Currently, buying or selling shares of a private company is an elaborate process that includes finding a counterparty to negotiate the price, following on all legal agreements, wading through the Target Company’s right of first refusal process and ensuring that all transfer and approval requirements are conducted properly. At the same time, it is important that the parties understand and comply with applicable law, in particular – securities laws. The Elephant Platform helps investors charge through these steps through the Dedicated Vehicle investment model.
The Dedicated Vehicle investment model gives investors a chance to invest in shares in late-stage and pre-IPO private companies (Target Companies) and potentially gain favorable long-term returns over and above what is regularly available to non-institutional investors that opt into the public equity markets via conventional investment channels. Until recently, such investment options were generally only available to professional and institutional investors. This innovative model and the low transaction costs increases access to these shares for a bigger proportion of investors who were locked out of such investment opportunities until now.
Under this model, investors invest through Special Purpose Vehicles (SPVs) where they hold an equity right.
When this SPV is in the form of a limited partnership (Dedicated LP), where investors’ rights are represented as limited partnership units, the Dedicated LP itself buys and holds the shares in the Target Companies. The partnerships are managed by the General Partner which is an Elephant entity. The target investors for such dedicated partnerships are those that seek to invest starting at comparatively low entry thresholds of $20,000 and low associated costs.
Such low entrance thresholds enable an investor to create his or hers own private “pre-IPO Tech Fund” while investing in a portfolio of SPVs that hold shares of Target Companies that he or she elects.
Under this model, only shares of companies with participation requests that amount to $1 million or more in the aggregate, are available. The model, managed by The Elephant’s team, complies with the strictest market standards and security laws.
The Elephant Platform collaborates with leading law firms to undertake the SPVs transactions while the tax and accounting obligations are handled by a top accounting firm with international affiliation.
The platform provides continuous supervision and timely reporting, and for its services, collects fees as follows:
- From the Selling Shareholder: a success fee from the amount received by the seller.
- From the investors: annual management fees and a one-time success fee from the profit following an IPO or exit.
No Fees are payable until a transaction is actually completed.
Following an exit, the body managing the SPV (i.e. the General Partner in a case of a Dedicated LP) liquidates the shares held by the SPV and distributes the profits (minus the fees) among the equity right holders (i.e. the investors) pro rata to their participation in the partnership.
This model is the basis for the tokenized model that we are now implementing.
Read more about the model in Section 6 of our Whitepaper.