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Startups

Square’s Big Value Gap is in Options

When payments company Square prices its initial public offering late Wednesday, there’s sure to be plenty of analysis comparing its new public market valuation with its most recent private valuation of $6 billion. If its preliminary IPO price range is any guide, Square is expected to be worth only about $3.9 billion when it starts trading.

That expected big drop has helped fuel bearish sentiment towards the private tech sector in recent weeks. But most of the difference between Square’s private and preliminary public valuation numbers was due to how observers count the number of shares the company has outstanding, due to how stock options are treated.

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When looking only at outstanding common and preferred shares, Square’s private fundraising round last year valued the company at $4.3 billion, while an IPO at range midpoint would value it at $3.9 billion.