EquityZen Users Community/EquityZen F.A.Q.
What are EquityZen Funds?
What is EquityZen?
EquityZen is a brokerage platform which provides investors with the opportunity to buy secondary shares of private companies in a semi-automated manner.
Registered users can invest in separate companies or make portfolio deals and receive shares of several companies at once through EquityZen Funds.
You can find a brief EquityZen Fund review below:
What is investment through EquityZen managed Funds?
A “portfolio deal” is where the investor becomes a participant in a Multi Company Fund, or “multi-fund.”
Each multi-fund is a separately created Series LLC, in which EquityZen investors enter as an LP.
Each fund has its own “EquityZen fund ticker”, which is either a serial number or the name of the sphere of portfolio companies.
EquityZen creates multi-funds either by using the thematic principle — EquityZen Thematic Funds — or by using the growth prospects of companies — Growth Opportunity Funds. Recently, the EquityZen Growth Technology Fund II has been quite popular among the platform’s investors.
In both instances, EquityZen specialists independently select companies that will be included in the fund and offer investors, or LPs, a ready-made portfolio. Each LP owns a part of the portfolio in proportion to the size of their investment.
Multi-funds are focused on 5–7 year terms, so they are suitable for long-term-strategy investments. LPs do not have the opportunity to withdraw from the fund independently before the end of its existence. LPs also cannot keep the shares of the fund’s companies after the fund’s liquidation. However, LPs still possess the right to resell shares within the multi-fund.
The exit occurs at the same time for all shareholders and payments are made by cash.
In case of a liquidation event, payments are distributed in accordance with: 10–15% to the fund manager as carry, and 85–90% to LPs in proportion to the size of their investment contribution.
In the absence of a liquidation event, the entire capital of the fund, minus management fees, is subject to distribution among all LPs (this is also in accordance with the volume of investments).
EquityZen minimum investment size for a portfolio is $20,000 (without providing discounts available for investments in individual companies). Deals are available to both private and institutional investors. LPs can be investors in several funds at the same time and are also free to participate in single-company deals.
Throughout the entire period of the fund’s existence, all LPs make regular payments for the management of the fund. This fee is charged every six months. The specific amount per payment depends on the type of multi-fund, the volume of investments, and the time when the corresponding multi-fund (Series LLC) is launched.
The multi-fund manager, in turn, is obligated to invest at least 1% of the total fund. EquityZen also guarantees the distribution of unaudited annual and quarterly financial reports to all LPs, as well as tax information necessary to complete tax returns.
Types of multi-funds and their differences
EquityZen offers two types of portfolio funds with several companies.
1. Thematic Funds
EquityZen Thematic Funds are launched several times a year and are aimed at investing in 4–6 companies from a specific niche. Usually, these companies are players in advanced industries in line with current trends.
EquityZen investors have previously been offered investment opportunities in multi-funds in the following areas (some more than once):
- AI and Machine Learning
- Fintech
- The future of Health
- The future of Food
- Gaming
- SaaS
EquityZen analysts evaluate the available allocations of companies from the selected niche, combine them into a single portfolio, then offer them to investors. The specific composition of the portfolio is determined by the EquityZen Investment Committee or investment specialists appointed to manage the multi-fund. No LP can influence the selection process of portfolio companies in any way.
For investments in individual companies, portfolio deals are executed separately for accredited investors and qualified buyers. Preparation of the deal can take up to 6 months.
The annual fee for EquityZen Thematic Funds varies from 0.75 to 1.75%:
In case of a liquidation event, fund participants pay 15% carry.
The main benefit of Thematic Funds is the balance between diversification and concentration of investments.
Thematic Funds are convenient for those who are not ready to select companies for investment on their own, but who have clear industry and market priorities and are also familiar with specific markets.
2. Growth Opportunity Funds
EquityZen Growth Opportunity Funds are launched annually and are aimed at investing in 15–25 of the most promising companies which have been selected by EquityZen analysts. To date, 8 such multi-funds have been launched.
The compositions of these multi-fund portfolios are approved by the EquityZen Investment Committee. LPs do not receive preliminary information about the companies to be included in the Growth Opportunity Fund. The only available information is the lists of companies included in the portfolios of previous multi-funds. From this information, investors may determine their estimate of the potential profitability of these funds.
The opportunity to join the portfolio deal closes a year after the launch of the multi-fund. The website states as follows:
EquityZen Growth Opportunity Funds are the investment option with the greatest diversification. Each LP of the multi-fund becomes the owner of a part of the distributed portfolio proportional to the size of their investment.
Each LP of the multi-fund also becomes an owner of part of the distributed portfolio proportional to the size of their investment.
As in the case of Thematic Funds, each LP of a Growth Opportunity Fund is charged twice a year for management fees. The fee is 1–2% per annum. In case of a liquidation event, an additional 10% carry is added to this.
Conclusion
Portfolio investments with EquityZen allow you to diversify your investment risk and save your time and resources while doing so.
We hope this article helped you understand the features of EquityZen Funds and the differences between Thematic Funds and Growth Opportunity Funds.
Join the discussion of current EquityZen deals in real-time in the closed Discord group:
Have successful investments through EquityZen!
