When investing in public markets, in most cases, you have the option to buy or sell their shares every working day i.e liquidity. In the private market, you cannot sell your shares on any day you choose.
Your return on a private company investment is often realized three to seven years down the line when the company has a ‘liquidity event’, which means when they go public or are acquired.
What you get in return for the lack of liquidity is the opportunity for a far greater overall return on your investment. When investing in the public market you hope to double your money 10-20 years after putting it in i.e 2x. When investing in private companies you hope for 10x, or more, on your money within three to seven years.
Like anything in life, with higher upside potential, you also have a higher downside risk – i.e. your investment could also equal $0 in three to seven years. Just like in the stock market, no investment is ever a guaranteed win. (You should only invest as much as you have the ability to comfortably lose).