The Risk You Are Already Taking

The Conventional Wisdom

If you hold a meaningful equity position in a late stage private company, whether as a founder, current or former employee, early angel or later stage investor, the conventional advice is straightforward, be patient, wait for the IPO, let the value compound.

This sounds prudent. It feels like the conservative choice. You are not selling at a discount, not triggering taxes, not giving up upside. You are simply holding what you have earned or invested.

But there is a question worth asking, is doing nothing actually the low risk option?

The Position You Already Hold

Consider what "hold and wait" really means on your personal balance sheet.

If your private equity represents a meaningful share of your net worth, you are already running a large, concentrated position in a single, illiquid name. In many cases, it is not just your largest asset, it is the one that dominates your financial future, which is the part most people prefer not to examine too closely.

This is not a criticism. Concentration is often how wealth is built. But the fact that concentration was required to get you here does not automatically mean that the same posture remains optimal once meaningful value has been created.

A few realities are worth stating plainly:

Private company valuations are volatile, even when they do not appear to be.

The absence of daily price quotes hides volatility, it does not remove it. A funding round every 18 to 24 months, plus internal 409A marks, does not capture the full range of scenarios the business might travel through in between. Anyone who has watched a similar company move from private round to IPO to first year of trading has seen how violently valuations can move, in both directions; they can reset by 30, 50 or 70 percent in a single event.

The path to liquidity is uncertain.

IPO windows open and close. M&A activity comes in waves. A company that looked "18 months from IPO" in one regime can suddenly find itself three or five years away in another. That is not a judgment on the quality of the business, it is a function of capital markets that you do not control. The fact that you do not see a price every day does not mean the outcome space is narrow or predictable.

If you are no longer at the company, the uncertainty compounds.

You may have less information than current insiders, less visibility into strategy, and less ability to influence outcomes. Your exposure remains, but your line of sight is lower.

When liquidity does arrive, you are not first in line.

In an IPO or sale process, banks, syndicate desks, new investors and the company itself typically shape the initial outcome. Short term traders and new shareholders will express their views in the market well before long term holders waiting for a lock up to expire can act. Your ability to fine tune timing is limited.

None of this is news to sophisticated shareholders. But the implication often goes unspoken. If you choose to hold and do nothing, you are not avoiding a decision, you are making a specific bet, that the company will perform, that the market will cooperate, and that the timing will work in your favor.

That bet may be correct. But it is a bet nonetheless.

Your Three Real Options

Once you recognize that "doing nothing" is an active choice, your situation simplifies to three basic paths:

1. Hold everything

• Keep 100 percent of the upside and 100 percent of the downside.
• Accept full exposure to valuation swings and timing risk.
• No liquidity today, no change to your tax picture.

2. Sell shares

• Convert part of the position to cash.
• Trigger immediate taxes on the amount sold, often 37 to 45 percent for many shareholders in high tax jurisdictions.
• Forfeit all future upside on the shares you sell.

3. Use a low LTV, non recourse facility

• Borrow against a conservative slice of the position, often around 10 percent of current value, while keeping the full equity stake.
• Accept a defined, annual cost of capital on that slice.
• Structure your obligation so that it is limited to pledged shares, not your broader balance sheet.

Most shareholders focus on the first two choices and overlook the third, in part because many of the hedging tools used in public markets simply do not exist for private stock.

The Cost of Actual Hedging

In public markets, investors with concentrated positions have a toolkit. They buy put options. They implement collars. They diversify into uncorrelated assets. Over time, these tools help them keep more of the upside while limiting the worst case.

For private company equity, these tools are largely unavailable.

You cannot buy a listed put option on restricted shares in a late stage private company. There is no deep options market for pre IPO equity. The instruments simply do not exist.

Collars and other structured products depend on liquid underlying securities and the ability to transact continuously on both sides. For restricted private stock, neither condition is met.

Secondary sales provide liquidity, but not hedging. When you sell into a secondary, you are exiting part of the position, often at a meaningful discount to the headline valuation, and you are triggering immediate tax consequences. You are changing your exposure by giving up upside, not by installing a floor under part of the position.

In practice, this leaves most shareholders with a binary choice, hold everything and hope, or sell and accept the tax and opportunity cost.

There is, however, a third way to think about the problem.

A Third Option

Instead of trying to engineer a theoretical hedge that the market does not offer, you can change the shape of your own balance sheet.

One way to do this is through a low loan to value, non recourse facility, such as those provided by Bedrock Bridge Capital, secured solely by a portion of your private stock and repaid at a future liquidity event.

In a structure like this, you might:

• Take a facility sized at roughly 10 percent of the current value of your position.
• Pledge an agreed number of shares as collateral, with no personal guarantee.
• Pay a fixed rate of interest on the drawn amount.
• Repay the facility out of proceeds when a qualifying IPO or sale occurs.

If the company performs well and the valuation at exit is higher than today, the facility is repaid out of a small slice of the upside and you keep the balance. You have enjoyed liquidity along the way without selling shares, and your remaining equity participates fully in the upside.

