seller has a million dollars worth of shares they want to sell and you have 10 buyers, but none of whom wants to more than $100,000 or invest more than $100,000. So you aggregate them into one entity. It creates a revenue opportunity for the platform. The companies prefer it because rather than processing 10 different transactions and getting 10 different shareholders, now they're getting one shareholder, one transaction. there, I think last I looked, there about 40 % of the market now is done in SBVs. Jason Kirby (32:00.779) Yeah. Well, there's also these kind of like, because, SPVs that are set up to kind of have their own independent transactions separate. the company itself, like SpaceX is known for this where SpaceX does not approve primary, you know, like actual direct secondary sales. And so there's SPVs of SPVs trading SPVs. Yeah. It's shell to shell to shell. so I'm kind of curious, like, do you think that is Greg Brogger (32:10.119) Yeah. Greg Brogger (32:16.69) Yeah. Greg Brogger (32:20.389) Yes. Shells within shells, like the dolls. Yeah. Jason Kirby (32:28.918) healthy for the market or do you think that's not healthy for the market? Greg Brogger (32:32.125) I think it's healthy for the people that participate in those transactions. Obviously, they're smart, knowledgeable people making the most of the opportunity that they have. I mean, you just think about the fees within fees within fees is a challenge. then the diligence that you have to do into each SBV is also a challenge, what would, and I think it was a rare occurrence, but there are certainly cases where we were aware that other platforms put together SPVs, the company went public. The investors in those SPVs expected a distribution of the shares and the manager said, well, no, actually I continue to earn fees. If I just hold on these a little bit longer, I'll find the right time to sell when it's right for me. So, you know, if you've got three layers of SPVs, you better make sure you understand the waterfall from a company exit through to cash or shares in your account. Jason Kirby (33:29.228) Yeah, I find it horrific to be honest, like especially because the access, cause everyone makes, oh, we're closing them in like a week. Oh, we got to act fast. Got to act fast. No, you can't diligence. I'm just like, when all these companies start going public with like Stripe goes public, SpaceX go public. How many people are going to be left holding a bag of like nothing. That was just like a shell that sounded like they were actually going to own the, you know, entity and then not. Greg Brogger (33:31.611) Yeah. Greg Brogger (33:46.598) Yeah. Yeah. Greg Brogger (33:52.606) Yeah, yeah. Well, and it's very, I mean, you need a good lawyer to do the diligence because the operating agreements are complex documents. And also you've got to kind of ladder it all the way back up to the company's, know, bylaws and provisions and what they'll allow. it can be a challenge. it's certainly layers of at a minimum bureaucracy and potentially worse. Jason Kirby (34:16.236) Yeah, I could tell there's, uh, there's definitely some situations where I'm quite confident that there are people running, uh, these SBBs with malintent and it's unfortunate, uh, with whether they're actually on the entity or not, but also the fee stacking on top of like, okay, you're getting into a two and 20 vehicle. We're going to charge a 7 % entry fee into that vehicle. And then we're going to charge two and 20 on top of it. like, how do you make money? Greg Brogger (34:28.254) Yeah. Greg Brogger (34:42.556) Yeah. Yeah, right. Yeah. Yeah, no, it's a fair question. Jason Kirby (34:48.588) so with, yeah, so, okay. Going back one deal we talked about while we were, before we kind of got on the record here, that I thought was really interesting about your story and about your background was what you did with NASDAQ. you were explaining to me that you did a joint venture, with, kind of walk us through how that came to be. And ultimately how you walked away with $15 million after that. Well, fair enough. Greg Brogger (35:11.262) Well, not personally, but yeah. And that's just an estimate, but yeah, it was in that neighborhood. So yeah, so I think the timeframe, I want to say sort of 2011, something like that. So we founded SharesPost in 2009 when they're just a handful of companies. So LinkedIn, Facebook, and actually it's funny. So we called Facebook a unicorn. I think most people have kind of forgotten now where that word came from. And it was because it was such an exception. was such a rare animal in the jungle, forest, wherever, that we call the unicorn. So there's just a handful of them. then the next year, so it starts with four or five, then it becomes 12 or 15, and then it's now 25 or 30. And the dynamic of the market, why companies were staying private longer was becoming clear. And Bob Greifeld was the CEO at the time at NASDAQ and recognized that Jason Kirby (35:42.112) Yeah. Greg Brogger (36:07.314) where this market could go and the impact it could have on the public markets, which was at the time, you know, the majority