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Open Doors Partners

The Long Middle: What Happens to a Position Between Entry and Exit

A perspective from Open Doors Partners.

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A public position is re-priced every day; a private one is re-examined only when someone decides to.

Almost all of the attention paid to a private investment is spent on the decision to make it. That decision is bounded, legible, and finite. It has a date attached to it and a moment at which it is either taken or declined. What follows is neither bounded nor legible, and it is where the position spends nearly all of its life.

The absent prompt

A listed holding is monitored by the market on the holder’s behalf. The price moves, and the movement arrives whether or not anyone was looking for it. That prompt is not analysis, and it does not substitute for judgement, but it performs one useful function consistently: it puts the position back in front of the person who owns it.

Private markets remove the prompt. A position acquired in one year can sit at the same carrying value into the next without anything having been established about whether it is still the same position. Nothing arrives to require a response. The absence is structural rather than negligent. It is a property of an asset that is not continuously priced, and it means that re-examination in private markets is always initiated rather than triggered.

What moves without announcing itself

The changes that matter to a private position rarely present as events.

A competitor raises at a scale that resets what the company must spend to hold its position. The company itself raises again, and the terms of that round establish rights that sit ahead of the ones already held. The cost of capital shifts across the market, and with it the range of outcomes that would once have counted as good. A management team turns over in a function that was central to the original thesis. The route to an eventual exit narrows from several plausible paths to one, and then to one that depends on a single acquirer.

Each of these is consequential. None of them announces itself to a holder. Some are discoverable only by someone who has decided in advance that they are worth tracking, and who has established what would count as a meaningful change rather than an ordinary one.

Where judgement is actually observed

Entry flatters an investor. It is the point at which a view is expressed most clearly, and the point at which the surrounding record is at its most complete: the diligence, the terms, the considerations examined before capital moved. It is also the point at which nothing has yet been tested.

Duration tests. A thesis held for six years is subject to conditions that did not exist when it was formed, and the question of whether it still holds cannot be answered by reference to the work that produced it. That question has to be asked again, by someone, without anything compelling them to ask it.

This is why the middle years are the more revealing measure of a firm. The decision to commit is visible and comparatively easy to assess from outside. The practice of holding is neither. A position re-examined and found sound produces the same record as a position never re-examined at all, and the difference between them surfaces only when conditions turn.

Which is the argument for making it structural. Work that depends on someone remembering to do it will eventually not be done. Work with a date attached, a defined scope, and a reader on the other side of it is work that survives the years in which it feels unnecessary.

The economics of unrewarded work

Work that produces nothing observable is work under permanent pressure. There is no external reward for confirming that a holding is still what it was believed to be, and no immediate cost to skipping the confirmation. The costs of skipping it accumulate somewhere else, later, and are difficult to attribute to the omission that produced them.

Markets make this worse at exactly the wrong moments. When conditions are strong, re-examination feels redundant; when they are loud, attention moves to what is newly available rather than to what is already held. The years in which the work is least appealing are the years in which it is most consequential, and the separation of functions that gives a structure its integrity is only as useful as the willingness to look at what those functions report.

None of this makes the middle years dramatic. They are, by construction, the part of the work with no natural narrative: no decision point, no moment of conviction, no outcome to record. They are simply the part that lasts.

A commitment is made once. A position is held every year afterwards, by someone who has to choose to look.

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Frequently Asked Questions

What is the “long middle” of a private investment? The long middle is the period between the decision to commit capital and the eventual exit. It is where a private position spends nearly all of its life, and it has none of the defined moments that mark entry or exit. For the most highly valued venture-backed companies, the median time to exit has now passed nine years.

Why are private positions harder to monitor than public ones? A listed holding is re-priced every trading day, and each movement returns the position to its owner’s attention. A private holding has no continuous price, so nothing external prompts a review. Re-examination in private markets has to be initiated deliberately rather than triggered by the market.

Does an unchanged carrying value mean nothing has changed? No. A private position can hold the same carrying value from one year to the next while its competitive standing, capital structure or exit prospects shift materially. Current valuation guidance reflects this: the price of the most recent round is not treated as a default measure of fair value, and each measurement date calls for an assessment of whether subsequent events have moved it.

What kinds of changes affect a private position during the holding period? The consequential changes are rarely announced. They include a competitor raising at a scale that resets the cost of holding market position, a new financing round whose terms place rights ahead of existing shares, shifts in the cost of capital, turnover in a function central to the original thesis, and a narrowing of the realistic routes to exit.

Why is the holding period a better measure of judgement than the entry decision? Entry is the most visible and best-documented moment of an investment, and the point at which nothing has yet been tested. The holding period tests whether a thesis still holds under conditions that did not exist when it was formed. A position re-examined and found sound looks identical on paper to one never re-examined; the difference surfaces only when conditions turn.

Why does ongoing review need to be structural rather than discretionary? Work with no observable output is always under pressure, and the cost of skipping it arrives later and is hard to trace back to the omission. Review with a set date, a defined scope and a reader on the other side is more likely to continue through the years in which it feels unnecessary. Those are often the years in which it matters most.

Sources

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Open Doors Partners LLC | Exempt Reporting Adviser
Informational only. Not investment advice and not an offer or solicitation to buy or sell any security. Private investments are speculative and illiquid and may result in loss of the entire investment. Forward looking statements may prove incorrect. Third party data has not been independently verified.
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