Troy Capital Group, an affiliate of funds managed by Los Angeles-based private equity giant Oaktree Capital Management, launched a $200 million fund to provide liquidity to employees and investors of private companies whose liquidity is tied to company stock.
Troy Capital’s loan product provides private companies, employees and early investors with a non-recourse loan, or a type of loan secured by collateral. In this case, the loan is backed solely by the company’s stock, enabling those people to retain ownership and the potential upside of their shares in a pre-IPO offering.
Once the company goes public, Troy Capital is paid back at a roughly 7 percent interest rate – which is tied to the risk profile of the company when still privately held, according to Troy Capital Principal and Co-Founder Anthony Tucker.
“That’s part of the risk that the fund makes. Say the company intends to go public, if the company (stock) goes to zero, you don’t go after the house or some other asset, but just the stock,” Tucker explained. The fund works directly with the employee or investor of a private company, not the company itself.
“There have been many ways to approach this situation, but to my knowledge, no one has created a fund this way,” Tucker said.
The fund, which hopes to lend out the money over the next 18 months, is the latest investment vehicle from Troy Capital, a venture firm launched by MySpace co-founder Josh Berman, Samit Varma, former partner of Santa Monica-based Anthem Venture Partners, and Brian Sullivan, co-founder of Woodland Hills-based ForwardLine.
The fund represents a new business opportunity for Oaktree. Troy Capital formed in late 2017 and has already begun to offer its loan product to employees and shareholders of many large private tech companies. Tucker declined to identify case study companies where it loaned money tied to their stock ownership in a private company.
“You might need money to buy a house, or have a child. You don’t want to sell your shares, so we can give you a loan today, and guarantee it with private stock, and when it goes public, you pay us back,” Tucker said.
Finance reporter Pat Maio can be reached at email@example.com or (323) 556-8329.