When Is a Discount to the Last Funding Round Not Really a Discount?
Carta's 2025 private-market review showed that down rounds became less common late in 2025, but pricing still varied widely across companies. A lower down-round rate does not mean every old valuation is reliable. A secondary discount should be tested with current company quality and terms.
Carta reported that less than 14% of new fundings in Q4 2025 were down rounds, the lowest rate in the prior three years.
A Lower Price Is Not Always a Bargain
A price below the last funding round is not automatically a bargain. The new buyer may receive common stock instead of preferred, weaker information rights, a smaller claim in the exit waterfall, transfer limits, or no ability to invest in later rounds. The company may also have issued more shares or missed the plan that supported the old price. The useful comparison is value per unit of economic right, not price per share alone.
Compare the Security Before the Price
| 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 |
The Old Valuation May Be Stale
The last round price reflected what investors knew at that date. Since then, revenue may have grown, stalled, or fallen. Public comparisons may have reset, the company may have used most of its cash, and new options or convertible instruments may have changed the share count. A 20% discount to a two-year-old price can still be expensive if the company has not reached the milestones behind that price. It can also be attractive if the business has improved and the seller needs liquidity for reasons unrelated to company quality. The facts since the round matter more than the headline discount.
Structured Terms Can Hide the Real Price
A new financing may preserve the headline valuation while giving the investor a senior preference, guaranteed return, ratchet, or other downside protection. Comparing a plain secondary purchase with that headline price can overstate the secondary discount. The reverse can also happen. A buyer may pay less but take restrictions, long settlement timing, or uncertain company approval. Those costs do not appear in the price per share, yet they affect the investment.
A Better Review
- Build the fully diluted cap table. Include options, warrants, notes, SAFEs, and shares expected before closing.
- Compare proceeds to each class at low, middle, and high exit values.
- Update company performance: Use current revenue, cash, margins, and financing needs.
- Check consent, right of first refusal, fees, and settlement steps.
- Compare rights: Price the information, participation, governance, and liquidity rights being received.
A real discount survives all of those adjustments. If it disappears once the security and current company facts are included, the buyer is looking at a lower number, not a cheaper investment.
Why the Headline Discount Can Mislead
A share offered at $8 against a $10 last-round preferred price appears to be a 20% discount. If the last round included a 1x preference and the offered security is common, the economic comparison is not apples to apples.
Carta reported less than 14% down rounds in Q4 2025, but the figure describes new fundings, not the fairness of any single secondary price.
Adjust the Reference Price
If revenue has fallen 30% since the last financing, a 20% price discount may still represent a higher revenue multiple than the prior round.
A last-round discount should be adjusted for share class, valuation staleness, company performance, and transfer risk.
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 | How should the reference price be adjusted? |
| False discount | Fundamental deterioration | Is the fair value today below the offer? |
Frequently Asked Questions
Is a 20% discount always attractive?
No: It depends on current company quality, share class, preferences, information rights, and whether the last round is still relevant.
Should common stock trade below preferred stock?
Often yes: Preferred stock may have rights and priority that common stock lacks.
Related Reading
why common trades below preferred, share class and preferences, and stale valuations.