of NASDAQ's revenue, the listing fees, although it was starting to kind of slowly shift to other products in the NASDAQ, you know, empire. But he knew, or they knew pretty quickly that they really didn't have the expertise in venture capital, Sand Hill Road, secondary markets of pre-IPO shares. because the public equities markets, the way they trade is just radically different. It almost has nothing to do with how private markets trade or venture backed companies trade. and so they wanted to kind of lean on us for expertise. So we did a 50 50 joint venture with them. they contributed their brand. They contributed capital. We contributed basically team members. And so I was the initial president, I think was my title of NASDAQ private market. And I got the regulatory approvals to set up an alternative trading system, design the first tender offers built the technology. ran the first programs. so, it was an entry point for them. I think it worked well from their perspective. Obviously, Nasdaq Private Market has become the central provider of tender offer programs, which is one of the variants by which these companies provide liquidity. And they kind of had pole position to that space. And then they later bought Second Market, which was the only other company kind of doing similar sorts of things. So, but about two years after we started it, I didn't really have much of a desire to work in a large company. Wasn't really a good fit in terms of corporate culture or my temperament. So I was looking to kind of step back feeling I've kind of done what I signed up to do. And just so that they could, because their brand was on it, they really wanted to own and control it, which made sense. So we sold it back to them. again, my best recollection is I think the total consideration was $15 million paid to shares posts, which then allowed us to fund the continued growth of our company without having to dilute shareholders with another financing at the time. Jason Kirby (38:21.42) So that's what I want to kind of talk about an educator audience about was this opportunity came about, you know, most founders think about an enterprise type proof of concept to collaborate or work on something, but you design this joint venture structure that didn't pay a substantial dividend in the end that probably would have been way more than what they would have paid you in any kind of enterprise contract or anything of that sort to go out and build a form. When you came to like, Greg Brogger (38:33.309) Yeah. Greg Brogger (38:41.916) Yeah. Greg Brogger (38:46.717) Yeah. Jason Kirby (38:51.18) architecting that deal, what would be some of the things that you can kind take away and share with our audience that might be applicable to them for their consideration? Greg Brogger (39:00.126) Well, you say that deal, do you mean the sale back to NASDAQ of the company? The joint venture? Yeah. Jason Kirby (39:03.041) More so just like how you set it up, like how you chose the joint venture structure. Greg Brogger (39:09.34) Well, so my background is I started my career as a securities lawyer at Wilson-Sansini, which I'm guessing given your audience, everyone's going to know who they are. But that was a great way to kind of break into the valley. And I had the good fortune to work with a guy named Marty Corman, who ran their &A department and really kind of trained me and among other things, joint ventures. And the reality of joint ventures is they rarely work, right? It's very challenging to align incentives, certainly over the long term. And so I was hesitant. We didn't want to sell shares, suppose, but we wanted to basically have NASDAQ's capital and brand. This was another real and significant incentive for us was the companies and venture capital firms were on the fence and many of were really resistant to the development of the secondary market. We looked like the Wild West of online broker dealers never been seen before. There were all kinds of worries about what our regulatory profile was, what our compliance program was. so by bringing NASDAQ in, we don't only legitimize shares, we legitimize the market as a whole. At least that was the strategy. So that was kind of our motivation. And then just in structuring it, of course, you want to have an exit in mind. Like how is this, you know, assuming you're not going to stay married and you know, perpetual joint venture structure for 50 years, what happens if you're successful? And so thinking through what that mechanism looks like is super important. And there's, you know, it's again, not any great insight. There's earnouts and things that are tied to revenue and performance that makes NASDAQ feel more comfortable. I guess one of the things that I really... uh, you know, didn't take into account that if I had to do over again, or at least I would, I would consider was just the clash of corporate culture. Right. So just the, you know, all, all of the cliches about the challenges big companies have mixing with little startups. I mean, they're cliches for a reason. They're cliches because they're yeah, overwhelmingly true. And that was the