[npk]

I've asked this question months ago, but I never received a satisfactory answer:

What is the value of stock in a private company? Do you receive dividends on the stock? You can't sell the stock to other people? The only time it's of value is in a liquidity event. Suppose Fog Creek's not planning one in the future, what does this stock do?

[vitaminj]

Stock is obviously part-ownership of a company. When a company makes a profit, it has basically two options - 1) re-invest some or all of the profit back into the company, or 2) divvy it up amongst the owners (ie. stockholders), which is more or less a dividend.

My old man runs a small business with about five stockholders. It's a mature business and he has no real plans for expanding, so every year he divides the company profits up between the shareholders.

You could sell your stocks to other people, but this would depend on the rules governing the buying / selling of shares as set out by the company when you acquired the stocks. Often this is just by agreement because there isn't a very liquid market for shares in private companies (for obvious reasons like lack of transparency and difficulties in valuation).

If I were to buy shares in a company, my valuation would depend on the company's earnings and the opportunity cost of putting my money in a "risk-free" investment (like treasury bonds)... which would dictate the base price-earnings ratio for which I would be indifferent to investing in the company or bonds. Of course, the company's potential for growth would affect the valuation (ie. higher P/E for growing companies).

[sanj]

It has the same value as anything else: Whatever you can get someone to pay you for it.

I just sold a chunk of (common) stock in a privately held (VC-backed) firm. I found a buyer, made sure I followed all of the rules of the employee stock agreement, and made a sale.

It is harder than publicly traded stock, but it still has value.

[pclark]

I've always wondered this too