For those not aware, an exchange fund in this regard is exactly what it sounds like: company founders are given the option to give up a small piece of the stock they own in their venture in exchange for a piece of the action of the larger pool of all the First Round portfolio companies that choose to participate. Basically, this allows these entrepreneurs to diversify their own holdings without having to sell any stock. More importantly, it lowers their risk of walking away with nothing while adding an incentive to see other companies in the portfolio succeed.
via techcrunch.com
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