Definition

Single-Stock Concentration Risk

The financial risk arising from holding a disproportionate percentage of net worth in a single company's equity. In public markets, financial advisors universally recommend diversification to avoid this risk. In private markets, founders, early employees, and early investors are structurally forced into extreme single-stock concentration - their equity cannot be easily sold, the company's prospects are opaque, and the holding period can extend a decade or more. Greg Brogger's data makes the risk concrete: only 38% of US Series C companies from 2010-2015 had produced shareholder value a decade later. An employee with 90% of their net worth in a single Series C company faces a 62% chance that the wealth never materializes. The typical Collective recommendation is to exchange 15-20% of shares to create a floor, preserving most upside while eliminating the all-or-nothing exposure.

From the episode “Turn Illiquid Equity Into Real Wealth”

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Turn Illiquid Equity Into Real Wealth

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