case. So it just, it kind of manifested itself in, you know, everything from how we marketed the company. Jason Kirby (41:22.427) true. Greg Brogger (41:31.539) how we built the technology and obviously the strategic direction of the company and the incentive. mean, NASDAQ was pursuing this joint venture because they wanted to dip a toe and be kind of first to market amongst the major exchanges, the London Stock Exchange, the New York Stock Exchange. But they certainly didn't want to put their public market listing business in any kind of jeopardy because that was the main revenue stream for the company. And so they were never going to risk losing a potential listing because we did a transaction on Nasdaq Private Market. So they were very cautious and very hesitant. And so that was why it was really, I think, good for them, good for us to, know, for me to exit, for them to take over with their culture, their strategy. We did, you know, I think it did legitimize the market a fair amount or more than, you know, it moved the needle somewhat and provided us funding. you know, I, I would have taken a different approach to building that business, Nasdaq Private Market, than they did. And there were a bunch of things that we suggested that they do that they didn't do, which I think they would have, I wish maybe now that they had. But, you know, all in all, was an important milestone and a success. Jason Kirby (42:49.035) Well, it's interesting to have that, that kicker in the end where there, this is not just terminating a contract that there's, you know, equity has to be bought back. There's a deal that has to be struck and made. And, um, just a clarifying point for, for my sake. Was shares post still operating a hundred percent independently and had no material value. It was basically the company, like we're bringing this together in a completely separate joint venture. So wasn't like they. Greg Brogger (42:55.966) Yeah. Yeah. Greg Brogger (43:09.257) Yeah. Jason Kirby (43:17.387) kind of merge you in and then, you know, buy you out. Yeah. So you have that independence. Greg Brogger (43:19.003) No. Yeah. Well, that was important as well, because I think SharesPost at the time was a significant percentage of the trading volume, which is a fraction of what it is today. And so it was in both the interests of SharesPost and NASDAQ for those entities to continue so that SharesPost could bring its transactions to the NASDAQ private market and bring that volume and that activity and those buyers and sellers and company relationships. Whereas if we combine them all into one, you'd have a trading platform without a sales force. Jason Kirby (43:52.844) So, yeah, I love this story and I think it's great that you're able to share this just because I don't hear a lot of joint venture structures that corporate and how these kind of materialize. So, obviously it's pros and cons, but I think it's another feather in the cap, think about, or another idea to think about as people go into doing deals. want to take a step back into, or step forward into a shares post, that'd be before you sold, just... Greg Brogger (43:59.646) Yeah. Jason Kirby (44:19.039) Walk us through a moment that you felt that things were working, things were going in the right direction and that you made some bets that like hit. were some of the bets that you made that hit? Greg Brogger (44:23.048) Mm-hmm. Mm-hmm. Yeah. Well, yeah, so I'm trying to remember exactly the timeframe. think it's sort of 2019, early 2020. know, just, know, a bunch of things were going right. Like we, you know, we made enough mistakes and had enough time passed that we'd learn from them and fix some things, you know, as simple as like website trading, rebuilding the technology platform, making it a lot easier for people to transact. And we invested in building out a sales team. And so we were seeing revenue start to ramp pretty materially and getting just right on the edge of profitability. And so was, as that was happening, we were thinking about, okay, we're going to wait till we break even and we get revenue to, you know, whatever kind of new threshold we were looking at at the time. And then we'll go do the next round of preferred financing because we felt like, you know, we would find Greg Brogger (45:26.527) AVC or some handful of VCs that were willing to kind of support the idea of a more liquid secondary market for venture-backed And so I think it was just the investment in our growth. But then, like we just hit the wall when COVID happens, I think in late 2019, 2020. And in Q2, the markets are in freefall. And so because we had delayed our financing, we're all of sudden feeling like we don't have as much as the kind of comfortable runway we would otherwise want, particularly if we're now looking at a 50 % decline in revenue in Q2 of 2020. And so, when it hits the fan, that's when you start to think about maybe finding a merger partner or an exit opportunity. But I guess the good news was we had built the sort of market leadership position and a brand. that made us an attractive partner for, you know, basically a partner