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Liquidity Risk

Investing in startups typically locks up capital for a number of years as the equity of privately-held companies is difficult to value and is not efficiently traded, as opposed to publicly-traded stock.  Once an investor contributes his or her capital, it is often very challenging or even impossible to gain immediate access to that capital.  If the investor incurs some unforeseen emergency, he or she will not be able to rely on that capital to remedy that emergency and therefore, should only place a modest portion of his or her portfolio in startup companies.  It is not uncommon for an investment in an early-stage company to lock up that capital for anywhere from three to five years, so investors need to be fully aware of the illiquid nature of startup investing.

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