Are Small Stakes in Private Companies Worthless?

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Having a minority stake in a private company is awesome since you can sell it at a high valuation and get super rich.

Wrong.

The situation is understandable and easy as 2×2: you end up having a minority stake in a small business (typically established by friends or family) in exchange for the investment you made. As the company grows, so does your investment.

But when you have a small minority stake in a company you don’t really control much: you can’t sell it instantly whenever you please.

You don’t control the cash flow.

You are not in a position to decide where the money goes.

You are not on top of budgets and do not have the final voice who gets paid how much, and when.

Minority investors take a substantial risk when they take an equity position in a private company. The rights that you have as a minority shareholder are very limited, and in the absence of a solid shareholder agreement, your rights are close to non-existent.

But it’s crucial to know how to maximize the value of your stake in a private company so that it’s not worthless. Here are a few things what you can do to maximize the value of your minority stake, and the actions that protect your position:

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