“The idea behind an EB Exchange Fund is simple: large shareholders from a diversified set of mid to late-stage companies each put 5-10% of their shares into a pot. They can then claim minority ownership of the entire fund in exchange for their contributions. And if several of the participating companies go belly-up, at least their founders can share in the success of those companies which exited successfully.
EB has been arranging these funds since before the first dot-com bust. EBX1 (each fund gets its own number) was established in 1999 for 11 early stage businesses. The first fund could have been a winner had not Zaffire, a hot optical networking company at the time, turned down a $6B acquisition offer and pushed for $8B from its prospective buyer (and this with only a $100M valuation when coming into the fund). But the bubble burst soon after and none of the EBX1 funds had extraordinary exits, so EB went on to form another fund in 2002. OpenTable, whose founders participated in EBX1, does however continue to do well and will probably IPO, making the fund worthwhile in the end.”
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