The reference points
Last funding round
The price investors paid for new preferred shares, usually the most visible number.
Recent secondary trades
What buyers have actually paid existing holders, where such trades are known.
Tender offer prices
Prices set by the company for organised sale windows.
Internal valuations
In the United States, the 409A valuation of common shares used for option pricing.
Why the secondary price differs from the last round
- →Share class: common shares sit behind preferred shares, which are repaid first in a sale.
- →Time: a round priced eighteen months ago may say little about the company today.
- →Block size and terms: small blocks, restricted transfers and uncertain approval all weigh on price.
- →Information: buyers with limited access to the company’s figures price in that uncertainty.
- →Structure: units of a vehicle carry its fees and dependence on its sponsor.
- →Demand: for the most sought-after companies, scarcity can push the price above the last round.
Reading a quote
A secondary price is only comparable once a few things are known: which share class it refers to, what valuation of the company it implies, which fees come on top for the buyer, whether the buyer gets shares or units of a vehicle, and how long the transfer is expected to take.
Two quotes on the same company can differ for good reasons. The headline price is the start of the comparison, not the end.
After the purchase: marking the position
Once bought, a private position has to be valued over time. In a pre-IPO note the method is fixed in the final terms before issuance, for example the last round, recent secondary trades or a model, together with how often it is applied, so investors know how the value they see is produced.
For how investors buy these shares in the first place, see buying pre-IPO shares on the secondary market .
Frequently asked questions
What is a 409A valuation?
In the United States, a private company that grants stock options needs an independent valuation of its common shares, known as a 409A valuation after the section of the tax code that requires it. It values common shares for option pricing and is usually well below the price paid by investors for preferred shares in the last round.
Why do common shares trade below preferred shares?
Preferred shares usually carry a liquidation preference: in a sale of the company they are repaid first, before common shareholders receive anything. They may also carry other rights. Common shares bear more of the downside, so they are worth less per share.
Is the last round’s valuation what the company is worth?
Not exactly. The headline valuation of a round applies the price of the new preferred shares to every share of the company, including common shares that do not have the same rights. It is a reference point, not the value of each share.
How is a pre-IPO note valued?
The final terms of the notes set the method in advance, for example the last funding round, recent secondary transactions or a valuation model, and how often it is applied. The note’s value per unit is then published on that basis, which gives investors a consistent mark instead of a single purchase price.
Pricing a pre-IPO position?
Tell us the company, the share class and the size. We come back with how it could be structured and valued.
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