When a portfolio company in a fund or SPV goes public, shares received by the fund as part of the exit are often restricted or subject to lock-up periods, which prevent immediate transfer or sale. Once these restrictions are lifted, the fund lead decides whether to liquidate the shares and distribute cash proceeds or offer LPs the option to receive the shares in-kind.
If the fund lead opts to offer an in-kind distribution, LPs are notified via email at the address linked to their AngelList account. The email includes instructions for completing the election process, which takes place on the AngelList platform. LPs can choose between two options: receiving cash from the liquidated shares or taking ownership of the shares in-kind. Those who choose the in-kind option must submit brokerage account details registered under the name of their investing entity. This ensures that the shares can be transferred accurately and securely. LPs must complete their election within the specified timeframe, as missing the deadline may result in an automatic default to cash distribution, depending on the GP’s policy.
LPs should carefully consider several factors before making their election. Receiving shares in-kind may carry different tax implications compared to a cash distribution, so consulting with a tax advisor is recommended. Additionally, LPs opting for shares in-kind must ensure their brokerage account is active, properly set up under their investing entity, and capable of receiving shares. Market conditions can also influence the decision, as share values may fluctuate after the lock-up period ends.
The decision to liquidate or offer an in-kind option ultimately rests with the fund lead, and AngelList facilitates the process by providing timely notifications and an efficient platform for LPs to make their elections.