How does a secondary transaction affect an 820 valuation?
Secondary transactions offer a way for founders, investors, and employees to access liquidity. However, in assessing the effect of secondary transactions on the company's valuation, a variety of aspects should be considered when determining the appropriate weight to assign to the price of the secondary transaction.
Factors that affect the weight given to secondary transactions in valuations include, but are not limited to, those listed below.
Share classes transacted: Valuations focus on common stock, not preferred stock.
Company history and future plans: The context of secondary transactions matters, such as being tied to primary transactions or recurring liquidity events.
Transaction price determination: Factors like arm's length nature, company involvement, and consistency of pricing.
Details of buyers and sellers: New investors, employees, concentration of buyers, and motivations influence weighting.
Seller restrictions: Imposed limitations impact valuation.
Transaction size: Relative size compared to company value and primary transactions matters.