To buy shares in private companies, you generally need to qualify as an accredited investor under SEC rules, find the deal through a personal network, a fund, or a specialized platform, negotiate a price or use a deferred-pricing instrument like a SAFE, and close through a signed subscription agreement. There is no exchange, no ticker, and no instant liquidity. Expect to hold for at least several years, and expect the paperwork and diligence to look nothing like buying a public stock.
Are You Eligible to Buy
The first question isn’t which company to invest in. It’s whether you’re allowed to. Most private offerings rely on Regulation D, the SEC exemption that lets a company sell shares without going through a full public registration. In exchange for that shortcut, the company almost always limits buyers to “accredited investors.”
You qualify as an accredited investor if any one of the following is true:
- Your individual income exceeded $200,000 in each of the last two years, or $300,000 jointly with a spouse or partner, and you reasonably expect the same this year.
- Your net worth exceeds $1 million, alone or with a spouse or partner, not counting the value of your primary residence.
- You hold a Series 7, Series 65, or Series 82 license in good standing.1U.S. Securities and Exchange Commission. Accredited Investors
Entities such as trusts, corporations, and funds have separate tests, generally tied to total assets.
Rule 506(b) vs Rule 506(c)
Within Regulation D, two subrules dominate. Rule 506(b) is the traditional path. The company cannot advertise the offering publicly; deals move through existing relationships. It can take an unlimited number of accredited investors and up to 35 non-accredited investors, provided those non-accredited buyers are financially sophisticated enough to evaluate the risks.2Securities and Exchange Commission. Private Placements – Rule 506(b)
Rule 506(c) allows open advertising, including online and on social media, but every buyer must be a verified accredited investor. Verification usually means the company or a third-party service reviews your tax returns, W-2s, or bank statements, or takes written confirmation from a broker-dealer or licensed attorney.3Securities and Exchange Commission. General Solicitation – Rule 506(c)
If You’re Not Accredited
You are not locked out. Two frameworks let ordinary investors participate, with lower dollar limits and additional protections.
Regulation Crowdfunding (Reg CF) lets a company raise up to $5 million over a rolling 12-month period from the general public through SEC-registered funding portals. If you’re non-accredited, you face a personal cap on how much you can commit across all Reg CF offerings in any 12-month window, calculated as a percentage of your annual income or net worth.4U.S. Securities and Exchange Commission. Regulation Crowdfunding
Regulation A (Reg A+) allows raises up to $75 million a year under Tier 2, or $20 million under Tier 1. Non-accredited investors can participate in Tier 2 offerings but are generally limited to investing no more than 10 percent of the greater of their annual income or net worth. That cap doesn’t apply if the securities will be listed on a national exchange when the offering closes.5U.S. Securities and Exchange Commission. Regulation A
Where the Deals Actually Come From
Meeting the SEC test gets you through the door. Finding an actual investment is a separate problem, and where you look depends on how mature the company is.
For early-stage companies, personal networks and direct relationships with founders remain the most common way in. This is the world of angel investing, where your industry knowledge, operating experience, or reputation is what gets you onto the cap table. Angel groups and syndicates pool capital from multiple accredited investors to write larger checks and often share the diligence work.
If you’d rather have diversified exposure without picking individual companies, you can invest as a limited partner in a venture capital fund. You commit capital, the general partners source and manage the portfolio. Minimum commitments typically start at $250,000 and often run considerably higher.
For late-stage private companies approaching an IPO or acquisition, secondary platforms such as Forge and EquityZen connect buyers with employees or early investors who want to sell some of their shares before a public listing. Prices are negotiated rather than set by an exchange, and the company usually must approve the transfer. For non-accredited investors, Regulation Crowdfunding portals are the main marketplace, generally for smaller and earlier-stage companies.
Agreeing on a Price
There is no ticker for a private company. Every deal requires the buyer and seller to agree on what the shares are worth, and the methods are imprecise. In practice, retail investors rarely build the valuation model themselves. The company sets a price, sometimes with input from a lead investor, and you decide whether to take it.
The frameworks used to arrive at that price include comparing the company against similar public or recently transacted private companies (usually on a multiple of revenue for high-growth businesses), discounted cash flow analysis for mature and profitable operations, the venture capital method for early-stage bets (working backward from a target exit value and a required return multiple), and asset-based valuation for capital-heavy or distressed situations. Two people using different methods on the same company can reach very different numbers. That’s normal.
