What Are Private Markets? A Beginner's Guide

By the StartEngine Investor Education Team

Securities are offered through StartEngine Primary, LLC, a registered broker-dealer and member FINRA/SIPC.

This content is general educational information and is not investment, legal, or tax advice. Please consult qualified financial, legal, or tax professionals regarding your individual circumstances.

Private markets are a large segment of the global economy, but many individual investors are unfamiliar with how they work. This guide provides an educational overview of what private markets are, how they differ from the stock market, and how they are regulated.

This guide is part of a Private Market Education hub, which covers private-market fundamentals, investing mechanics, and secondary markets in more depth. See the Private Market Education hub for related educational materials.

Defining Private Markets

Private markets refer to the buying and selling of securities — primarily equity (ownership stakes) and debt — issued by companies that are not listed on a public stock exchange such as the NYSE or Nasdaq. A private-market security represents an interest in a company whose shares do not trade on a public exchange, typically because it has not completed an initial public offering (IPO).

These companies range from early-stage startups seeking their first round of funding to more mature enterprises that have chosen to remain private. Some well-known companies have operated as private companies for years before, or instead of, going public.

The Scale of Private Markets

Many people assume the stock market represents the entirety of the investable universe. In practice, private companies operate outside public exchanges and are not represented by public-company listings. For current data on public-company listings and private-market activity, readers can consult SEC reports and academic research. Historical or structural references in this section describe market context only; past performance is not indicative of future results.

Private equity, venture capital, private credit, real estate, and infrastructure funds together manage substantial pools of capital globally. The exact size of private markets is difficult to measure precisely because reporting requirements differ from those of public markets.

How Private Markets Work

Unlike public markets, where shares can generally be bought or sold through a brokerage during market hours, private markets operate under different mechanics:

Raising Capital

Private companies raise money through private offerings. These can take many forms — venture capital rounds, angel investments, private equity transactions, or offerings made through equity crowdfunding platforms. Each offering type is governed by specific SEC rules that determine who may invest and under what terms.

Holding Periods

Shares in a private company generally cannot be sold the next day. Private investments are considered illiquid, meaning there is typically no readily available marketplace to trade them. Holding periods can be lengthy and open-ended. A liquidity event — such as an IPO, acquisition, or a secondary transaction — may or may not occur, and there is no assurance that one ever will.

Valuation

Private companies do not have a continuously updated stock price. Valuations are typically established through negotiated funding rounds, independent appraisals, or periodic estimates. These valuations are reference points, not observed market prices, and may not reflect what a share could actually be sold for in a transaction. Factors such as share class, liquidation preferences, dilution from future rounds, fees, and transfer restrictions can materially affect the economics of a private-market position.

Regulation

Private securities offerings are regulated by the U.S. Securities and Exchange Commission (SEC) but operate under different exemptions than public offerings. Common frameworks include Regulation D (often used for accredited-investor offerings), Regulation A+ (which permits offerings to both accredited and non-accredited investors subject to SEC qualification and investment limits), and Regulation Crowdfunding (Reg CF), which allows companies to raise capital from the general public through SEC-registered intermediaries subject to per-investor limits. Qualification or filing with the SEC is not an approval or endorsement of the offering or the merits of the securities. Rules and investor limits change over time; current SEC guidance and the specific offering documents are the controlling sources.

For a side-by-side look at how these frameworks and other structural differences compare with public-market rules, see Public vs. Private Markets: Key Differences.

Who Participates in Private Markets?

Historically, private-market investing was primarily accessed by institutional investors — pension funds, endowments, family offices — and high-net-worth individuals who meet the SEC's definition of accredited investors.

That landscape has evolved. Following the JOBS Act of 2012 and related SEC rulemaking, certain equity crowdfunding frameworks allow non-accredited investors to participate in specific private offerings, subject to eligibility rules and investment limits set by regulation and by each offering. SEC-registered intermediaries host offerings in which non-accredited investors may participate, subject to those rules and to the terms of each offering.

Today, private-market participants include:

• Venture capital and private equity firms — Professional investors who raise funds to invest in private companies
• Angel investors — Individuals who invest their own capital in early-stage companies
• Institutional investors — Pension funds, endowments, sovereign wealth funds, and insurance companies
• Individual investors — Individuals participating through regulated crowdfunding intermediaries and other channels, subject to applicable eligibility and investment limits

Characteristics Investors Study About Private Markets

Company Growth Stages

Many companies undergo significant operational and financial changes while still private. Investing in a company during its private phase means participating in a stage that has different characteristics than investing in the same company after it becomes public. Outcomes vary widely by company, and many private-stage companies do not succeed. Total loss of a private investment is a real possibility.

Portfolio Considerations

Public equities and bonds are not the only investable assets. Private-market exposure is one category some investors research when learning about the broader universe of securities. Private-market characteristics and risks differ materially from those of public markets, and any relationship with public-market movements can change over time. Whether any particular investment is appropriate depends on individual factors that are outside the scope of this general educational overview.