that could bring the capital that we didn't have at the time. Jason Kirby (46:30.035) No, that's a, it's amazing story to kind of have that self reflection. Like you're hot. Everything's going up into the ride. Everything's going well. You delay a little bit while you can maximize valuation. hear that story all the time with founders and it's, tough to decide. Take it when it's hot and take it early and just forego the, you know, the split dilution that you might've had to create that optionality. Greg Brogger (46:41.395) Yeah, yeah. Greg Brogger (46:45.684) Yeah. Greg Brogger (46:52.22) Yeah, no, it's much more important to close A financing than to close the financing at the valuation that you dreamed you were going to have at that point. I mean, it's just a binary outcome. If you raise the money, the company's onto the next round, the next stage. it doesn't matter whether you raise it at a 200 million or 220 million or a $300 million valuation. It's the capital you need to grow. Jason Kirby (47:17.163) Take it when it's on the table on fair terms. I can't tell you how frustrating it is for me in my position. work with founders every day on capital and M &A and like, we're going to wait. We're going to, we're going to, we're going to keep going. Like we, don't love these valuations. We're going to, was like, well, the market just isn't giving you those valuations anymore. like. Greg Brogger (47:18.75) Yeah. Yeah. Greg Brogger (47:25.417) Yeah. Greg Brogger (47:30.432) Yeah. Greg Brogger (47:36.384) Right, well, and there's a reason, right? Yeah, the markets are smarter than most individuals, so. Jason Kirby (47:42.54) And, uh, you know, can't tell you how many times where I've seen it, where they're like, Oh, Oh, we didn't raise the money. Like, Oh, we like, no, now we're scrambling and now, now you're a desperate case. Now you're not hot. Now there's fewer terms. Now the valuation is even worse. Um, and you know, there's always a, there's always a time and moment where everything's going well, where every VC is looking at you and being like, Oh, we should do this deal. Um, and I see founders like, no, we're going to, we're going to wait. And then if one, all it takes is one month of. Greg Brogger (47:50.868) Yeah. Yeah. Yeah. Greg Brogger (48:08.99) Yeah. Yeah. Yeah. Jason Kirby (48:12.437) plateau or worse and all those term sheets that would have been are no longer. So definitely empathize there. So you end up selling for 160 million, congratulations. And Forge goes public. Obviously quite the turmoil which we discussed. But most people would hang up their hat, go sit on a beach, think about, you know. Greg Brogger (48:23.37) Yeah. Greg Brogger (48:30.016) Mm-hmm. Greg Brogger (48:37.386) Yeah. Jason Kirby (48:41.035) fun activities with family or whatever, but you decide to go back at it. Slightly different approach, but you know, similar market. Tell us a little bit about Collective. Greg Brogger (48:45.268) Yeah. Yep. Greg Brogger (48:52.064) Yeah, so I think part of the reason for the merger or sale of the company was COVID and capital raising. But part of it was also, I think for me, recognition that I'd spent, again, more than a decade building that company. So I kind of felt like everything I had to give to that business, every idea I had that fit within a broker dealer kind of platform or alternative trading system I had given. it still didn't feel like it solved the problem, basically. And you could look at this from a bunch of different angles, right? So if you think, I don't know what the latest estimate is of percentage of the market that turns over, but if you're looking at say three or $4 trillion worth of aggregate market cap, and you've got only maybe 100 billion, that's just a number I'm just making up right now, that is trading on the secondary platforms is still such a tiny fraction. So there's something that's clearly not working in them, and even anecdotally, like we all know founders that are in really attractive companies backed by the highest quality VCs, but just still can't find liquidity for their shares. And this is sort of an age old problem, right? mean, back to like when I started my career, even a decade before shares posts, I'd been around venture backed companies and just seen the... the challenges that employees and founders had given that they had to go years waiting to see whether their shares were to be worth something and have it be kind of a binary outcome. And so I thought what would be really useful and different and a successful business would be an alternative to selling the shares that would be accepted by companies that acted, and this is me on my soapbox, this is a little bit philosophical and What our customers care about is something much more tangible, which we can talk about, but is basically a utility that sits within the middle of the venture ecosystem, where those that have too much risk, principally the employees, can lay off that risk and return for liquidity and diversification so they can create a floor under their net worth and create a really sensible long-term financial plan. And a