Private market investors obsess over a single metric when evaluating secondary opportunities: the discount or premium to the last funding round. This fixation has created an entire ecosystem of brokers, advisors, and marketplaces that frame every deal through this lens.
"We have a rare opportunity in Company X at a 30% discount to their Series E."
"This allocation just became available at only a 10% premium to the last round."
These pitches flood the inboxes of allocators daily. The implicit message is clear: buy at a discount, avoid at a premium. This simplistic framework dominates decision-making across those active in the space.
But what if this entire approach misses the point?
Beyond the Last Round Anchor
When public market investors evaluate stocks, they don't fixate on the company's most recent share issuance. They analyze business fundamentals, competitive positioning, and growth prospects to determine intrinsic value. They ask: what is this business worth today?
Yet in private markets, this fundamental question gets replaced with: how does today's price compare to what investors paid months or years ago?
This anchoring creates market inefficiency. The last primary round becomes a psychological reference point that bears little relation to current business reality.
The Illusion of Round Pricing
I've written previously how primary venture rounds are often manufactured events with misaligned incentives. VCs push for higher valuations to mark up their existing holdings. Founders accept onerous terms to avoid dilution. Investment bankers engineer pricing to maximize fees.
The headline valuation from these rounds is increasingly disconnected from economic reality due to complex term sheets.
A few common provisions:
- Liquidation preferences of 1.5-2x+
- Full participation rights
- Senior preference to earlier rounds
- Ratchet provisions that adjust ownership in down scenarios
- Guaranteed minimum returns in exit or IPO scenarios
These terms create fundamentally different economic outcomes for different classes of shares. The same company might have a Series F preferred share worth $45 and a common share worth $15, yet both get reported under the same "valuation."
When a broker offers common shares at a "40% discount" to the preferred round, is that actually a discount at all?
The Valuation Blank Slate
At EQUIAM, we approach each potential investment with a blank slate. The price of the last round holds no special significance in our analysis. Instead, we build a comprehensive valuation model based on:
- Current financial performance (revenue, growth, margins, cash burn)
- Expected future performance based on company and sector-specific metrics
- Macro-economic conditions and cost of capital
- Balance sheet strength and funding runway
- Specific rights of the share class being offered
This approach reveals that the private secondary market contains the same distribution as any other market: many deals are fairly valued, some are significantly overvalued, and a select few represent compelling opportunities.
EQUIAM Private Tech30 Fund I Case Study
We assessed outcomes across our first fund (2019 vintage) and saw the above thesis borne out in the data.
Across all 38 portfolio companies, we invested in 21 at premiums and 17 at discounts to their last rounds. Despite the small sample size, both categories showed nearly identical success rates (>1.0x MoIC situations) of approximately 52%.
Premium investments slightly outperformed, generating a 31.4% average IRR compared to 29.1% for discounted entries.
What about capital preservation?
Surprisingly, when investments underperformed (i.e., a <1.0x MoIC), premium entries preserved more capital (0.36x average MoIC) than discount entries (0.25x average MoIC).
The above analysis should be caveated since certain positions were bought several months/years after a round closure, while others were purchased just days after. As one might expect, there tends to be more valuation drift the further you get from the round closure date.
But the takeaway is quite clear: the premium/discount framework that dominates private market investing has seemingly zero predictive value for investment outcomes (at least in the case above).
The Asymmetry of Information
One reason the discount/premium framework persists is information asymmetry. Many secondary investors lack detailed company financials, board materials, or competitive intelligence. When operating in an information vacuum, using the last round as a reference point seems safer than flying blind.
But this approach creates circular logic. If the last round was mispriced (as many were in 2020-2021), then even substantial discounts may still represent poor value.
Instead, the focus should be on obtaining the highest quality information from the most reliable sources to enable underwriting effectiveness.
Finding True Value
The secondary market for private companies is entering a new phase of maturity. As more institutional capital enters this space, simplistic frameworks based on discount/premium to last round will give way to sophisticated analysis of intrinsic value.
This transition creates opportunity for investors willing to do the work. By focusing on business fundamentals rather than psychological anchors, they can find mispriced assets regardless of their relationship to previous rounds.
The question isn't whether you're buying at a discount or premium to the last round. The question is whether you're buying at a discount to what the business is actually worth today.
That's the only discount that matters.
