The Verdict™ on ___ · Investor series · Decide · By Siong Yoong
Square’s $6B valuation hid a clause that decided who got paid
Square raised at a $6 billion valuation and listed at less than half that. A ratchet almost nobody read guaranteed late investors a 20% return — and minted new shares out of everyone else’s stake.
~5 min read
AI thumbnail — to generate
$6B private → $2.9B IPO / read the terms
Illustrative read — these are teaching numbers, not a live score.
TL;DR — A headline valuation is a marketing number until you read the clause that holds it up. Square’s $6 billion was propped by a guarantee to its last investors, and when the company listed lower, that guarantee took shares from everyone who didn’t have it. The valuation wasn’t the deal — the terms were. Here’s how to read them.
Square’s Series E priced at $15.46 a share with a ratchet: if the IPO came in below a set price, late investors would be topped up to a 20% return regardless. The IPO priced at $9, valuing Square around $2.9 billion, and the ratchet fired — issuing roughly $93 million of additional stock to those investors, diluting the founders and earlier holders who had no such protection.
Verdict Insight™
Late-stage valuations are quoted as if they were prices. They’re often closer to a story with a footnote. A ratchet, a senior liquidation preference, a participation right — each one means the number on the headline is being paid for by someone whose name isn’t in the headline. Usually the founder. Sometimes you.
The people who “got in at $6 billion” and looked foolish at IPO actually did fine, because their terms protected them. The people who read only the valuation are the ones who got hurt. Structure decides the outcome; the number just decides the press release.
How to read it on your own deals
Never read a valuation without reading the preference stack and any IPO or down-round protection underneath it. Ask one question of every late round: if this company exits below the headline, who is made whole first, and out of whose shares? If you can’t answer that, you don’t know the price you’re paying.
Run it by hand — or let a skill run it for you
You can do this yourself — read the stack, trace the preferences. When you want the terms captured cleanly next to the number, I’ve packaged it into a free Claude skill that records the instrument and the key terms of every round, not just the valuation. Register and it’s yours, no subscription, no catch. Get the free skill →
Sources
The coin split and any Verdict™ score shown above are illustrative teaching reads, not actual Verdict™ assessments. The facts, figures and dates are drawn from the sources listed here.
- Forbes — Square IPO: how VCs made money buying $9 shares for $15.46 — and who lost out. 29 Nov 2015
- Forbes — Square prices IPO below range at $9 a share, now valued at $2.9 billion. 18 Nov 2015