The Cost of Capitulation (Don't Be a Forced Seller)

The Cycle of Liquidity

Markets move in cycles. This is the first rule of investing.

In a boom, liquidity is free. Capital is abundant. Buyers chase sellers. The "price" of liquidity is zero (or negative) because investors are eager to part with their cash to acquire assets.

In a downturn, liquidity is expensive. Capital is scarce. Sellers chase buyers. The price of liquidity skyrockets.

We are currently in a cycle where private market liquidity is expensive. The secondary market is demanding a "fear premium" of 20 percent to 40 percent to take your shares. When you sell today, you are validating that price.

You are telling the market that you value immediate cash more than you value the asset you spent years building.

The Definition of a Forced Seller

In my experience, the greatest losses in investing do not come from buying at the top. They come from selling at the bottom because you have to.

A "forced seller" is anyone who cannot afford to wait. In the public markets, this happens during a margin call. The bank sells your position at any price to cover the loan.

In the private markets, the mechanism is slower but identical. You have a tax bill. You have a home purchase. You have a need for cash. Because you have no other source of liquidity, you turn to the secondary market.

The secondary market knows this. It is designed to harvest value from people who cannot wait. The discount they charge is not a reflection of the company's quality. It is a reflection of your lack of optionality.

When you accept a 30 percent discount, you are voluntarily acting like a distressed asset.

The Illusion of "Fair Market Value"

Shareholders often look at the secondary bids and assume that is what their shares are "worth."

This is a mistake. Price is what you pay. Value is what you get.

If a company is fundamentally sound, growing revenue, and approaching profitability, its intrinsic value is compounding. The secondary price is merely the clearing price for liquidity today.

If you sell, you are transferring that compounding value to the buyer. You are giving them the "equity risk premium" that you earned through your labor.

The buyer is not doing you a favor. They are buying a dollar for seventy cents. They are betting that they can wait longer than you can.

The Bridge Metaphor

This brings us to the core philosophy of our firm. We named it "Bedrock Bridge" for a specific reason.

In a liquidity cycle, there is a valley between where you are (illiquid private wealth) and where you want to go (full public value). Right now, the valley is deep. The secondary market asks you to climb down into the canyon, sell your shares at the bottom, and walk away.

A bridge allows you to cross the valley without descending.

A credit facility is that bridge. It does not change your destination. You still aim for the IPO or the M&A event. But it allows you to cross the gap of illiquidity without accepting the distressed pricing of the secondary market.

It allows you to monetize your asset based on its collateral value, not its liquidation value.

Be the One Who Holds

We have covered a lot of ground in these memos. We have discussed the risks of concentration. We have calculated the tax drag of selling. We have looked at the trap of the lockup period and the fragility of QSBS.

It all leads to this single conclusion.

You have built a "Bedrock" asset. You own equity in a company that defines its category. Do not sell it at a "distressed" price just because you need cash.

Use your balance sheet to span the gap. Use structure to preserve your optionality. Be the one who holds, not the one who folds.

The cycle will turn. Liquidity will become abundant again. And when it does, the rewards will go to those who were able to wait.