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Here’s what investors need to know about how unicorn IPOs are really priced

Robert C. Pozen
Here’s what investors need to know about how unicorn IPOs are really priced

The common shares of unicorns are systematically undervalued relative to their preferred shares up to the IPO date, when the prices of both classes converge. For example, common shares of Uber Technologies (UBER) were sold to a private equity fund in 2015 at a 25% discount to the valuation of its preferred shares in a round just before that sale. Why this disparity? The pre-IPO prices of preferred shares issued by unicorns are relatively high because they provide important rights not enjoyed by common shareholders.