SAFEs and Convertible Notes: Investing Without a Price
Many early-stage deals sidestep the valuation fight entirely. Instead of pricing your shares today, you invest through an instrument that converts into equity later, when a larger funding round sets a more credible price.
A Simple Agreement for Future Equity (SAFE) gives you the right to receive shares when a triggering event occurs, usually the company’s next priced funding round. A SAFE is not debt. No interest, no maturity date, no repayment obligation. Your protection sits in two levers:
- A valuation cap, which sets the maximum company valuation at which your SAFE converts. If you invest with a $10 million cap and the Series A prices the company at $30 million, you convert at the $10 million valuation and get three times as many shares per dollar as the Series A investors.
- A discount rate, typically 10 to 25 percent, that gives you a percentage reduction off the Series A price. A 20 percent discount means you pay 80 cents for every dollar of share price the new investors pay.
When a SAFE has both, you convert at whichever term gives you the lower price per share.
A convertible note works similarly but is structured as debt. It accrues interest at a modest rate, carries a maturity date (usually 12 to 24 months), and creates a legal obligation for the company to repay your principal plus interest if conversion never triggers. Convertible notes can also include caps and discounts. The maturity date gives you leverage a SAFE doesn’t provide: if no priced round has happened by then, you’re technically owed your money back, which forces a conversation.
The Purchase Process, Step by Step
From handshake to wire, a straightforward private investment typically takes four to eight weeks.
Term Sheet
The process usually starts with a non-binding term sheet covering the economic deal: valuation, investment amount, share class, and any special rights you’re negotiating such as a board seat, information rights, or protective provisions. It’s a letter of intent. It commits both sides in principle before anyone spends real money on lawyers.
Due Diligence
With the term sheet signed, you get access to the company’s books. Diligence covers financial statements, tax returns, customer contracts, intellectual property filings, pending or threatened litigation, employee agreements, and the capitalization table.
This is where deals fall apart more than anywhere else. A company that looks strong in a pitch deck can reveal serious problems once you’re inside: unpaid taxes, key contracts about to expire, intellectual property that isn’t actually owned by the company. If the check matters to you, hiring a lawyer experienced in private transactions to review the legal materials is not optional.
Closing Documents
If diligence checks out, counsel on both sides drafts the definitive agreements. The core document is a subscription agreement (sometimes called a stock purchase agreement) specifying the number of shares, the price, and the representations each side is making. The company represents that its financial statements are accurate, that it’s properly incorporated, and that the shares are validly issued. You represent that you meet the accredited investor requirements and are buying for investment rather than immediate resale.
Alongside the purchase agreement, you’ll typically sign onto a shareholders’ agreement or investors’ rights agreement that governs the ongoing relationship. It sets your rights (information access, board observer seats, anti-dilution protections) and your restrictions on transfer. After closing, the company must file a Form D notice with the SEC within 15 days of the first sale in the offering.6U.S. Securities and Exchange Commission. Filing a Form D Notice
What You’re Accepting After You Sign
Two features of private investing catch new buyers off guard: the shares you buy today will represent a smaller percentage of the company later, and you cannot sell them when you want to.
Dilution
Every time the company issues new shares, whether to raise capital, compensate employees with options, or convert SAFEs and notes, the total share count rises and your percentage ownership falls. If you own 10 percent of a company and it issues enough new shares to grow its total by 25 percent, you now own 8 percent.
If the new round values the company higher, your smaller slice can still be worth more in dollars. Most private companies go through several funding rounds, and it’s common for early investors to see their ownership percentage cut in half or more before an exit. That’s expected. The question is whether the company is growing fast enough that your shrinking percentage is worth more in absolute terms.
Sophisticated investors negotiate anti-dilution provisions to protect against “down rounds,” meaning a future raise at a lower valuation than the one you paid. These provisions come in different flavors with very different economics, and the specific mechanics are worth reviewing with counsel before signing. Anti-dilution protection only applies in down rounds; in up rounds, you still get diluted, but the per-share value has risen.
You Can’t Sell When You Want To
Private shares are illiquid by design, and two separate layers of restriction enforce that.
Because you bought in an unregistered offering, your shares are “restricted securities.” Under SEC Rule 144, you must hold restricted securities for a minimum of six months before resale if the company files regular reports with the SEC. If the company doesn’t file regular reports (which is the case for most private companies), the minimum holding period is one year.7eCFR. 17 CFR 230.144 – Persons Deemed Not To Be Engaged in a Distribution and Therefore Not Underwriters Even after the holding period expires, additional Rule 144 conditions apply, including volume limitations and current public information requirements for reporting companies.8U.S. Securities and Exchange Commission. Rule 144: Selling Restricted and Control Securities
On top of the SEC rules, your shareholders’ agreement will add its own limits, often more restrictive in practice:
- Right of first refusal: before you can sell to an outside buyer, you must offer the shares to the company or existing shareholders at the same price.
