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I am an investor in the Felix fund mentioned in the business week article. All they did is buy up several million dollars of Facebook stock from original share

I am an investor in the Felix fund mentioned in the business week article. All they did is buy up several million dollars of Facebook stock from original shareholders, put it into a simple LLC, and then sell shares of that LLC. Investors pay an upfront transaction fee on the investment, a minimal operational cost, and then a fee on the backend if there is a liquidation event but only after the investor gets 100% of their investment back. This is very similar to how traditional VC funds are structured and the only reason this is getting press is because it is another story about Facebook. These funds actually do a service for the original Facebook shareholders because it allows them to take some cash off the table, rather than waiting for the IPO.

joelhaus 16y ago
Any ideas about why they are calling these investments, "derivatives"? Capital markets aren't unfamiliar to this publication.
- btilly 16y ago
  Because they are a type of derivatives. See http://en.wikipedia.org/wiki/Derivative_%28finance%29 http://en.wikipedia.org/wiki/Derivative_%28finance%29 for more on that. (Also my explanation at http://bentilly.blogspot.com/2009/10/what-are-financial-derivatives.html http://bentilly.blogspot.com/2009/10/what-are-financial-deri... has some interesting points.)
  - joelhaus 16y ago
    Still not convinced that derivative is the correct way to describe this (assuming that billboebel's comment is accurate). I'd prefer if they called it securitization. It's possible that the funds offering statement lays out a clear goal, but also provides enough flexibility to employ some fancy engineering techniques. Then they raise funds and put the capital to work. Due to the illiquid nature of the target company, it wouldn't be surprising if the fund assets end up being a mix of synthetics, equity shares and employee stock options. Regardless, the article doesn't really provide enough information to draw a firm conclusion.
abalashov 16y ago
Given that it is considerably more difficult to change the shareholder structure of an LLC than an Inc. -- which is the reason institutional investors don't like startups that are LLCs -- an LLC is a rather strange choice of structure for this investment vehicle entity.
- billboebel 16y ago
  No idea. But I will ask because now I'm curious.

joelhaus 16y ago

Any ideas about why they are calling these investments, "derivatives"? Capital markets aren't unfamiliar to this publication.

btilly 16y ago
Because they are a type of derivatives. See http://en.wikipedia.org/wiki/Derivative_%28finance%29 http://en.wikipedia.org/wiki/Derivative_%28finance%29 for more on that. (Also my explanation at http://bentilly.blogspot.com/2009/10/what-are-financial-derivatives.html http://bentilly.blogspot.com/2009/10/what-are-financial-deri... has some interesting points.)
- joelhaus 16y ago
  Still not convinced that derivative is the correct way to describe this (assuming that billboebel's comment is accurate). I'd prefer if they called it securitization. It's possible that the funds offering statement lays out a clear goal, but also provides enough flexibility to employ some fancy engineering techniques. Then they raise funds and put the capital to work. Due to the illiquid nature of the target company, it wouldn't be surprising if the fund assets end up being a mix of synthetics, equity shares and employee stock options. Regardless, the article doesn't really provide enough information to draw a firm conclusion.

abalashov 16y ago

Given that it is considerably more difficult to change the shareholder structure of an LLC than an Inc. -- which is the reason institutional investors don't like startups that are LLCs -- an LLC is a rather strange choice of structure for this investment vehicle entity.

billboebel 16y ago
No idea. But I will ask because now I'm curious.