There's no requirement to go "public" in the sense of listing on an exchange, and available for public purchase. What changes at that point is SEC regulatory compliance kicks in: earnings/revenue go public, SEC compliance paperwork has to be filed just like a public corp. That's really why people try to stay under that number - you have all the drawbacks of being public, except a floated share price, and it would effective crush any IPO pop that they would expect to get, as financials would be totally available, so offer price would have to reflect the company's financials.

Isn't an IPO pop bad for the company? It indicates that they priced too low, no?

The underwriter of an IPO goes around and sells your stock to their largest clients in advance (which is where the company gets its payout). They sell your stock at say 10% less than what they think it will settle at. All the pre-IPO buyers cash out within the first few hours of trading. Without a big enough "pop" your stock is considered to have been a bad investment by the underwriters and the pre-IPO buyers because they didn't see 10%+ one day returns.

IPOs are layers upon layers of scams and shady dealings.

I think it's a fine line- I'm not in finance, but from what I understand you want some incentive to purchase a new issue as you have a set target of shares you're trying to move. I think that doubling in price is a bad thing, but I don't think movement of a few dollars per share is necessarily a bad thing.

A small pop could indicate that the private-ness (and thus illiquidity) of the shares were priced in before.

IPO filings include financials...

Yes, but they should pay market rates for the stock. The article made it sound like they were trying to buy it up at $4 billion evaluation when they knew they'd be auctioning some off for $10+ billion.

Not that I think Uber is handling this constructively, but there's a valid reason why they would not offer the valuation bandied about in the press: they are not buying the same equity as the $17 billion+ equity.

The venture investors bought Preferred equity, the shares being sold by the employee are almost certainly Common equity. Common equity is worth less than Preferred equity. The times I have seen offers to buy Common shares in connection with a Preferred round, the discount has been as high as 50%.

This makes sense: assume you are an investor putting $1.2 billion into a company that has previously raised $300 million (this is roughly the recent Uber situation.) You are investing at a $17 billion valuation. Now assume that you were very, very wrong on the valuation and the company ends up selling for 90% less: $1.7 billion. You still get your money back. If the company goes on and sells for $34 billion, you double your money. This asymmetrical payout is one reason venture firms are comfortable taking the risk of such a high valuation.

Now assume you bought $10 million of Common shares from a former employee. If the company ended up selling for $1.7 billion, you would get back roughly $100,000 (assuming the preferred owns half the company.) You don't really have an asymmetrical payout: you stand to lose money if the valuation is wrong.

A wider the spread between the Preferred price and the Common price implies less confidence in the Preferred valuation. The actual valuation is the Common valuation, and the extra amount paid for Preferred stock is a kind of option value. So an alternative explanation to Uber short-changing its Common shareholders is that they believe the expected value of the company is closer to $4 billion than $17 billion and the Preferred buyers think the range of possible outcomes has an extremely large standard deviation.

They shouldn't have paid for a $17 billion valuation, but if there was a firm offer of $200 a share, they should have had to match the $200 a share instead of offering $135 (which was quoted as a $4B valuation). This would imply a valuation of around $6B.

That would certainly seem fair.

"At the same time that it was restricting the aforementioned employee from selling, Uber also was preparing to raise new outside funding that ultimately would value the company at more than $18 billion."

Read carefully, this was prior to that round closing. Assumably they'd offer more now. (~5x)

If they had an offer for $200 per share, they should get $200 per share even if Uber is the one buying it instead.

> Two months ago, an early Uber employee thought that he had found a buyer for his vested stock, at $200 per share.

Sorry I wasn't clear by what I meant by "market rates".

Is there any reason for them to pay more? I mean sure, it is a bit of a dick move but they seem like they aren't exactly trying to buy back the stock. They just don't want too many people selling. So either they get cheap stock or they block the sale. Win win for Uber, right?

It is an abuse of monopoly power in this situation to pay below market rates.

You don't screw people who had faith [investors; early employees with equity] in you. They shouldered a good deal of risk and you knifed them in the back by paying below market rates.