way for those that didn't have access, maybe they could write a $50 million check to Sequoia or Greg Brogger (51:14.017) otherwise, couldn't find a point of entry, could take more risk. So, know, there's just a clearinghouse of access and risk. And so that's really the highest level desire that we had in thinking about Collective. And then we found this vehicle called an Exchange Fund that had been around in the public markets for a long, long time, but had never been ported to the private market. And that became kind of the linchpin and the key to what we do today. Jason Kirby (51:42.847) Yeah, so walk us through that. How does that work? Greg Brogger (51:45.57) Well, first, I'll just tell you what an exchange fund is, because if you're not a public company person that has a good financial advisor, you might not know. But they've been around since the 1960s. And essentially, what they allow you to do is to take an appreciated position in the stock, and most likely an over-concentrated position that you want to diversify out of. You want to reallocate. Maybe you bought Apple 10 years ago, and now it's worth 10 times what you paid for it. And you're overweight in Apple from where it is today, so you want to get out. you're the natural know, choice would be just sell your Apple shares and then take the cash proceeds and reinvest. But the problem is you pay tax. And so the exchange fund allows you to take those, you know, say a hundred dollars worth of Apple shares and exchange it for a hundred dollar interest in a diversified fund without triggering capital gains. And if, you know, and so I think Eaton Vance is, it was bought by Morgan Stanley, but they're the largest, kind of best known manager of these kinds of funds. They manage $500 billion or that's the... consolidated basis they report is their AUM. it's been around that long decades and it's grown that large. There's something there and it just seemed to us like, if it makes sense for a public company executive, it makes even more sense for a unicorn founder, right? Because typically they're even more over-concentrated. The bulk of their net worth is tied up in their company and they've had even greater appreciation in the value of the shares. So they've gone from zero to a billion dollar valuation. And so the ability to do that trade or to diversify without paying tax on that appreciation is even greater, but hadn't been done before. So there's a bunch of legal and tax and other issues that we had to solve in launching it. But once you've done that, you now have the sort of alchemy that can exist that benefits all the parties in the market, which is I take a single position, I exchange a hundred dollar position in a unicorn. get a hundred dollar LP interest in a diversified fund. I can do things with a diversified fund or I can make a plan based on a diversified fund in a way that I can if I'm on the roller coaster that is a single stock. I can borrow against it. I can sell the interest back. I can contribute the LP interest into a donor-advised fund. I could contribute it into a charitable ranger trust. It becomes a security or an asset that is usable in many different kind of traditional wealth management contexts in a way that a single concentrated position in a private illiquid stock is not. Jason Kirby (54:11.691) So just for taking a quick overview explanation here. if I am, whatever, I'm the CMO, but not the founder of a company, I maybe got 1 % of the company at it's like series A or something or seed. And now it's worth maybe like $5 million. That's what that 1 % of that I got would be worth, hypothetically, at the last valuation. Greg Brogger (54:20.395) Yeah. Greg Brogger (54:32.001) Yeah. Jason Kirby (54:38.451) So to give myself, as you speak, a floor. So it's like, Hey, $5 million is awesome. That would be life changing money for most people. I, know, but you can't do anything with it. You're maybe still not getting paid full market salary or whatever. and you just want to, you want to take a little edge off, but you still do in the company. So maybe you do this exchange for like a million dollars. So where does that, so what, what am I putting that million dollars into? now I I've lost my interest in. Greg Brogger (54:40.864) Yeah. Greg Brogger (54:55.903) Yeah. 20 % of your shares. Yeah, exactly. Jason Kirby (55:08.585) I lost that million dollar interest in my company in exchange for what vehicle. Well, I know the vehicle. What was it going into? What kind of. Greg Brogger (55:08.725) Yes. Yeah. Greg Brogger (55:15.179) So yeah, so, and there was just one point of clarification. So, yeah, so you take that million dollars worth of shares in your company, you exchange it for a million dollar LP interest in the fund. Other founders similarly situated are doing the same thing. So it's basically, hence the name collective, right? It's a collective of founders and tech executives from the best companies. And so that is one, call it limitation. says, the strength and the limitation of our model. Right. So in order for you to be excited about exchanging your million dollars with a company