Investing in the equity of a private company carries risks you need to understand before you invest.
The main risks
- Total loss of capital: if the company fails, your shares may become worthless. A large share of young companies do not survive.
- Illiquidity: there is not always a buyer for your shares; you may stay invested much longer than planned.
- Dilution: later funding rounds reduce your ownership percentage.
- Information asymmetry: management always knows more than minority investors.
- Concentration risk: betting on a single company exposes your entire investment to its fate.
Thinking in portfolios
In private markets, returns are highly uneven: a few winners must make up for likely failures. That is why you should diversify across many companies, sectors and years.
Example: €10,000 split into 10 positions of €1,000. Six companies fail (€0), three return the initial stake (€3,000) and one is sold at ten times its entry value (€10,000). The portfolio is worth €13,000, even though most positions lost money.
Rules of prudence
- Only invest money you can afford to lose.
- Cap the share of private companies in your overall wealth.
- Keep an emergency fund available on the side.
Key takeaway: you don't eliminate private-market risk — you size it and you spread it.