Troy Capital Group has closed its $200 million fund to provide loans to startup employees whose liquidity is locked up in company stock.
The fund, backed by the multi-billion dollar private equity giant Oaktree Capital, is the latest investment vehicle from Troy Capital Partners, a four year-old venture firm founded by MySpace co-founder Josh Berman; Samit Varma, a former partner at Anthem Ventures; and Brian Sullivan, the founder of the startup small business lender, ForwardLine.
Troy Capital Partners has roughly $140 million under management in a $20 million early stage fund and a $120 million growth stage fund, according to Berman. This is the firm’s first foray into the lending business.
The new fund represents a brand new business opportunity for Oaktree, which manages $100 billion and invests heavily in credit and lending vehicles.
“We think equity compensation is a bit broken as companies stay private longer,” says fund principal Anthony Tucker. The problem for employees is that a lot of their net worth is locked up in stock that is illiquid except through secondary offerings, which requires them to relinquish their shares.
The lending product that Troy Capital offers comes with a 7% interest rate and means that employees don’t have to let go of their shares should they want to get some liquidity for their efforts. They simply take out a loan and get to keep the shares that could potentially be worth billions.
“As former operators of private technology companies, we understand the large and growing demand for early access to loans or liquidity, particularly as large, private technology companies stay private longer than ever,” said Varma in a statement. “TCG’s offering provides an attractive solution for the many loyal and committed tech employees who want to be able to tap the value of their stock, but over the long-term want to keep their upside and stay closely aligned with their colleagues and leadership teams at these fast-growing, dynamic companies.”
For Troy, not only do the fund managers get access to a potentially lucrative new investment market, but they also gain a new pipeline for potential dealflow with the engineers and executives who may one day become founders in their own right.
According to Tucker, the market for this kind of product is in the tens of billions of dollars. “SoftBank did a tender with Uber and it was a $9 billion tender, which was oversubscribed two times.” That means there was an additional $9 billion of demand for that transaction alone, he said.