When considering sources of capital for their business activities, enterprising entrepreneurs and investors might wonder: Can I borrow against the value built up in my illiquid private company stock, real estate equity, venture portfolio, or other private investments?
While not a traditional lending product offered by banks or conventional credit funds, there are a few specialist capital providers, including Pacific Coast Alternatives (“PCA”), who focus on this form of lending.
Why Borrow Against Private Stock or Real Estate Equity?
There are several scenarios where borrowing against your private stock may be advantageous compared to other financing options. While it may not typically replace senior bank debt, borrowing against your private investments could serve as an attractive alternative or supplement to raising private equity capital, venture capital, mezzanine or subordinated debt, or selling an asset.
The archetypal borrower for this product is often asset-rich but liquidity-constrained and seeks to finance a strategic investment for which they would like to have personal liquidity available. This borrower may prefer not to sell an existing asset (at least not immediately) or may wish to limit or prevent the dilution associated with raising private equity or venture capital. They may believe that having some personal liquidity available for investment purposes could solve a very real constraint in their activities.
Alternatively, a prospective borrower might hold substantial value on paper but lack controlling shareholder status, limiting their ability to make decisions about capital structure or distributions. Others might be restricted from making cash distributions or may simply wish to utilize a portfolio of assets to raise funds that any single asset alone might not be able to support.
Strategic Investment Opportunities
Potential use cases for this type of financing against illiquid assets include, but are not limited to:
Financing an acquisition
Buying out a partner or other shareholders in a business
Providing non-dilutive capital to fund a business’s growth strategy
Funding a startup or early-stage venture
Making diversifying investments
Bridging to an anticipated liquidity event
Opportunistic liquidity for real estate developers or investors
Financing for independent (or “fund-less”) private equity sponsors
Providing a NAV-type loan facility available to use opportunistically
Financing capital calls or follow-on investments
What Assets Can be Used as Collateral?
Borrowers may use various kinds of assets to support a loan, including:
Private equity or unlisted stock
Ownership interests in real estate
LLC or other business ownership interests
LP or GP interests in PE, RE, or VC funds
Management companies affiliated with investment firms
Other illiquid private investments
Pacific Coast Alternatives is industry-agnostic, focusing on partnering with and backing successful, independent entrepreneurs and investors with niche expertise who wish to utilize their balance sheets to support their convictions. We believe that the entrepreneur or investor we support is fundamentally the best person to direct their business.
As such, we do not seek to take an active role or interfere in their business operations or investment activities. Our goal is to find and support great entrepreneurs, operators, and investors who wish to bootstrap their activities by utilizing existing assets.
Unlock the Value of Your Private, Illiquid Assets
If you are looking to raise capital for your business or investment activities and would like to explore a creative alternative or supplement to traditional sources of capital, consider reaching out to discuss PCA’s financing model. You might discover the ability to unlock some of the trapped value accumulated in your illiquid private assets.
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