Prism Launches To Streamline Liquidity Processes For Unicorn Employees

Bank failures and a weakening IPO market have created problems for many startups, but the headwinds have successfully paved the way for the launch of startup-focused lending platform Prism.

The Hollywood-based company allows employees of pre-IPO technology companies valued at more than $1 billion to sell shares in the company for personal use without waiting years for the company to go public. Allows you to borrow against

Prism chief executive Ari Stiegler, who has been in the tech sector for about a decade, said he was surprised by how little to no liquidity shareholders had access to until a private tech company exited via an IPO. increase.

“We are a multi-billion dollar private tech company that trades between $50M and $100M each year if we can take out a loan on a piece of real estate or a publicly traded stock. I wondered if I wouldn’t be able to get a 20% loan for the secondary market month?” Stiegler said.

personal experience

The problem of lack of liquidity is one Stiegler is familiar with, having been involved in creating startups such as TutorMe, a live online education platform that was acquired by Zovio, an education technology company that went public in 2019. He is also his partner in managing Larchmont. Based in VC firm Flux Capital.

Stiegler recalled trying to borrow liquidity through various financial positions in late-stage technology markets and facing high APRs and expensive quotes.

“That’s not how it should be structured. It should be structured as a straight loan. (The borrower) can pay monthly interest and keep all the profits.”

Stiegler said Prism’s loan interest rates and fees are based primarily on the company’s financial position and the secured overnight loan interest rate, which as of April 18 was at 4.8% on borrowings.

Prism was founded last year, but only recently received Series A funding in a $26 million round led by Menlo Park-based Pantera Capital and Bay Area-based Human Capital. The company has signed multiple agreements to begin structuring loans in the coming months and has a pipeline of over $100 million in loans, according to the funding announcement.

big chance

Stiegler believes Prism has an opportunity in the turmoil of recent bank failures and the IPO market downturn as it gears up for growth.

According to Stiegler, banks such as Silicon Valley Bank, First Republic Bank, Credit Suisse, and UBS offered Prism-like financing services to their valued customers on a case-by-case basis.

“What basically happened in the last few months throughout the banking crisis is that we used to be indirect competitors,” Stiegler said. “But now these banks either don’t do that kind of business, or they don’t exist anymore, so competition on that front has been greatly reduced, if not completely eliminated. I have.”

Stiegler said the difference between Prism and standard bank loans for individual customers is bank-preferred recourse loans, which allow lenders to pursue assets if the money is not collected, and non-recourse loans, which Prism employs. I pointed out that I would return to Collateral provided for a loan.

Noah Friedman, co-founder and chief operating officer of Prism, said: “More and more people are actually using their previously illiquid holdings to ensure that they have as much cash on hand as possible to be prepared for whatever happens.”

Conditions in the IPO market have also set the stage for Prism’s growth. According to data from Ernst & Young, his global IPO volume from January to September last year fell by 44% compared to the previous year. The professional services firm also found that the global IPO market continued to struggle in the first quarter of this year, with IPO volumes down his 8%.

Friedman added that employees and executives of companies planning IPOs likely had to change their personal financial plans, which once revolved around securing liquidity.

“For companies that expected to exit within, say, 12 months, those 12 months were replaced with a big question mark,” said Friedman.

Stiegler summed up bank failures as a factor that helped Prism win customers, but IPO market conditions helped the company retain customers.

Davide Accomazzo, a finance lecturer at Pepperdine Graziadio Business School, believes Prism’s business model is neither unique nor spread to other companies.

He said the enormous amount of wealth accumulated in companies over the past 30 years through restricted stocks and options necessitated an avenue for liquidity.

Eventually, non-traditional lenders filled the space. One of the problems with this lending model is that private companies these days tend to delay going public in order to maintain control and avoid increasing compliance issues. This increases the risk of holding pre-IPO shares as collateral,” said Accomazzo.

Prism says there is no danger to individual employees if the company goes bankrupt before the IPO. The only collateral is the startup’s equity, which is sold on the secondary market.

“Technology is a very volatile sector and valuations can change from day to day, so you have to be fairly conservative in underwriting and dig deep into the financials,” Stielger said. “Two years ago, with the tech hype, we had a lot of rounds done within a week and not a lot of due diligence. It’s like a credit guarantee, so we have to be very aware of that.”