you believe in for a million dollar LP interest, you have to have a lot of confidence that the fund that you're exchanging into is of the highest quality. And it's hard, you know, if we're looking ultimately to have a hundred companies in the portfolio, it's hard to do that at a seed or series A or series B stage. So we need to filter the companies that are eligible for exchange into the fund. and it's really of all the different things that we do, we answer that question, we solve that problem in the most traditional way. We have a bunch of super smart, super experienced, super successful venture capitalists and investors that sit on an investment community or committee and say, you know, if looking at the portfolios of Andreessen, Sequoia, Benchmark, Excel, basically all the kind of, you know, famous VCs that are enormously respected for good reason, We look at their portfolio and we pick just the winners from those companies and we make those eligible for exchange because that gives a founder confidence not necessarily in our investment decision-making, but they believe in Sequoia and Andreessen and others. And so that, one of the first and maybe the biggest problem that you need to solve as an exchange fund is the adverse selection problem. If we didn't have that requirement, if we didn't have that filter, of making, defining companies that are eligible and by implication, those that are not. You would say any crappy company comes to this fund, trades the shares. These guys are in management fees off of whatever comes in. yet nonetheless, ultimately I have to get liquidity from my interest. As as much a crappy company, it's not going to be, nothing's ever going to materialize. Jason Kirby (57:31.787) So I guess, let me take a step back here. So I'm exchanging my, so I'm in ABC Co. We're, we're 500 million back. Greg Brogger (57:38.646) Yeah. Jason Kirby (57:43.756) Now I'm giving my million dollar value in purchasing an LP interest amongst similar private companies. So it's all private. It's all still private. So do I get a million dollars cash or is that like a service you add on top of that in terms of like maybe you lend against 50 % of the portfolio value or things of that sort? Greg Brogger (57:53.088) Yeah. Yep. Greg Brogger (58:04.642) Exactly. So about 40, anywhere from third to 40 % of our customers do just the exchange, just for the diversification, just to de-risk their position. And they're happy. mean, essentially they're taking $100 worth of company ABC, putting into a fund tax deferred or tax free effectively, and have good reason to expect that that $100 interest is going to appreciate long-term venture capital rates over the next six, five, seven, 10 years, whatever their investment horizon is. And that's, you know, that's something we feel great about. That's a, that's really solid. That's a real significant benefit to that customer. So, you know, peace of mind, diversifying their assets, creating an investment program outside of a single company makes all the sense in the world. But, you know, two thirds roughly of the company, of the, the employees, shareholders and founders that come to us are like, but I also need, I also need cash and I need cash today. So. What we have done is work with a variety of different partners to create different forms of liquidity. And it's not really a sort of one size fits all. So the program we started with was with a web bank. And that was a program where they'd lend at a 60 % loan to value ratio. So I got $100 of ABC, traded for $100 LP interest in the fund. I can then take $60 out in a non-recourse loan at a no stock fee at a relatively low interest rate. So that was a remarkable program. We've exhausted the capital in that program. And so we now talking to other banks. so we think of it as our job is to continually be in the capital markets on behalf of our LPs, sourcing the best financing available. we're partnering with banks that offer basically lower LTVs now, but at a lower cost of capital, but they're recourse loans. We partnered with a private credit fund that provides a higher LTV, non-recourse, but it's more expensive capital. And those programs are going to come and go as we exhaust them. Maybe we'll find the perfect partner that allows us to scale to hundreds of millions of dollars. But right now, we're basically offering two flavors of liquidity, lower LTV, lower costs, higher LTV, higher cost. Jason Kirby (01:00:19.243) That makes sense. know, it gives people the flexibility of what's priority for them in that moment. But to have a choice. Yeah. And also, things I always have to point out for people, it's like, oh, I don't want to pay 10 % interest or whatever. But you would pay 15 to 25 % cap gains if you were to have the right to sell. You know, just taking off right from the top. So. Greg Brogger (01:00:22.764) Exactly, how much liquidity they need, yes. Greg Brogger (01:00:39.266) Yeah. Yeah. Well, and you know, most people don't have it as their time in their day, given they have a day job to like be talking to 10 different credit funds, three different banks, four