minority discount
A minority discount adjusts the value of an ownership stake downward when the holder lacks control, decision power, or exit flexibility.
A minority discount reflects the reduced value of owning a stake in a company without control. It acknowledges that partial ownership—especially below 50%—comes with real limitations: no voting power, no influence over strategic decisions, and often no clear path to liquidity. As a result, investors apply a discount to reflect that lack of control.
This concept is especially relevant in private companies, family businesses, and complex cap tables. It plays a key role in negotiations, estate planning, shareholder buyouts, and internal valuations.
Where the minority discount applies
A founder offers a 10% equity stake to an angel investor. The investor values the company at $10M—but offers $800K for the stake. Why? Because they won’t have decision rights, board control, or exit certainty. The $200K gap reflects a minority discount.
In another case, a shareholder with a 25% stake wants to sell. The buyer applies a discount because the stake doesn’t come with control, influence, or guaranteed dividends. The logic is clear: control creates value—lack of it reduces it.
What people get wrong about the minority discount
Some assume that all shares should have the same value, regardless of control. That’s not how real markets work. Another mistake: ignoring governance dynamics. A stake with strong protections, drag-along rights, or liquidity options may deserve a smaller discount.
Others treat the discount as fixed. But context matters: size of the company, shareholder agreements, strategic importance of the stake, and potential exit scenarios all affect how deep the discount goes.
Ownership isn’t just a percentage—it’s a position
The minority discount reminds us that equity isn’t just math. It’s power, influence, and access. When control is off the table, value shifts. Smart investors factor that into every offer—and founders should too. Because in negotiations, what you hold matters less than what you can do with it.
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