FRC’s Exchange Fund

I'd been away skiing for a week and now I'm back, refreshed and excited about the year ahead of us.  I was gone in a pretty busy week that saw the announcement of Apple's iPad, which I think is getting underestimated. But on to the more interesting development of the week for me:  First Round Capital's Exchange Fund.

Josh Kopelman describes it as:

This exchange fund
was created to allow First Round Capital entrepreneurs to contribute a
small piece of the stock they own in their company  — and share in the
upside of all the other companies.  The fund is only available to
qualified First Round Capital portfolio companies and First Round
Capital does not receive any
economic upside from the fund.  The goal of the fund is to allow our
entrepreneurs to get the benefit of some tax efficient diversification
without giving up their upside prematurely. 

This is an issue I had thought about when we were busy growing SelectMinds.  I'd even talked to my fellow NY-based entrepreneurs Marc Cenedella and Mark Harris about it circa 2004.  We'd agred it would be tough because of valuation metrics.  However, when structured in the context of a VC fund, that problem is probably mitigated.  There are a few other issues raised in the comments under Josh's post.

All in all, I think it's a great way to try to diversify the risk.  I'll be watching excitedly.

2 thoughts on “FRC’s Exchange Fund

  1. iPad underestimated? Apple has all the resources to build a great product and out of all this hype comes the iPad. Not supporting flash is a big problem for surfing video sites, etc..
    But, I know that at some point, I will buy it to use simply as an e-reader if nothing else. With ibook store or whatever they’ll call it, it will become for digital content download industry what ipod is to mp3’s. It will soon take over the lead from Kindle-like readers and pass with flying colors.
    You know what would be a great product. A smaller version that can be carried around in one’s pocket and lets you make phone calls with it!!


  2. The iPad UI Shift

    Marc Benioff (of has a thought-provoking piece on TechCrunch the future of software, emphasisizing, unsurprisingly, the cloud, and surprisingly, the iPad. I have not yet seen or used the iPad but i agree with most of Marc’s points. I…


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