They might not easily be able to cash out, but they often have more options than people realise.

VCs will sometimes invest ‘convertible notes’ which start as debt and “convert” into equity in favourable scenarios.

‘Swamp’ and ‘drag’ clauses are also commmon: if a management team/CEO doesn’t meet their goals as set by the board (like give investors a meaningful exit) then investors can take over and replace that team, or force a sale.

Illiquid private equity in an early stage business, especially one that isnt growing, is hard to get rid of. That’s why investors derisk with terms that massively favour them at the expense of the business they invest in.