Venture capitalists get price protection when they invest but investors in the public offering of a venture stage company don’t. Here is how I define my terms:

The core challenge facing investors in a venture stage company is how to value them. Their operating history is null or glum, their asset value is slim or dubious and their future is steeped in uncertainty. When such a company sells stock, whether in the private or public market, it raises venture capital.

Venture capital markets have a provocative quality. Private investors—arguably “the smartest guys in the room” with respect to valuation—typically get price protection. Public investors don’t.

It makes sense if you expect the “best and brightest” to get the “good stuff.” It’s odd if you think that protections ought to go to those who need them the most. This situation deserves thought by anyone who wants to see both cheaper entrepreneurial access to capital and greater opportunity for average investors.

Why? The greatest sources of investor loss are business failure and overvaluation.

Now, all venture investors all face exposure to failure—and it is higher for VCs. However, there is a great divergence in valuation risk. VCs are valuation savvy, negotiate their best deal and secure terms that mitigate the risk that they they were wrong. Public investors face much greater risk of loss due to overvaluation because they are generally not valuation savvy so they don’t demand it and issuers lack incentive to offer it. These two conceptual equations convey the difference between a private and public venture round.