“Tie your entire net worth to one private company.” - Said no financial advisor ever
For many technology employees, compensation in the form of private company stock can significantly influence future financial plans.
Restricted stock, stock options, and other forms of private company equity often represent the single largest component of an employee’s net worth. And while that can be incredibly rewarding if the company succeeds, it also creates a concentration risk that most financial professionals would caution against.
In fact, many financial advisors may caution against concentrating a significant portion of assets in any single company. Yet that’s exactly the position many private-company employees find themselves in today: highly concentrated, illiquid and exposed to risks that are often outside their control.
Concentration risk is more common than you think
A recent Forge Global survey of shareholders1 who sold private shares through Forge or another private securities marketplace highlights just how top-of-mind this issue has become. More than 50% of respondents cited “diversification” as their number one reason for selling a portion of their private company equity.
That insight is telling. These are not shareholders exiting positions entirely or losing confidence in their companies. Instead, they are making a deliberate choice to reduce risk by rebalancing their personal balance sheets, often for the first time.
The hidden risks of not diversifying
Holding a significant amount of private company equity can feel like a vote of confidence in your employer, and it is. But confidence doesn’t eliminate risk. Some of the most common challenges employee shareholders face include:
1. Single-company exposure
Your income, benefits and equity value may all be tied to the same company. If the business faces headwinds, whether from market conditions, competitive pressure, regulatory changes or delayed liquidity events, you may feel the impact on multiple fronts at once.
2. Illiquidity
Private shares are not freely tradable like public shares. Liquidity events such as IPOs or acquisitions can take years longer than expected or may not happen at all. In the meantime, your net worth may be “on paper” but unavailable for life priorities like buying a home, funding education or building a more diversified investment portfolio.
3. Valuation risk
Private company valuations can fluctuate significantly between funding rounds, and down rounds do happen, even to strong companies, in challenging market environments. When your wealth is concentrated in a single private asset, volatility can have an outsized effect on an investment portfolio.
4. Personal timing mismatch
Your financial goals may not align with your company’s liquidity timeline. Life events don’t wait for IPO windows.
Diversification isn’t about losing belief, it’s about managing risk
Diversifying doesn’t mean walking away from upside or signaling a lack of faith in your company’s future. It means recognizing that financial planning involves balance.
Public-market investors rebalance portfolios all the time. Founders and executives can plan partial liquidity well before an IPO. Employee shareholders deserve access to the same kind of financial tools.
Selling a portion of private equity may help shareholders:
- Reduce extreme concentration risk
- Convert some holdings into cash if a transaction occurs
- Build a more diversified portfolio
- Increase financial flexibility depending on individual circumstances
Why employee shareholders are turning to Forge
Forge Global provides a marketplace where eligible private company shareholders may seek liquidity, subject to company transfer restrictions and market interest. Through Forge, eligible employee shareholders can explore opportunities to sell a portion of their vested shares, on their terms, without waiting for a company-driven liquidity event.
For many shareholders, Forge serves as a way to:
- Explore opportunities to reduce concentration risk while maintaining some exposure to the company
- Align personal financial planning with real-world needs
- Make thoughtful, advisor-informed decisions about private equity
As the Forge shareholder survey shows, diversification is already the leading motivation for private equity sales. That trend reflects a broader shift: employee shareholders are increasingly treating their equity not just as compensation, but as part of a holistic financial strategy.
A balanced approach to the equity you’ve earned
Your equity reflects years of commitment, but concentrating your financial future in a single asset can introduce meaningful risk. Accessing liquidity through the secondary market may offer a way to better manage that concentration while still retaining exposure to potential future outcomes. This approach can help you align your equity holdings with your broader financial goals without relying solely on one position.
Ready to explore your options?
Create an account to discover how Forge can help you build a more resilient portfolio or learn more about how to sell your shares on our marketplace. And for the employee shareholders who already have an account with Forge, log in to review recent pricing and active market opportunities related your shares.
FAQs about why diversification matters
What exactly is concentration risk, and why should I be concerned about it?
Concentration risk occurs when too much of your wealth is tied to a single investment, in this case, your employer's stock. For many tech employees, private company equity represents the largest portion of their net worth. This creates vulnerability: if your company's valuation declines or fails to meet expectations, your financial security could be severely impacted, regardless of your job performance or career success.
What are the practical benefits of diversifying my private equity holdings?
Diversification can help manage the risks that come with holding a large position in a single private company. Converting a portion of your private equity into cash or other assets may provide resources for personal financial needs such as major purchases, education expenses, or building a financial cushion. It can also contribute to a more balanced overall portfolio while allowing you to retain exposure to your company’s potential future performance through remaining shares.
Does diversifying my equity holdings signal that I don’t believe in my company’s future?
Diversification is a widely used risk‑management practice and is not an indication of doubt in your company’s prospects. Even strong, high‑performing companies can experience market shifts and uncertainty. Adjusting your equity mix by converting a portion into other assets can be a way to address personal financial considerations while still retaining exposure to your company’s potential future performance. This approach focuses on managing concentration risk rather than making a statement about the company itself.
When is the right time to consider diversifying my employee equity?
The optimal timing depends on your personal financial situation, but generally, it makes sense to consider diversification when your private equity represents a disproportionate share of your net worth, typically more than 10-20% of your total assets. Other triggers include major life changes, approaching financial goals, or when secondary market valuations are attractive. The key is having access to liquidity options so you can make these decisions on your timeline, not your company's.
