The Risk You Are Already Taking

The Conventional Wisdom

In my last memo, I wrote about the "Wealth Paradox" how the builders of our best companies are often trapped in illiquidity because the financial system ignored them.

Because you were trapped for so long, you developed a habit. You learned to wait. You learned to view "doing nothing" as the prudent, conservative choice.

But now that the tools exist to unlock that value, we need to re-examine that habit. Is "holding and waiting" actually conservative?

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. Synthetic Liquidity (The "Put" Option)

• Separate the economic exposure from the legal ownership.
• Use a non-recourse structure to monetize a portion of the asset today while retaining the option to profit later.

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.

The Third Option

This leaves a third path, one often used by family offices but rarely accessible to employees: Non-Recourse Liquidity.

In this structure, you don't sell the asset. You monetize its volatility. By borrowing against a small portion of the equity (typically 10%) on a non-recourse basis, you effectively buy insurance.

If the stock goes to zero: You walk away. You keep the cash. The lender absorbs the loss.

If the stock doubles: You repay the loan and keep the difference.

This is not "debt" in the traditional sense; it is a synthetic put option. You are paying a premium (the interest rate) to eliminate the tail risk of a total loss on that portion of your wealth.

Why hasn't everyone done this? Historically, banks wouldn't offer this to anyone without a nine-figure balance sheet. It requires deep underwriting of private assets that most wealth managers simply cannot do.

At Bedrock, we built our firm specifically to bring this institutional structure to the builders of these companies. But whether you solve this through us or another provider, the logic remains the same: Concentration is wealth creation; diversification is wealth preservation.

At some point in your journey, you must switch modes.

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.