Why do Public Companies Receive Higher Valuations than Private Companies?

One of the biggest factors contributing to vastly different valuation for public and private companies is the fact that private companies often suffer from a severe lack of market liquidity. When a company has gone public, it is much easier for a shareholder to change their minds about the investment and sell it for shares of another company's stock. When the company is completely private, it is much harder for people to sell, meaning that it poses more of a liability for them. This risk usually results in a lower value in the marketplace.


Another factor that directly contributes to public companies receiving a more favorable valuation in the marketplace is that there is generally less risk involved with a publicly traded entity, versus a private company. This is because a public company has typically already demonstrated their staying power in the market place, and investors are much more confident that they will be continuing their operations for a significant period of time. Private companies are usually younger and more unstable, therefore they represent a larger risk for the would-be investor. To learn more about how to value your company and navigating the world of investment.