different. So that's what we do. Yeah. Well, and if we, by consolidating a group of founders and clients that everybody wants, if we can't get you a lower cost of capital, because we make essentially nothing on it. Jason Kirby (01:00:55.135) Yeah. And they won't get underwritten anyways. Like it'd be impossible. It'd be unwritten. Greg Brogger (01:01:08.93) We just kind of pass through the equity or in some cases with some banks, we just hand them directly to the bank. And we're not even part of the transaction. If we can't find you a lower cost of capital, it's because it doesn't exist. And it's because even though you're super confident in your company, ABC, an investor might have more caution. Jason Kirby (01:01:23.496) You Jason Kirby (01:01:32.15) Yeah, I think that's the reality. You know, it's good that people are blind by their passion for what they're building and think it's the greatest thing ever, but credit's a different game than adventure. And it's underwritten very differently and pricing is very different. But it's great that something like this exists to give optionality to those that were fortunate enough to get employed by some of the best companies in the world, but then are stuck with that burden. Because like, especially if you're in the Valley, it's just... Greg Brogger (01:01:39.415) Yeah. Greg Brogger (01:01:42.827) Yeah. Greg Brogger (01:01:55.713) Yeah. Jason Kirby (01:02:02.037) cost of living is astronomical. Like three bedroom, two bath house is like three, four million dollars. Greg Brogger (01:02:03.555) Yeah. Yeah, no, let me tell you, just my PG and E-bill is now like $1,500 a month. So yeah, I need an option package just to pay my utility bill. Jason Kirby (01:02:17.335) Yeah. Uh, yeah, cost of it. That's a, that's a whole other rabbit hole. We don't really cover on this podcast in terms of cost of living, but, um, yeah, I think for, for the audience here today, you know, what would be one thing that you want to share with them about your background, about your experience that you think would be applicable to, you know, founder that's doing a couple of million in revenue thinking about, you know, what's next. Greg Brogger (01:02:20.77) Yeah. Greg Brogger (01:02:39.875) Yeah, well, I I've made enough mistakes in my life that I got many lessons to share, I guess, from trying to look at it from a positive perspective. But I guess, you know, actually, Jason, you and I were talking about it a little bit before the show started. You know, this, think particularly with young founders that there's so much attention paid to the venture capital approach to building a company. And it's, you know, it can work fabulously well. And everyone focuses on the success stories for good reason, right? So, media work growth is not a problem. And then there's an enormous public exit and people are making 50, 100 million dollars or more. But just the, I've heard it compared to kind of being put on a treadmill, right? When you do that venture financing and you're kind of handcuffed to the front of the venture. Because once you take that venture money, you are a venture capital company, right? So the... certificate of incorporation, your board structure, the control provisions that come with a venture financing appropriately, because it's high risk capital and the venture capitalists need to make sure that they get a return for their investors. So they're putting their protections and safeguards, but it ties you to that treadmill. And if you do a series A, if you don't break even, you better be able to do a series B. And so there's a certain amount of growth that needs to happen between the B and the C. you're kind of, it's like, you kind of have to run the table in order for that to be. a really successful outcome. by running the table, I'm meaning you can make one mistake, probably not two. You can have one down quarter, two down quarters. But if you lose momentum, then things like the liquidation preferences that you locked in upfront, and if you have to do a down round and the dilution, anti-dilution protection that kicks in. you know, it's not pleasant and you can lose a lot of value for the common holders, which are typically the founder and the employees that you thought you had built. And so, you know, I'll just talk about the way we're managing Collective having done this a couple of times and had the benefit of, you know, a little bit of liquidity along the way. You know, I've found a couple of great partners that have invested alongside, not large amounts of money. We're still kind of, we're kind of beyond the proof of concept, but we're... Greg Brogger (01:04:57.123) kind of pre-scale or on the edge of scale. So hopefully, you know, we'll be, this question of can we do a venture financing will be relevant to us, you know, next year or something we'll consider. But there is an alternate route, which is raising not venture money in a more traditional kind of, you know, non-preferred stock kind of basis, which is, you know, it's a traditional private company, the way it's still like sole proprietorships have been built and it's using debt