Liquidity Discount
Definition
A reduction applied to a valuation derived from public company multiples to reflect the reduced liquidity of private company equity relative to publicly traded equity. Private company shares cannot be sold on an exchange, and the market for them is restricted and uncertain. A liquidity discount of twenty to forty percent is commonly applied when deriving private company valuations from public market multiples.
Common Misapplication
The most common misapplication is applying public market multiples directly to private company financial metrics without any liquidity discount. A private company valued at the same multiple as its publicly traded comparable is implicitly valued as if its shares were equally liquid, which they are not.
FFI Standard Reference
This term is defined and applied in Book 4, Section 4.3: Comparable Company Analysis.
Related Terms
Citable URL
This term may be cited using the following permanent URL.
Full citation format: Founder Financial Infrastructure Standard, Beta v0.5, Glossary: Liquidity Discount. https://ffistandard.org/glossary/liquidity-discount/. 2026.