Deep Capital Structure Diligence
Ani Banerjee, co-founder of Andromeda Group, on secondary diligence and companies staying private
The real price of a private secondary often sits below the headline valuation because not all shares are created equal. In a late stage company, a buyer might be choosing between common stock with no downside protection, or preferred shares from an older round that may still carry liquidation and anti dilution rights. That is why a simple 20% discount to the last round can be misleading, especially once multiple rounds of financing have stacked up on the cap table.
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What matters first is where a share sits in the payout line. Preferred holders can have rights that common holders do not, and those rights can materially change outcomes if the company exits below expectations. Once a company has raised through Series D or E, that gap can be large enough to change what a share is worth today.
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This is why last round pricing is a weak shortcut. Across tender offer data, 83% of transactions were priced at or under the last round price, and those offers were often still underpriced relative to later price discovery. The market uses the last round as an anchor, but the actual economics depend on share class, dilution, and preferences.
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The shortcut becomes more acceptable only when an IPO is close. At that point preferred stock usually converts into common, so many of the old preference terms matter less. But before that conversion moment, digging into the preference stack, dilution history, and what security is actually being sold is core diligence, not paperwork.
As companies stay private longer and raise more rounds, secondary buyers will increasingly be underwriting capital structure complexity, not just company growth. The winners in late stage secondaries will be the investors who can tell the difference between a share that only looks cheap versus one that is genuinely mispriced after accounting for where it sits in the stack.