E260: How Founders Access Liquidity in Pre-IPO Companies
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Podcast Summary
This episode features Philip Benjamin, Co-Founder and Managing Partner of Colzen Capital, discussing how his firm created a differentiated pre-exit liquidity strategy that serves founders, executives, and investors simultaneously. (01:15) Philip shares how his fourth-generation real estate background and experience during the 2008 financial crisis shaped his investing approach, leading him to apply distressed real estate principles to late-stage venture companies. (03:10) The conversation explores Colzen's structured equity financing model, which creates downside protection while maintaining alignment between all parties, and why this emerging asset class represents a massive opportunity in today's market where companies are staying private longer.
- Core themes include structured equity financing as an alternative to traditional secondaries, creating non-zero-sum transactions that benefit both investors and company stakeholders, and building structural alpha through innovative deal structures
Speakers
Philip Benjamin
Philip Benjamin is Co-Founder and Managing Partner of Colzen Capital, where he developed a unique structured equity financing model for pre-exit liquidity. Coming from a fourth-generation real estate family, Philip graduated college in 2009 during the financial crisis and gained early experience buying distressed real estate assets in Arizona. His family successfully sold their real estate portfolio in late 2007 before the market crash, providing the liquidity that enabled Philip to explore private alternative investments and eventually launch Colzen Capital's innovative approach to late-stage venture financing.
Key Takeaways
Apply Distressed Real Estate Principles to Healthy Venture Companies
Philip learned a crucial investment philosophy from his mentor during the 2008 crisis: buy assets for less than anyone can build them for again. (02:25) This principle became the foundation of Colzen's strategy - they're not investing in distressed companies, but rather creating distressed-like valuations through structured financing with healthy late-stage ventures. The key insight is focusing on businesses that don't need capital, but where individuals (founders and executives) do need liquidity, allowing investors to access quality companies at significant discounts while maintaining downside protection.
Structure Deals to Create Alignment, Not Competition
Traditional secondary transactions create zero-sum outcomes where if the asset appreciates, the buyer wins and seller loses. (39:49) Colzen's model allows time between the "buy" and "sell" by advancing cash today but only receiving shares at a future liquidity event. This structure enables both the investor and founder/executive to benefit from future appreciation, creating powerful alignment and referral networks. The psychology of this alignment is critical - founders who believe in their company's future will choose this structure over selling secondary shares at a discount.
Focus on Structural Alpha Over Manager Alpha
Structural alpha comes from the deal structure itself, not just picking ability. (19:03) Colzen's equity financing structure provides built-in downside protection through collateralization and paid-in-kind interest rates. Even with poor company selection - assuming four failures, three companies declining 50%, and eight flat exits - the fund would still return 1.5x with double-digit IRRs. This mathematical certainty provides confidence that doesn't rely solely on manager skill, making it easier to model consistent returns across portfolio companies.
Target the Bell Curve, Not the Outliers
Most late-stage venture companies (Series D, E, F) will exit between 0.7x to 2.5x, not the 5-10x outliers that get the headlines. (13:16) By structuring deals to capture doubles and triples in this realistic outcome range, investors can achieve 20-30% IRRs in 3-4 years rather than waiting 10-12 years for early-stage venture returns. This approach requires being realistic about remaining growth potential while still participating in upside through the equity component of the structure.
Build Sticky Relationships Within Companies
Once Colzen completes one transaction with a founder or executive, the model becomes "sticky and viral" within the company. (20:56) Co-founders want similar liquidity, executives with vested options need the same solution, and the company often has 2-3x the initial transaction amount in additional liquidity needs. This creates programmatic deal flow and allows the firm to build deeper relationships within portfolio companies, often keeping transactions open for months as more stakeholders recognize the value of the structure.
Statistics & Facts
- In June 2024 through June 2025, secondaries generated $61.1 billion in liquidity compared to $58.8 billion from IPOs, showing that pre-exit liquidity solutions have become larger than the IPO market. (25:55)
- Colzen's fund modeling shows that even with terrible company selection (four failures, three companies down 50%, eight flat exits), they would still return 1.5x with double-digit IRRs due to their structural alpha. (19:30)
- For multibillion-dollar late-stage companies, executive tax obligations from exercising options can reach $5-10 million per executive, creating significant barriers to option exercise without structured financing solutions. (10:43)