Access to Different Sectors

Many companies in sectors such as technology, healthcare, and clean energy operate as private companies for extended periods. Private-market channels can provide exposure to companies at earlier or different points in their life cycles than public markets. Earlier-stage exposure typically involves greater risk of business failure and a higher likelihood of total loss of the amount invested; exposure alone does not imply any particular outcome.

Longer Time Horizons

Private companies are not subject to the same quarterly earnings reporting cadence as public companies. This is a structural difference in operating context, not a benefit to investors, and does not imply any particular outcome — positive or negative — for a private-market position.

For a closer look at general considerations and tradeoffs of private-company investing, see Why Invest in Private Companies?.

Common Misconceptions

"Private markets are only for the wealthy." Some private offerings are limited to accredited investors. Others — such as offerings made under Regulation Crowdfunding or Regulation A+ — may be open to non-accredited investors, subject to eligibility rules, per-investor investment limits set by regulation, and the specific terms of each offering. Current thresholds and limits can change; current SEC guidance and the offering documents are the controlling sources.

"Private investments carry no risk if you pick well." All investments carry risk, and private investments carry additional risks such as illiquidity, limited public information, and dependence on a single company's outcomes. Losses, including a total loss of investment, are possible. There is no way to eliminate these risks.

"Private shares can always be sold later." Private shares are generally illiquid. Some secondary-market venues exist for private-company shares, but whether a sale in a secondary transaction is possible depends on issuer consent, transfer restrictions, regulatory review, buyer demand, pricing, execution, and other factors. A transaction may never occur, and prices in any secondary transaction may differ significantly from prior valuations or reference points.

Getting Started Learning About Private-Market Investing

Educational steps that individuals researching private markets commonly take include:

1. General education. Understanding the landscape, the risks, and the applicable regulations is a foundational first step.
2. Investor status. Investor status — whether an individual meets the SEC's accredited-investor criteria — affects which offerings they may be eligible for.
3. Reviewing offering materials. Each offering has its own Form C, offering circular, or private placement documents describing the company, the securities, the risks, and the terms.
4. Liquidity considerations. Private-market positions may be held for many years, with no assurance of any exit.
5. Professional guidance. Consider consulting qualified financial, legal, or tax professionals regarding your individual circumstances.

Frequently Asked Questions

What are private markets?

Private markets are where companies raise capital and investors buy or sell ownership or debt stakes outside of public stock exchanges like the NYSE or Nasdaq. Companies in private markets have not completed an IPO, so their shares are not listed for public trading. Private markets include venture capital, private equity, private credit, and equity crowdfunding offerings conducted through regulated intermediaries.

How are private markets different from public markets?

Key differences include liquidity, disclosure, and access. Public-market shares trade continuously and can generally be sold on short notice; private-market investments are illiquid and may be held for years, with no guarantee of a liquidity event. Public companies must file regular, detailed disclosures with the SEC, while private companies generally disclose less. Historically, private markets were accessed mainly by institutional and accredited investors, though Regulation Crowdfunding and Regulation A+ have created pathways for a broader group of investors to participate in specific offerings, subject to regulatory limits. Qualification or filing with the SEC is not an approval or endorsement of any offering.

How can individuals access private markets?

Individual investors may access private markets through regulated intermediaries that host offerings under SEC exemptions such as Regulation Crowdfunding (Reg CF), Regulation A+, or, for accredited investors, Regulation D. Access, minimums, and investment limits vary by offering type and by investor status. Each offering's disclosure documents and risk factors describe the specific terms and risks.

Are private-market investments risky?

Yes. Private-market investments are generally illiquid, may provide less financial information than public companies, and involve a high degree of risk — including the possible total loss of an investment. Risk varies by company stage, sector, and offering structure. There is no assurance that a company will succeed, that a liquidity event will occur, or that a secondary transaction will be available.

Conclusion

Private markets are a large and evolving part of the economy that some individual investors research as part of their broader financial education. They come with distinct characteristics — including illiquidity, different regulatory frameworks, less-frequent disclosure, and longer time horizons — as well as material risks, including the possible loss of an entire investment.

Reading offering documents carefully and understanding the risks are commonly cited parts of an informed approach to learning about this space.

Important Disclosures

Securities are offered through StartEngine Primary, LLC, a registered broker-dealer and member FINRA/SIPC.

Neither the SEC nor any state securities regulator has approved these securities or passed upon the accuracy or adequacy of any disclosure. Qualification or filing with the SEC is not an approval or endorsement of the offering or the merits of the securities.

This communication is for educational and informational purposes only and is not an offer to sell or a solicitation of an offer to buy any security.

This content is general educational information and is not investment, legal, or tax advice. Please consult qualified financial, legal, or tax professionals regarding your individual circumstances.

Investments in private companies are speculative, illiquid, and involve a high degree of risk, including the possible loss of the entire investment. There may be no market for the securities, and there is no assurance that any liquidity event or secondary transaction will occur.

Past performance is not indicative of future results.

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