Headline Prices vs. Enterprise Value

I talked to a growth stage VC who believes that the headline prices for deals getting done don’t reflect “true enterprise value”.

Many deals getting done are structured as senior preferred equity with a healthy coupon.

It’s worth internalizing that this is the same as “debt with an equity option”. The new investor earns a healthy return unless the company becomes insolvent. And if the headline price is “too high” then their return comes at the expense of earlier investors and employees.

This isn’t a surprise, but it reflects the fact that headline prices need to come down substantially before clean equity is available for mid/later stage startups.