User-friendliness: can an FCP help founders solve their liquidity problems?

Generally, founders don't get much sympathy from the general public. We live in a time when entrepreneurs are celebrated and even adored while their successes are widely covered by the media. Nothing wrong with that, but the focus on founders who left their companies and pocketed life-changing sums of money in the process may obscure the fact that running a company before a liquidity event is not something that will necessarily make you rich, or even particularly comfortable.”

“Entrepreneurs are often comfortable on paper,” says Tristan Schnegg, co-founder and partner of Collective Equity. "But they may not see any cash until they sell their businesses."

And in the meantime, as Schnegg points out, the founders live with a lot of pressure. “There is an ongoing risk,” he adds. “You have to meet milestones. Double your workforce. Change your business model. Find ways to monetize your operation."

So is there a way to make this risk a little less acute? I talk to Schnegg and Mike Royston, also co-founder of Collective inquiry. The two men come from very different backgrounds. Schnegg is an academic who has studied entrepreneurship and related wealth management issues. For his part, Royston spent many years on the cutting edge of corporate finance, working for pioneering crowdfunding platform Crowdcube.

Different perspectives maybe, but their experience led them to the same conclusion. The founders would benefit from certain means to cover their financial risk.

Gather resources

The solution they found was collective fairness. It is essentially a funding platform that allows founders to invest up to 10% of the equity they hold in their own business in a collective fund with other founders. The idea is that it runs something like a venture capital fund. When a holding company undertakes a liquidity event, the other founders take a share of the proceeds.

So what problem does this actually solve? Well, as Mike Royston says, founders tend to have all their eggs in which basket. Collective equity, he says, essentially allows them to become investors in multiple companies, mirroring the modus operandi of professional investors such as VCs or angels. "Professional investors wouldn't invest in just one company," he says. "They would have a portfolio of companies."

Bad decisions

In addition to allowing founders to spread their risk, the fund also aims to address a related problem: that founders are often cash-strapped. "Founders can make bad decisions because they're running out of money," says Royston.

In addition to the financial incentive, Royston says companies also benefit from networking opportunities. There are, of course, more networking opportunities than the average founder can grasp, but Royston says Collective Equity offers something a little different. Because they have a mutual interest in the success of each other's businesses, they have an incentive to help each other, he explains.

"Founders love the idea of ​​investing equity to share the journey of others," says Royston.

Collective Equity is at the start of its own journey. Its first fund just closed, with 11 companies and 19 partners — made up of founders, investors, husbands and wives — on board. Equity is valued at “3.76 million.

This seed fund is powered by companies that have already raised capital through crowdfunding on Crowdcube. The second will focus on companies operating in the climate field. The third will be a cash fund.

Becoming an equity investor involves a selection process. Above all, a company must adapt to the thesis of the fund. Candidates must also have raised funds from venture capital firms or institutions. Collective Equity performs due diligence. There is also careful scrutiny from the founders. Schnegg says the fund is transparent. Candidates can consult with other companies and make decisions accordingly.

The first fund - and it will likely continue - was deliberately designed to include companies at different stages of development. The intention is to ensure a flow of...