Finally an Option for Early Escrow Liquidity

VCs understand the reality that when we exit a portfolio company, a portion of the consideration is virtually always tied up in escrow for one to two years.  We hope that it is all eventually paid out, but sometimes it’s not and that’s difficult to plan for.

What if we could sell escrow interests at a discount, accelerating the payout and avoiding unpredictable losses?  That could help a VC redeploy the cash immediately, close out an end-of-life fund, or even improve IRR by receiving the consideration earlier.

That option is now available through an innovation called SRS EscrowExchange, which is a financial product designed to allow shareholders to convert illiquid escrow holdings to cash by selling their interests.  SRS | Shareholder Representative Services is using SecondMarket’s secure auction platform for the product, which gives sellers the opportunity to set their own offer price.

This is a major innovation for the private company M&A market.  It’s also one more great reason to engage SRS as the professional shareholder representative when selling your company, because the product is only available for select deals where SRS is the shareholder rep.

You can view the full press release here.

  • Awesome. Makes total sense.

  • It will  be interesting to see how this is received.  The uncertainty of escrows is so situation-specific that it would be hard to value.  The existence of SRS in the role of shareholder representative helps, but management of the selling company must have a motivation to fight any claims by the buyer for escrow.  Who would fight the seller if the buyer sold their interest?

    • Anonymous

      It is a good point. I think the idea is that even if management sells, the fund could hire them back to help.

      Sent from my iPad