Allocation Policies of EquityZen Inc. and Affiliated Entities
EquityZen Inc. (“EquityZen”) operates an investment platform (the “Platform”) on which eligible investors (“Platform Investors”) may browse investment opportunities and complete investments in private placement transactions indirectly through pooled investment vehicles (“Platform Funds”). The private placement transactions that are available on the Platform are primarily in pre-IPO securities of private companies.
EquityZen has two subsidiary affiliates:
- EquityZen Securities LLC, a broker-dealer that is registered with the Financial Industry Regulatory Authority, which acts as placement agent for transactions on the Platform.
- EquityZen Advisors LLC (“EZA”), an investment adviser that is exempt from registration with the Securities and Exchange Commission. EZA manages and exercises investment discretion with respect to certain pooled investment vehicles (“Discretionary Funds”).
The Discretionary Funds, like the Platform Funds, invest in privately placed securities, primarily pre-IPO securities of private companies available on the Platform. Investors in Discretionary Funds are referred to as Discretionary Fund Investors.
An investor may be both a Discretionary Fund Investor and Platform Investor.
EquityZen and its affiliates believe that investment opportunities must be allocated among Platform Investors, and among Discretionary Funds and Platform Funds on the Platform in a fair and equitable manner with no individual, group, or client being favored or disfavored over other individuals, groups, or clients. At the same time, EquityZen’s allocation policy must take into account the nature of the private, pre-IPO investment opportunities on the Platform and the practicality of adopting and implementing any particular allocation methodology. Due to constraints on the number of investors in an investment vehicle under various exemptions under applicable law that may be relied upon by Platform Funds and/or Discretionary Funds, other capacity constraints that may relate to specific investment opportunities, and other factors, pro rata allocations to Platform Investors or Discretionary Fund investors are often infeasible.
To (i) ensure the fair and equitable allocation of investment opportunities between and among Platform Funds (and Platform Investors) and Discretionary Funds and (ii) avoid and/or mitigate possible conflicts of interest, EquityZen has established the following allocation policies relating to investment opportunities available on the Platform (“Platform Investment Opportunities”) in which a Discretionary Fund makes an investment commitment.
- Certain employees of EquityZen participate in preparing and/or reviewing email distributions regarding Platform Opportunities (the “Investor Email”), and otherwise will have knowledge of Platform Investment Opportunities before such information is given to Platform Investors. In addition, one or more of those EquityZen employees are, or in the future will be, members of the investment committee of one or more Discretionary Funds. To avoid any conflicts of interest related to such prior knowledge, and given the anticipated difficulties of implementing a pro rata allocation methodology for pre-IPO securities, EquityZen will generally allocate all investment opportunities to the fullest extent possible on a first-come, first-served rotational basis based on the order in which a commitment to an opportunity was made. Any Platform Investor or Discretionary Fund that is closed out of a particular opportunity to invest in a security will be rotated in to the next allocable opportunity in that investment. In evaluating which Discretionary Fund or Platform Investor is allocated a particular Platform Investment Opportunity at a given time, EquityZen may also take into account such factors as historical investments, fairness to other investors on the Platform, the interests and investment objectives of a particular investor, available investment capacity, proposed investment size, whether an investor has transacted previously with EquityZen, an investor’s ability to transfer funds from an EquityZen investor account or otherwise comply with timing requirements determined by EquityZen Securities LLC, and other timing considerations with respect to the particular investment (such as the ability to close on any particular investment within a given time frame) (“Additional Factors”).
- If a Platform Investment Opportunity does not close on the entire contemplated amount, allocations to investors in that transaction, whether Platform Investors or Platform Funds, shall be made to interested investors on a first-come, first-served rotational basis based on the order in which a commitment to an investment opportunity was made.
- A Discretionary Fund shall not commit to an investment in a Platform Investment Opportunity in order for such Platform Investment Opportunity to achieve a required minimum in order to proceed.
- Where a Discretionary Fund has committed to a Platform Investment Opportunity within the final 3 days of its being open for investment, such Discretionary Fund’s investment committee or similar authority must explain in writing its basis for making the investment or otherwise demonstrate that the commitment was not made for the purpose of achieving a commitment minimum.
- If multiple Discretionary Funds with the same investment strategy, or overlapping investment strategies, seek to invest in the same Platform Investment Opportunity:
- Multiple Discretionary Fund investments may be accepted in the requested investment size for each Discretionary Fund if the total available Platform Investment Opportunity size permits.
- If the available Platform Investment Opportunity size is less than the total requested investment size for all Discretionary Funds seeking an investment, the Platform Investment Opportunity shall be allocated to each Discretionary Fund based on the rotational and criteria-based methodology set forth above in good faith, including the Additional Factors.
- In making allocations, the investment committee shall not allocate between Discretionary Funds on the basis of fees paid, the availability of carried interest, performance relative to an applicable high-water mark, if any, or the presence or absence of any affiliated investors, or the relative size of affiliated investments in the Discretionary Fund.
- Discretionary Funds and Platform Investors shall be treated equally and consistently with each other. As stated above, all Platform Investment Opportunities shall be allocated on a rotational basis to Discretionary Funds and Platform Investors, i.e., based on the order in which a commitment was made. Such allocation priority is consistent with the priority allocated to Platform Investors.
- A Discretionary Fund that commits to an oversubscribed Platform Investment Opportunity shall be treated like any other Platform Investor with respect to a wait list, unallocated or partially allocated demand, or other similar procedure, including any opportunities to subscribe to a subsequent fund prior to the Investor Email.
- Platform Investment Opportunities with a waitlist, or which are expected to be oversubscribed, may be allocated to Platform Investors and/or Discretionary Fund Investors in an order determined by the date of their completed reservation, generally on a first-come, first-served rotational basis, subject to the Additional Factors (described above).
- Deviation from these Allocation Policies, on a case-by-case basis, is permitted. However, any such deviation must be fair and equitable and documented in writing (including the methodology actually used).
- These Allocation Policies shall be disclosed prominently (i) on EquityZen’s website, (ii) in the offering documents of each Platform Investment Opportunity, and (iii) the offering documents of each Discretionary Fund.
- With respect to Discretionary Funds that have closed prior to the adoption of these Allocation Policies and whose investment periods have not yet expired, a written notification of these Allocation Policies shall be provided to all investors in such Discretionary Funds.
* Eligibility, as it applies to Platform Investors and Discretionary Fund Investors means, at a minimum, meeting the criteria necessary to be deemed an “accredited investor” as defined in Regulation D under the Securities Act of 1933, as amended, as well as such other eligibility criteria imposed by EquityZen or its affiliates with respect to products on the Platform. Those criteria may include additional eligibility criteria related to “qualified purchasers”, “qualified clients” or other categories of investors under applicable securities laws, as applicable to a particular investment opportunity. Eligibility shall also include any applicable know-your-customer, anti-money-laundering, investment suitability or other requirements applied by EquityZen or its affiliates in its sole discretion.