If the company underperforms and the valuation at exit is lower, the structure works differently. Because the facility is non recourse and low LTV, your maximum obligation is limited to the pledged shares. The lender takes first loss within that pledged pool. You do not face margin calls. There is no personal recourse to your other assets.

In effect, the non recourse structure installs a floor under a slice of your exposure. A portion of the position is converted into cash in your hands today. The rest of the position remains fully exposed, but your worst case outcome on the pledged portion is defined in advance.

You are still a long term holder. You are still aligned with the company. But you have changed the shape of your risk.

The Arithmetic of Protection

The cost of this structure is the interest on the facility, typically in the high single digit to low double digit range annually on the advanced amount, depending on the specifics of the situation and the company.

Consider a typical Bedrock style facility sized at 10 percent of a position.

For a shareholder with a 10 million dollar position in private stock, a 10 percent facility would advance 1 million dollars. At a 9 percent annual rate for illustration, the cash cost is approximately 90,000 dollars per year.

Importantly, that 90,000 dollars is:

• Paid on the 1 million dollars advanced,
• Equivalent to roughly 0.9 percent per year on the full 10 million dollar equity position.

Viewed on the scale that actually matters, your total balance sheet, you are paying on the order of 90 basis points per year to:

• Unlock 10 percent of the position in cash today, and
• Install a conservative, non recourse structure around that slice of your downside.

Compare this to the alternatives:

Selling 1 million dollars of stock

• Triggers immediate taxes that might range from roughly 370,000 to 450,000 dollars, depending on jurisdiction and character of gain.
• Permanently forfeits any future appreciation on those shares.

Buying actual downside protection in public markets

• Where listed options exist and liquid collars can be structured, the implied cost of sustained protection on volatile equities can easily run 15 to 25 percent annually on the protected notional once you account for real world pricing and opportunity costs.
• If a comparable market existed for private stock, the theoretical cost of similar protection would likely be higher still, given the additional illiquidity and event risk.

For a 10 million dollar position over one year, simplified for illustration:

Sell 1 million

• Pay 370,000 to 450,000 dollars in taxes.
• Lose all upside on the 1 million sold.

Use a Bedrock style facility on 1 million at 9 percent

• Pay 90,000 dollars in interest.
• Keep upside on the full 10 million, with liability limited to pledged shares.

Viewed through this lens, 9 percent annually on 10 percent of the position is not just an "interest rate," it is the price of a hedging structure that does not otherwise exist for private stock. For shareholders whose plan is to hold through a liquidity event in any case, that price is materially less than the implicit cost of remaining fully exposed while having no tools to shape the downside.

What This Is Not

It is important to be clear about what this kind of structure is not.

It is not a recommendation to maximize leverage against your equity or to borrow against every available dollar of value. Facilities sized aggressively, at high loan to value ratios, can amplify risk rather than contain it. The point here is the opposite, modest sizing and non recourse design are central to the protective logic.

It is not a prediction about your company's prospects. No lender, and no shareholder, can know with certainty how markets will value a particular business at a particular point in time. A well designed facility is built to be robust across a range of outcomes, including the ones you consider unlikely but cannot rule out.

It is not tax advice. The specific implications of any transaction depend on your jurisdiction, your holding period, the character of your gains and other personal circumstances. The only observation in this note is that for many shareholders, the all in cost of capital on a small, conservative facility compares favorably to the tax cost of selling outright. Your own situation may differ.

It is also not a substitute for diversification where diversification is possible. Over time, many shareholders will choose to gradually rebalance once liquidity is available. A well structured facility does not remove that choice, it simply gives you more control over when and how you start that process.

Finally, it is not a way to avoid thinking about risk. If anything, it is a prompt to think about it more clearly. The shareholders who tend to navigate volatility most successfully are often the ones who have done some planning in advance, rather than reacting under pressure when a window opens or closes suddenly.

The Framework

When you evaluate your own position, three questions are worth considering:

1. What percentage of your net worth is concentrated in this single position?

The higher the concentration, the more your financial future is tied to outcomes that are partially outside your control. At some point, the incremental benefit of additional upside is outweighed by the impact that a severe downside scenario would have on your life. That is the range where a partial hedge may be worth considering.

2. What is your realistic time horizon to liquidity?

If an exit or IPO seems likely in the near term and market conditions are favorable, the value of a facility may be more about tactical flexibility than long term protection. If the timeline is uncertain, or if you have already watched one or two anticipated windows pass by, the value of locking in some realized value today increases.

3. What would a 50 percent decline in valuation mean for your financial life?

This is not a prediction, it is a stress test. If a halving of the paper value would be uncomfortable but tolerable, you are in a different position than someone for whom that outcome would meaningfully alter long term plans. The more painful the downside would be, the more a small, defined cost of partial protection may be worth weighing.

These are not questions with universal answers. But they are the right questions to ask.

This document is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any security or to enter into any lending transaction. Any decision to transact should be made based on a detailed review of the specific terms and in consultation with qualified tax, legal and financial advisors who understand your particular circumstances.