The Shared Liquidity Pool
Silicon Valley is a collaborative ecosystem, where people of all skill sets, backgrounds, and experiences share ideas, best practices, metrics, and feedback. Why? Because helping each other and sharing expertise leads to faster iteration, more efficient innovation, and faster market growth.
To create and foster a similar collaborative culture in markets across the globe, the Founder Institute developed a groundbreaking "Shared Liquidity Pool" where everyone shares equity in the companies formed from each program cohort.
Here's how it works - each Founder Institute Graduate contributes 3.5% of their company equity in Warrants to a 10-year Bonus Pool with other peers from the current semester. When a liquidity event occurs, the Pool returns are then distributed as follows:
When one Graduate company succeeds, every participant from that program cohort receives financial upside.
- 85% of the Pool Returns go back to the Local Community
- 30% goes right back to the program Graduates, split evenly.
- 30% goes to the program Mentors, and each Mentor's individual share is based solely on anonymous ratings received from the Graduates. This incentivizes Mentors to take an active role in each cohort's success.
- 25% of the Pool Returns go to the Local Program Directors for their efforts in organizing, building, and running the local semester.
- 15% of the Pool Returns go to the Founder Institute, which provides operating capital for the business.
Why Shared Liquidity?
There are several main benefits to the Founder Institute's Shared Liquidity model;
The likelihood of one company being successful is small, whereas the likelihood of one successful exit out of 10 companies (the size of an average Founder Institute Graduate cohort) is very high. By joining the Shared Liquidity Pool, you are diversifying your startup risk, while investing in expert mentorship and upside in your peers.
This diversification strategy has been successfully leveraged by top startup CEOs in Exchange Funds. The Institute innovated on the Exchange Fund model by taking very early stage companies and mandating that each Founder or Founding Team gets one share of the Shared Liquidity Pool in exchange for one fixed amount of equity, 3.5%.
Starting a technology company is one of the hardest and loneliest things you can do. As Elon Musk once famously said, "Entrepreneurship is like eating glass and staring into the abyss."
By joining the Shared Liquidity Pool, aspiring founders ensure themselves a strong support network of new founders just like them, and experienced startup Mentors, who are all vested in their success. In addition, the higher a mentor is rated by the Founders in a cohort, the larger their share of the 30% Mentor allocation becomes. As a result, Mentors are incentivized to help Founder Institute Graduates, and many Mentors become formal advisors or investors as well.
When smart people work together towards a common goal, amazing things can happen.
The Founder Institute's Vision is to “Globalize Silicon Valley” and help entrepreneurs across the globe launch meaningful and enduring technology companies. The Shared Liquidity Pool is a key component of our strategy.
- The Shared Liquidity Pool incentivizes collaboration between new and experienced entrepreneurs in local startup ecosystems, creating a "pay-it-forward" mentality similar to the one found in Silicon Valley.
- By sharing 85% of the Liquidity Pool proceeds back to the local program participants, the Founder Institute facilitates local economic development.
Even in small acquisitions of $5 MM or less, the financial return from the Shared Liquidity Pool far exceeds the average Course Fee by multiple times. In 2012, approximately two years after the inaugural semester graduated, the Institute had a first exit in the $5 MM range. This exit returned approximately 10 times the Course Fee for each Founder in the Shared Liquidity Pool. The Founder Institute predicts that exits from any one semester will occur between five and ten years after the semester ends, which is slightly longer than for the average angel funded startup.
After two years, the average Founder Institute semester with 10 companies has results resembling the following:
- There are approximately 3 leading companies that are well-funded and well-respected in their fields.
- There are 3 strong companies that have raised some capital, have a solid team and are making good progress in their market.
- There are 2 or 3 companies that are still working on their business in a part-time capacity or with limited success, and some of these companies will ultimately be successful, while others will fail.
- The final 1 or 2 companies are either bankrupted or completed stopped.
The very first semester of the Founder Institute, which is now nearly three years old, has a post money valuation determined by private company investors in excess of $300,000,000. Since investor valuations are normally much smaller than acquisition values, the oldest Founder Institute semester may be worth in excess of a billion dollars today. Many checks have already been mailed from that cohort, and we expect many more as well!
More questions about the Founder Institute Shared Liquidity Pool? See our Liquidity Pool FAQ.