As others have noted, you could attribute the entire 34% "discount" to the fact that these are common shares, not preferred. A few months ago when I looked into investing in Palantir via EquityZen/Sharespost, the share price being offered valued Palantir at between 25-30% less than their most recent funding round valuation of $20B.
If anyone's interested in acquiring pvt company shares in the secondary market, here's what I learned:
* You have to be an accredited investor (i.e., net worth of over $1M excluding residence; or income of >$200K individual/>$300K married for the last 2 years and reasonable expectation that this income level will be sustained this year).
* You don't actually own common stock of the company (e.g. Palantir). It actually works like a mutual fund. You invest in an LLC that owns the stock. You get shares in this fund/LLC that correspond 1:1 to common shares in Palantir.
* There is usually a minimum investment amount e.g. $50K or $20K.
* EquityZen/Sharespost charge a commission (of about 5% iirc; 1 of them charged more than the other but had a lower minimum investment amount). They are managers of the LLC and investors have virtually no rights even though they are members of the LLC.
* When the company IPOs, your LLC shares are converted to the same number of company shares. This is common stock, and subject to the same lockup restrictions that employee shares are. That means you can't sell until 6 months after the IPO.
* There is no liquidity. EquityZen and Sharespost differ in this a little bit. But basically you can't sell your shares in the LLC without approval from EZ/SP; they can veto it and they can also require a holding period of 1 year.
* While the transaction is blessed by the underlying company, they don't reveal any information about financials or risks like they would in an IPO prospectus. You are investing blind.
In my opinion the biggest problems with such investments are (1) illiquidity, and (2) the fact that shares are subject to 6-month lockup post IPO.
You've got some misinformation here, this was my experience two years ago but on the seller side as an employee leaving a startup.
>"you could attribute the entire 34% "discount" to the fact that these are common shares, not preferred."
I sold common shares via the secondary market and I got exactly what they were valued at. This was a very well-known startup. So that's incorrect. In fact I managed to get just north of that price given the scarcity of obtaining them.
> "You don't actually own common stock of the company (e.g. Palantir). It actually works like a mutual fund."
This is something specific to just EquityZen and this is a technique that is used in instances where the company's employee option agreements forbids such a sale. This is a loophole of sorts used only in those instances.
One other interesting point is that once I had a buyer lined up the company exercised their right of first refusal which means they then had to buy the shares for the same amount as the buyer agreed to purchase them from me for. The company themselves of course didn't actually buy them but they put me in touch with a well-known Hollywood celebrity's wealth manager who then bought them.
This last point irked me a bit when I thought about all the other engineers toiling away to build a good product who were bound by all these options restrictions yet some Hollywood celebrity with no connection to the company was on a shortlist of preferred buyers should some options come available. Sigh.
To be fair, the common vs. preferred share distinction depends on the company.
It could be that in your case they were valued the same. You actually mention that you sold at above the company's last fundraising valuation - it could be the case that the preferred stock was valued even higher.
If anyone's interested in acquiring pvt company shares in the secondary market, here's what I learned: * You have to be an accredited investor (i.e., net worth of over $1M excluding residence; or income of >$200K individual/>$300K married for the last 2 years and reasonable expectation that this income level will be sustained this year).
* You don't actually own common stock of the company (e.g. Palantir). It actually works like a mutual fund. You invest in an LLC that owns the stock. You get shares in this fund/LLC that correspond 1:1 to common shares in Palantir.
* There is usually a minimum investment amount e.g. $50K or $20K.
* EquityZen/Sharespost charge a commission (of about 5% iirc; 1 of them charged more than the other but had a lower minimum investment amount). They are managers of the LLC and investors have virtually no rights even though they are members of the LLC.
* When the company IPOs, your LLC shares are converted to the same number of company shares. This is common stock, and subject to the same lockup restrictions that employee shares are. That means you can't sell until 6 months after the IPO.
* There is no liquidity. EquityZen and Sharespost differ in this a little bit. But basically you can't sell your shares in the LLC without approval from EZ/SP; they can veto it and they can also require a holding period of 1 year.
* While the transaction is blessed by the underlying company, they don't reveal any information about financials or risks like they would in an IPO prospectus. You are investing blind.
In my opinion the biggest problems with such investments are (1) illiquidity, and (2) the fact that shares are subject to 6-month lockup post IPO.
EDIT: formatting.