SQUARE PRICES IPO ALMOST 30% BELOW PRIVATE VALUATION

It appears the bullshit payment traansaction company is going to have its first down round. But don’t worry about their awesome VC investors. They’ll be taken care of.

The investors, including the private equity firm Rizvi Traverse and an arm of JPMorgan Chase, will benefit from a provision they negotiated that is known as a ratchet. Increasingly common in startup financings, ratchets are promises that investors will be issued additional shares if the company’s IPO prices at a disappointing value.

In Square’s case, investors bought $150 million of stock last year at a price of $15.46 per share, giving the company a reported valuation of $6 billion. What the numbers didn’t show was that investors had secured provisions to significantly limit their risk of losing money.

Now, if the IPO doesn’t translate to 20% gains for these late-stage investors, Square has promised to issue them enough additional shares to create that return, the filing shows.

The provision is buried in a single paragraph deep into the IPO prospectus. If the IPO prices below $18.56 per share, the ratchet will be triggered, the filing says.

The fuck? It must be good to be a banker.

It looks like Square’s IPO filing places the proposed valuation at around $4.1 billion, well under the private value of $6 billion. Dollars to donuts says it trades even lower once public.