Private vs. Public Company Equity

The core distinction

When a company is public, the stock price is visible and updated continuously. Selling is generally possible once trading restrictions are lifted. Value is observable.

When a company is private, none of that is guaranteed. The shares may have significant paper value and no available market to sell them. That gap between value on paper and the ability to realize it is the defining characteristic of private-company equity.

Valuation in private companies

In a public company, the market price provides a clear reference point at any given moment. In a private company, value is typically estimated - based on a recent funding round, an internal 409A valuation, or similar reference points. Those figures are useful, but they are not the same as a price at which you can actually sell.

That distinction matters for planning. An equity grant that looks valuable based on a recent funding round may or may not reflect what the shares would actually yield in a sale or liquidity event.

Liquidity and what it affects

Public-company equity can usually be sold once applicable trading windows and lockup periods have passed. That makes decisions about diversification, tax funding, and concentration at least possible - you have the ability to sell even if you choose not to.

Private-company equity often cannot be sold at all until a liquidity event occurs - an acquisition, an IPO, or a secondary transaction, if one is available. That constraint changes the nature of every planning question. Decisions that would be straightforward with liquid shares become more complicated when selling is not an option.

Tax funding without liquidity

One of the more difficult aspects of private-company equity is that tax obligations can arise before any liquidity is available to fund them. An 83(b) election, an ISO exercise that creates AMT exposure, or vesting of RSUs in a private company can all create taxable income without a corresponding ability to sell shares to cover the tax.

In those situations, the tax funding question has to be answered from other resources - cash reserves, other income, or a loan in some cases.

Concentration risk

In a private company, concentration often cannot be addressed even when the risk is clear. The position grows as more equity vests, and there may be no mechanism to reduce it until a liquidity event occurs.

In a public company, the opposite problem is more common. Concentration can be reduced, but employees often delay - sometimes because the upside story is still compelling, and sometimes because of the emotional attachment that comes with having built something.

Both situations warrant attention - one because the option to act may not exist, the other because the option to act often goes unused.