that is available to you as an alternative to the venture. the venture approach. just don't be locked into, I'm going to be Google or Facebook or whatever the company may be. SpaceX is a better way to look at it, know, given the opportunity. also typically if you're a founder, one of the things that you think about is how long am I going to be able to control the direction of the company? And certainly a venture financing for most founders, not for Elon, but for most founders. is you're starting a clock on how long you're going to be basically unilaterally dictating the direction of the company. Because ultimately, you give up board seats, you give up controls, and you find that you're not in the driver's seat in the way that you thought you should be. Jason Kirby (01:06:19.069) you're preaching to the choir here because this is what I do every day is help founders realize that there are other paths than venture. And what's hard for, I think a lot of founders to realize is sure they might've raised a C to series A, maybe to a series B, but like you said, there are certain expectations that come with that. And if you're off the momentum train and, or you could be doing everything perfectly, your market fells out of favor. Like if you're an AR, VR a couple of years, Greg Brogger (01:06:20.516) Hmm. Greg Brogger (01:06:27.3) Mm-hmm. Greg Brogger (01:06:42.809) Mm-hmm. Yeah, or COVID. COVID happened. Zombie plague. Jason Kirby (01:06:49.107) Yeah. COVID, Yeah. you know, so many things can just derail that are out of your control. And that's also why, you know, I want to just kind of wrap us up going back to this, create your floor. Like I see so many founders that are putting everything on the line. You know, they have nothing to give them any kind of support or, you know, cushion. And well, be it, that might be the right motivation for some. It's definitely not for most. And, I designed my. Founder history and career pattern to like get to a floor as fast as possible. Like when I built this old Walmart, mean, liquid's got a Walmart. was the intent to sell and as a shorter period of time as possible to kind of create that. That floor. and I think more and more founders need to think about. Greg Brogger (01:07:19.299) Yeah. Greg Brogger (01:07:32.622) Mm-hmm. Yeah. Greg Brogger (01:07:38.616) Yeah. Yeah. Jason Kirby (01:07:43.052) having that floor because it just gives you a different type of mindset to build and scale a company in a very different way than maybe, um, if you're in a state where I need to get a six figure Sally right away. Otherwise, you know, you can only do this for three months, six months a year. Yeah. Uh, that's very, very different mindset to build a company. Greg Brogger (01:07:54.563) Yeah. Right. Yeah. Well, it can allow you to take risk, right? Meaning if there's no liquidity along the way and you get your first acquisition offer, you may feel like you're compelled to take it. But if you've taken enough off the table in the interim previously, you can say, no, I can go another two years, three years. you know, bring these new ideas to the business that no one's had a chance to see yet. you know, it's, yeah. The ability to manage your risk or choose your risk. mean, if you, most founders, like if you were to ask them, would you, if you were stepped back and you're not an employee or not connected to this company, would you invest all your money in this company? No matter how promising, would you invest all your money in a single company? And nobody in their right mind would say yes. Yeah. Just because, yeah, well, yeah, it's. Jason Kirby (01:08:46.207) Unless you're Elon Musk. Well, in all fairness, he's got like now, so you know. Greg Brogger (01:08:50.562) Yeah, exactly. Yeah, but it gives you certain freedom to choose your path that, you know, the absence of liquidity creates desperation under difficult circumstances. It's the unknown unknowns that can occur. You new technology, competitors, COVID, you know, all kinds of things can disrupt the golden path you thought you were on and then it's too late. Jason Kirby (01:09:20.875) Greg, it's been an absolute pleasure to have you on the show today. What would be the best way for founders to learn more about Collective or learn more about you? Greg Brogger (01:09:23.598) Yeah. Greg Brogger (01:09:29.002) well, thank you. Yeah, just come to the Collective Liquidity website. know, hopefully, actually, we just launched a new website today. We're pretty pleased with it. But yeah, hopefully this got good information on there, can kick off a conversation. And I'm always happy. And anybody in your audience, I'm happy to talk to directly. you know, put a call in or leave us an email. There's all kinds of ways, obviously, on the website to connect with us. Jason Kirby (01:09:51.625) Perfect. So if you're listening and you stayed this whole time, awesome. If you want to talk to Greg, just leave a comment down below and I'll reach out to you to set up an intro to Greg. Greg, thank you again. Look forward to getting this out to our audience. Greg Brogger (01:10:06.788) Thanks, Jason. Cheers.