What Did the Last-Round Price Actually Buy?
A secondary share price can sit below the last funding round and still be a poor deal. The round may have bought preferred stock with liquidation preferences and information rights, while the secondary offers common shares with fewer protections. Those differences affect what the two prices buy.
Carta's 2025 private-market review found that down rounds became less common late in 2025. That trend says little about one company's old valuation. Its current business and the rights attached to the offered shares determine whether the discount has value.
Carta reported that less than 14% of new fundings in Q4 2025 were down rounds, the lowest rate in the prior three years. A low down-round rate can coexist with secondaries that trade well below earlier preferred prices.
The Security Behind the Offer
At a modest exit, the offered share's place behind the preference stack can limit its proceeds. Rights to join the next round, transfer restrictions and access to information also affect its value. The lower price buys that whole package.
Different Securities Can Justify Different Prices
| Term | Last round | New purchase | Possible effect |
|---|---|---|---|
| Share class | Preferred | Common | Common may sit behind the preference stack |
| Liquidation preference | 1x or stronger | None | The preferred holder may recover more in a modest exit |
| Information rights | Contractual reporting | Limited or indirect | The new buyer may have less ability to monitor value |
| Transfer rights | Negotiated in the financing | Company approval or right of first refusal | Liquidity may be harder than the price suggests |
| Future participation | Pro-rata right | No right | The new buyer may be diluted without a way to respond |
How the Business Has Changed Since the Round
The last-round price captured one date. Current revenue, cash and the fully diluted share count may support a different valuation. After missed milestones, a 20% lower price can still imply a higher operating multiple.
The opposite can also be true. A business may have improved while an employee seeks personal liquidity. The seller's reason can differ from the company's financial condition.
Structured Terms Can Preserve a Headline and Change the Economics
A round can keep the same headline price by giving new investors better protection against losses. That price then applies to a senior security. It does not set the value of plain common shares. Comparing common shares with that protected price can overstate the discount.
Settlement risk belongs in the same calculation. Company approval and a right of first refusal can delay or prevent the transfer. A price is not fully available to the buyer until the transaction can actually close.
What Determines the Discount's Value?
- The fully diluted cap table captures options, warrants, notes, SAFEs and shares expected before closing.
- Low, middle and high exits show how proceeds differ across share classes.
- Current revenue, cash, margins and financing needs show how the business has changed since the reference round.
- Consent, rights of first refusal, fees and settlement steps affect whether the purchase can close.
- Information, participation, governance and liquidity rights affect the value of the security the buyer receives.
A genuine discount survives all five adjustments. If it disappears after the security and current business are considered, the buyer has found a lower price without gaining value.
The Difference in Numbers
Suppose a share is offered at $8 against a $10 last-round preferred price. The arithmetic says 20% off. But if that preferred round carried a 1x liquidation preference and the offered security is common, the buyer is not comparing like with like.
Carta's figure of less than 14% down rounds in Q4 2025 describes market-wide financings. The specific company, security and price determine the value of an individual offer.
The Business Can Change Alongside the Security
Suppose revenue has fallen 30% since the last round. Paying 20% less per share may still mean paying more for each dollar of revenue than earlier investors did.
Share class, the age of the last price, company performance and transfer risk all affect the meaning of a last-round discount.
Discount Quality Check
A headline discount is persuasive only when the reference price and security are comparable.
View comparison data and assumptions
| Case | Main issue | Investor question |
|---|---|---|
| Real discount | Comparable security and current reference | Is the discount enough for liquidity risk? |
| Questionable discount | Different terms or stale round | What changes the reference price? |
| False discount | Fundamental deterioration | Is the fair value today below the offer? |
Frequently Asked Questions
Is a 20% discount always attractive?
Current business results and share class give the discount context. Preferences and information rights may justify different prices. The last round helps only while it remains a sound comparison.
Should common stock trade below preferred stock?
Common shares often cost less because preferred shares may have stronger financial rights. Preferred holders may also get paid before common holders.