- Co-sale or tag-along rights: if a major shareholder finds a buyer, minority investors can demand the right to sell a proportional amount of their own shares in the same transaction.
- Drag-along rights: if a specified majority approves a sale of the company, they can force remaining minority holders to sell on the same terms.
Between the regulatory holding periods and the contractual lockups, plan on your capital being tied up for several years at minimum. If you might need the money back in a defined window, private company shares are the wrong investment.
How You Actually Get Your Money Back
Private investments don’t have a sell button. Your liquidity depends on a corporate event that either converts your shares into cash or into publicly tradable stock. The realistic paths, roughly in order of frequency:
Acquisition. Another company buys the business, and you receive cash, stock in the acquirer, or a combination. This is the most common exit by a wide margin. In a strategic acquisition, the buyer wants the product, technology, or market access. In an acqui-hire, they primarily want the team, and your shares may be worth less. Drag-along rights typically mean you have no choice but to accept the deal if the required majority approves.
IPO. The company lists its shares on a public exchange. Even after the listing, you usually cannot sell immediately. Lock-up agreements, negotiated between the company and its underwriters rather than mandated by the SEC, typically restrict insider sales for 90 to 180 days after the IPO. Your actual liquidity date is the IPO date plus the lock-up period, and the stock price can move significantly during that window.
Secondary sale. You sell your shares to another private buyer before any company-level exit. This has become more common through the platforms mentioned earlier, but it requires company approval and remains subject to every transfer restriction in your shareholders’ agreement. Pricing is negotiated privately and often at a discount to the most recent funding round.
Company buyback. Some companies periodically offer to repurchase shares from investors and employees, often at a price set by an independent valuation. These programs are entirely at the company’s discretion; you can’t force one.
Tax Rules Worth Knowing Before You Sign
Two federal tax provisions are designed specifically for investors in small private companies. Both can affect how you structure the purchase, so knowing them before closing matters.
Qualified Small Business Stock (Section 1202)
If you hold stock in a qualifying C corporation for at least five years, you can exclude 100 percent of the capital gain from federal income tax when you sell. Following changes enacted in July 2025, the rules work as follows:
- A full 100 percent exclusion requires holding for five or more years. Partial exclusions are available at shorter holding periods: 50 percent after three years, 75 percent after four years.
- The corporation’s aggregate gross assets cannot exceed $75 million at the time your shares are issued, and at no point before.
- You can exclude up to the greater of $15 million or 10 times your cost basis in that company’s stock. This cap is per taxpayer, per issuer, and will be indexed for inflation starting in 2027.
- You must acquire the shares at original issuance directly from the company. Secondary market purchases don’t qualify.
- The company must be an active business using at least 80 percent of its assets in a qualified trade. Service businesses built around professional skills, including law firms, medical practices, consulting firms, financial advisory companies, and accounting firms, are excluded.
The potential tax savings are substantial. On a $15 million gain, the difference between paying long-term capital gains tax and paying nothing is roughly $3 million or more. If you’re investing in an early-stage C corporation, ask whether the shares are intended to qualify as QSBS and get that representation in the purchase documents.
Ordinary Loss Treatment (Section 1244)
If the investment fails, Section 1244 provides a cushion. When you sell qualifying stock at a loss, you can deduct up to $50,000 of that loss as an ordinary loss ($100,000 on a joint return) rather than being limited to the $3,000 annual cap on capital losses. To qualify, the corporation must have received no more than $1 million in total capital contributions when your stock was issued. This won’t save a catastrophic loss, but it softens the tax impact of one that goes to zero.
Annual Reporting
How the investment shows up on your tax return depends on the company’s structure. If you invest directly in a C corporation, you’ll receive a Form 1099-DIV if the company pays dividends and report capital gains or losses when you sell. Most private C corporations don’t pay dividends, so the tax impact may be zero until you exit.
If the investment flows through a partnership, LLC, or fund structured as a limited partnership (standard for VC funds and many private equity vehicles), you’ll receive a Schedule K-1 each year reporting your share of the entity’s income, losses, deductions, and credits, regardless of whether you received any cash. K-1s are notoriously late and often arrive well after the April tax deadline, so plan on filing an extension if you hold these investments.