When Your Entire Net Worth Is Trapped in One Company
by Malik Amine
Key Takeaways
- Having 80%+ of your net worth in a single illiquid company is one of the highest-risk financial positions you can be in.
- Diversification isn't about being pessimistic. It's about making sure a bad outcome doesn't wipe you out completely.
- For pre-IPO founders, options include secondary market sales, exchange funds, and prepaid forward contracts. But each has tradeoffs.
- For post-IPO or post-acquisition founders, a 10b5-1 plan is the standard way to systematically diversify.
- The emotional attachment to your own company is real. But your finances shouldn't run on emotion.
The Most Common Financial Risk I See
I work with a lot of founders, and there's one pattern that comes up more than any other. Their entire net worth is tied to one thing: the company they built.
On paper, they might be worth $5 million, $10 million, even more. But it's all in equity. Private, illiquid equity that they can't sell, can't borrow against easily, and that goes to zero if the company fails.
I understand why this happens. You started the company. You believe in it. You poured years of your life into it. Selling shares feels like a lack of confidence. And in many cases, there literally isn't a way to sell until a liquidity event happens.
But here's the reality. According to a study by Longboard Asset Management, 40% of all stocks in the Russell 3000 have suffered a permanent decline of 70% or more from their peak value. That's public, diversified companies. Private startups fail at an even higher rate.
Having everything in one basket isn't a strategy. It's a concentrated bet.
What Concentrated Risk Actually Looks Like
Let's make this concrete. You're a founder with a $2 million salary, $100K in a 401(k), and $8 million in company equity. Your net worth on paper is about $8.1 million.
But your liquid net worth, the money you can actually access and use, is $100K. Maybe $200K if you have some savings.
Now imagine the company hits a rough patch. A key customer leaves. A fundraise falls through. The valuation drops 50%. Your paper net worth just went from $8.1 million to $4.1 million, and you still can't access any of it.
Or worse. The company fails entirely. Your $8 million in equity goes to zero. You're left with your 401(k) and whatever cash you have.
This isn't a hypothetical. This is the actual financial situation of thousands of founders right now.
What You Can Do About It (Pre-Liquidity)
If your company is still private and you can't sell on the open market, your options are limited but they do exist.
Secondary market sales. Platforms like Forge, EquityZen, and Carta's CartaX allow shareholders to sell private company stock to accredited investors. The prices are usually at a discount to the last funding round, and your company needs to approve the transfer. But it's a way to take some money off the table.
Tender offers. Some companies run periodic tender offers where the company itself (or a new investor) buys shares from employees and early shareholders. If your company does this, seriously consider participating, even if it means selling at a lower valuation than you think the company is worth.
Exchange funds. These are investment vehicles where you contribute your concentrated stock position and receive a diversified portfolio in return. They're typically only available for publicly traded stocks, but some private market versions exist for later-stage companies.
Prepaid forward contracts. A financial institution gives you cash today in exchange for the future delivery of your shares. This is complex, expensive, and only makes sense for large positions. But it's an option if you need liquidity now.
What You Can Do About It (Post-Liquidity)
Once your company goes public or gets acquired and you receive liquid stock, the path is clearer.
Set up a 10b5-1 trading plan. This is a predetermined schedule for selling shares that you set up in advance. Because it's prearranged, it protects you from insider trading allegations. Most executives and founders at public companies use these.
The key is to start selling early and consistently. Not all at once, but not never. A common approach is to sell 10 to 20% of your position per quarter until you're at a level of concentration you're comfortable with.
What's a comfortable level? Most financial planning guidance suggests no more than 10 to 15% of your net worth in any single stock. That might feel extreme when it's your company. But the math doesn't care about your feelings.
The Emotional Side
Here's the part nobody wants to talk about. Selling your own company's stock feels like betrayal. Like you don't believe in the mission. Like you're signaling something negative to your team.
I hear this all the time. And I get it. But here's what I'd push back on.
Jeff Bezos sold billions of dollars of Amazon stock while still being the CEO. Mark Zuckerberg has sold Meta shares consistently for years. Elon Musk has sold Tesla shares. These are people who clearly believe in their companies. They also understand the difference between conviction and concentration risk.
Selling some stock isn't giving up. It's being smart. You can believe in your company and also protect your family from a worst-case scenario.
A Simple Framework
Here's how I think about it with the founders I work with.
What percentage of your total net worth is in one company? If it's over 50%, you have a concentration problem.
What would your life look like if that equity went to zero tomorrow? If the answer is "I'd be in serious trouble," you need a diversification plan.
How much would you need in liquid assets to feel secure for 2 to 3 years regardless of what happens with the company? Build toward that number first.
You don't need to sell everything. You don't need to diversify overnight. But you do need a plan that moves you from "everything in one basket" to "enough outside the basket that I'm okay no matter what."
Summary
Concentrated stock risk is the biggest financial vulnerability most founders face, and it's the one they're least likely to address because of emotional attachment. Whether your company is pre-IPO or post-exit, there are tools and strategies to reduce your exposure. The goal isn't to eliminate your position. It's to make sure your financial future doesn't depend entirely on one outcome. Diversification is how you protect the upside you've already earned.