EB Exchange Funds - Summary
EB Exchange Funds (EBX) enables founders and other entrepreneurs to invest a small portion of their private company equity into a pool of pre-IPO stock. The Funds allow entrepreneurs to diversify highly concentrated, illiquid equity positions and to share in the upside of the liquidity events of multiple companies. In addition to greater diversification, the partnership provides improved liquidity, an excellent network, tax benefits, and the potential for high returns. There is no cash investment in EBX funds, only stock contributions. EBX has created four funds to date representing approximately 100 venture-backed startups and 200 entrepreneurs. We are currently assembling EBX V, L.P., which is expected to close by Q4 2009.
How The Funds Work
Founders that own a significant amount of stock in private venture-backed companies contribute a small portion of their personal stock in exchange for a limited partnership interest in a diversified portfolio. Once the portfolio is created, entrepreneurs who contribute their stock become limited partners in what is essentially a venture capital fund, sharing in the proceeds from all of the companies' IPOs and acquisitions. EBX does not hold or reinvest proceeds; its policy is to distribute cash immediately.
The Funds are structured so that founders of only the best companies participate. To achieve this level of quality, EBX implements several screening methods. EBX conducts due diligence on each prospective startup and candidates must have the backing of a top-tier venture firm; companies in our previous portfolios were backed by venture firms such as Accel, Benchmark, Kleiner Perkins, NEA and Sequoia. Further, each participating founder approves the other companies that join the Fund, and founders are not committed to the Fund until they are comfortable with the portfolio. EBX implements other protective measures to maintain the quality of the Fund, and rewards the entrepreneurs that produce the greatest gains for the Fund. EBX fronts all cash expenses to operate the Fund and only earns money if the portfolio is successful, ensuring that EBX management’s goals are aligned with the founders.
Previous EBX Startup Exchange Funds
EBX IV, L.P. had its final closing at the end of 2008 with 28 companies. The portfolio represents over a billion dollars in aggregate revenue. EBX IV has already had its first exit with OpenTable (NSDQ: OPEN).
EBX III, L.P. closed in December 2007 with 30 venture-backed companies, two of which are top 50 websites and several of which are prime IPO candidates once the window reopens.
EBX II, L.P. closed in 2002 with 26 companies in its portfolio. To date, several have generated proceeds for the Fund. Two of the more prominent exits were the IPO of Nextest (later acquired by Teradyne) and the sale of TriNet (partially acquired by General Atlantic Partners). Compared to the results achieved by traditional venture funds of a similar vintage, EBX II’s performance would place in the top quartile.
Eleven Baskets, L.P. (EBX I), the first Fund formed in 1999, was a small portfolio composed of eleven very early-stage companies. Notable companies include OpenTable, Coremetrics, World Wrapps, Zaffire and MusicNow.
Although we would like to share additional information about previous Funds and their companies, the participants and results of all Funds are strictly confidential. We disclose information solely with explicit authorization from the partner.
All participating entrepreneurs must be Accredited Investors. This Web site is for informational purposes only. This Web site is in no way a solicitation of offer to sell securities or investments. Nothing in this Web site should be interpreted to state or imply that past results are an indication of future performance.