There are several differences between investing in a private market like venture capital and public markets. For exampe, the former is less liquid and features much wider bid ask spreads due to this lower liquidity.
However, I think the biggest difference is the availability of information to investors. Specifically, public markets require that companies make available the same comprehensive information equally to all investors. Private markets, in contrast, don’t.
In private markets, companies choose what information to share with investors and can choose to share different amounts of information with different investors.
In addition, different investors have access to different amounts of information that isn’t shared by the company. This depends primarily on the investor’s network of relationships with parties like the company’s current and former employees, customers, suppliers, and other investors. The wider and the more relevant the network that the investor leverages, the more comprehensive information they’re likely to have.
Because private companies choose what information to share with investors, it’s important for private market investors to be trustworthy, helpful, and kind in order to receive this information.
And because there will still remain information that isn’t shared by the company, it’s important for investors to have and seek the input of a wide and relevant network to fill in the gaps.
Also published on Medium.