When people ask me about the differences between investing in private companies versus public companies, I often say that you could almost write an entire book on the subject.
The two worlds are fundamentally different, not only in terms of risk but also in terms of the return potential they present.
On the surface, public markets look safer. You have liquidity, transparency, and daily valuations that are widely available.
With private markets, the risks are far greater, but so are the opportunities, especially at this moment in time when AI is presenting a significant opportunity to invest in the fast-growing future of seemingly everything.
The risk equation
When I think about private investments, the first thing I focus on is the stage of the investment.
Early-stage venture capital can offer incredible upside but comes with the highest likelihood of losing everything. That’s why I spend more time on late-stage venture capital.
Businesses that already have meaningful traction, backing, and adoption such as SpaceX, Anduril, Stripe, Databricks, and Anthropic, are the kinds of names I typically reference.
Not that late-stage deals are risk free. Liquidity remains a major issue. You might think a company is on track to go public or have a liquidity event in a few years, only to find that 10 years later, it’s still private.
Volatility is another factor. Unlike in public markets, you don’t see the daily price swings, which is psychologically helpful, but the underlying risk of total loss is very real.
Another underappreciated risk is transparency. With public companies, you can read quarterly reports and earnings releases. In the private space, information is far more limited. In most cases, I only see what a company announces when they do a raise or when a large investor like Google or Amazon backs them. That gives me confidence, but it’s still a leap of faith.
risks include regulatory shifts, especially in sectors like AI where political support today might turn into skepticism tomorrow, and capital intensity. For example, companies in AI are burning through money at a staggering pace.
The return potential
That said, I firmly believe we are in a once-in-a-generation moment right now, especially with artificial intelligence.
At the start of 2024, I wrote that I expected AI to become a household name by 2025 and widely used by 2026. In reality, we’ve already reached that point, far ahead of schedule.
This is why I often compare today’s private investment opportunities to being able to buy into Google, Amazon, or Microsoft before they were public. The growth potential is enormous.
We’re not just talking about AI applications themselves but also the infrastructure, the “picks and shovels” that will power AI’s expansion.
Many companies, while not pure AI plays, are embedding AI into virtually everything they do and these types of investments represent diversification away from public markets and exposure to high-growth sectors that are shaping the future.
There’s also a certain prestige to being part of these deals. For high-net-worth investors, being able to say you’ve invested in a cutting-edge private company is part of the appeal.
Are we in a bubble?
The obvious comparison to today is the dot-com era of the 1990s.
Back then, money poured into tech companies, valuations skyrocketed, and eventually the bubble burst. I believe we are heading down a similar path with AI.
In my opinion, we aren’t at the bubble’s peak yet. We’ll know we’re there when we see true mass greed, when everyday people start quitting jobs to chase AI investments.
When that moment arrives, it will be ugly. But between now and then, I believe the growth will be dramatic. Having lived through multiple cycles in my 35-year career, I’ve learned the importance of knowing when to take some chips off the table and have dry powder ready.
Diversification and strategy
For anyone interested in private investing, diversification remains key.
Even within private deals, I advise spreading investments across eight to twelve companies over a year or two. That way, even if one fails, you’re not entirely exposed.
I also look at investments through what I call a “bucketing” strategy.
For example, in bucket three – those assets you won’t need for 20 years – you can afford to allocate a meaningful percentage to higher-risk, higher-reward private deals. That allocation will vary by client, but the philosophy remains: invest only what you can lock up for the long term and tolerate losing if it comes to that.
Who should consider private investments?
From my perspective, these opportunities are best suited for investors who:
- Have a long-term investment horizon.
- Can tolerate illiquidity.
- Have the risk tolerance for potential losses.
For these individuals, private investing – especially especially in late-stage venture capital – can offer extraordinary upside.
Private investments are not for the faint of heart. They carry higher risks, less transparency, and often higher costs. But in exchange, they offer the potential for life-changing returns and access to innovation before the rest of the world sees it.
I truly believe we are living through a rare moment in history with artificial intelligence and related technologies.
For the right type of investor, this is a chance to participate in something that may one day be viewed in the same light as getting in early on Apple or Amazon.
The key is to remain disciplined, diversified, and realistic. The opportunities are there, but so are the risks and knowing how to balance the two is what makes private investing both challenging and rewarding.
