How we set the price for secondary trades on Altius’s marketplace is one of the most frequent queries we receive from both our shareholder and investor clients. Because they lack the information that is generally available in the public market, private marketplaces run the danger of being opaque. The Private Market Valuations Trend chart in the Altius Dashboard is one tool available to investors. Our Equity Value Calculator is yet another resource available to shareholders. Even while these tools offer some information about secondary pricing, there is still more to learn.
Our Research Team carefully examines each investment opportunity made available on the Altius platform and establishes the right price range for each company in real-time. In the ten years that Altius has been in business, our staff has honed its expertise in secondary transaction pricing. When determining price, they use data from more than 35,000 previous secondary transactions involving 400+ different companies as well as bids, asks, and other confidential information from our marketplace. It combines art and science. Here, we’ll outline some of the major elements of our pricing strategy and provide you with a sneak preview of how prices are determined.
These are the cold, hard facts that influence how we value the shares of a certain company. Key quantitative elements that we take into account include:
- Price of the most recent financing round: One of the main pricing anchors we utilise as a benchmark is the cost at which the business most recently raised private cash. This was the last investment price paid by institutional investors in the business during a round of initial funding. For each private corporation, a new capitalization table must be created in order to calculate the number of outstanding shares.
- Public market comps: we evaluate a specific private company’s public market competitors’ performance, market value, multiples, and other important financial criteria. Because this information is readily available for public companies this is an important input as we consider pricing a given secondary transaction.
- Sector trends: To understand the broader macro trends that could have an impact on the value for a company in a certain industry, we look at the performance of a given sector in the public markets.
- Financials of the company: When available, our staff examines any publicly available financial information regarding a certain company. We utilise these figures as a standard for pricing by comparing them to the pertinent rival comps.
- Security type: Given the liquidity preference granted to preferred owners, common shares often trade at a discount to preferred shares. This is a crucial factor to take into account when setting the price for a specific secondary.
Additionally, more qualitative factors concerning a particular corporation are taken into account when pricing secondary shares. These include news on new product launches, headcount growth, and other good events together with news about both positive and bad business developments, such as layoffs, lawsuits, and an increasingly unfavourable regulatory environment.
The research team at Altius uses a variety of inputs for determining the pricing of secondary trades. In combination with other variables, they are put through our in-house pricing algorithm, which establishes the proper price range for a certain company’s shares at a specific moment. To increase accuracy and account for broader macro issues that affect how shares of both private and public businesses trade, this algorithm has been continuously improved. We rerun it for each subsequent secondary transaction in a given company.
Hopefully, you now have a better understanding of Altius’s pricing strategy for secondary transactions. This methodology serves as a roadmap for us in ensuring that our shareholders and investors are buying and selling shares at a fair market price. In order for a sale to be completed, a buyer and a seller must ultimately agree on a price. Altius’s function as a marketplace is to enable transactions between buyers and sellers at the price where supply and demand converge.
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