Neuralink’s recent surge in valuation has prompted a number of employees to express their desire to liquidate their stock options.
Some employees at Neuralink, the brain implant company founded by Elon Musk, are getting ready to sell their stock as the company's valuation has surged after its first human trial. Stock compensation serves as a significant motivator for staff members at startups like Neuralink.
The shares they are granted are not traded publicly, so
employees looking to sell them without the company's approval must navigate
through intricate processes on specialized private market platforms.
Currently, some employees and investors at Neuralink are
gearing up for a potential tender offer from Musk's company to repurchase
shares from those interested in selling. This offer could be launched as soon
as next month, as per two sources familiar with the situation who preferred to
remain anonymous due to confidentiality reasons.
Neuralink and Musk have not provided any comments in
response to inquiries.
The increase in Neuralink's valuation post the commencement
of its first human trial in January is clearly reflected in secondary market
transactions. Although these transactions are limited in volume and do not
offer a precise figure for Neuralink's current valuation, they all indicate a
surge in worth - with some suggesting a value of up to $8 billion, more than
twice the company's previous year's valuation.
Neuralink has labeled its initial human trial as a triumph.
It has addressed the issue of the implant's threads retracting from the first
patient's brain and is gearing up for additional trials in Britain and Canada.
Musk recently announced that the company is planning to implant a second
patient in the near future.
It remains unknown whether Neuralink has officially planned
a tender offer or the specifics of its terms. Last autumn, Neuralink initiated
a tender offer for its employees at a price of approximately $19 per share,
while some shares were being traded on the secondary market for close to $35,
as per a review of transactions by Reuters and sources familiar with the
situation. It is customary for startups to introduce tender offers at a
discount compared to secondary market valuations.
Over the years, Musk has deliberately created a scarcity of
shares in his startups, which also encompass the rocket company SpaceX and the
artificial intelligence developer xAI, transforming them into exclusive clubs
that only welcome a select few investors, like Peter Thiel's Founders Fund.
The scarcity of information has resulted in high demand for
the shares, and investors are satisfied with receiving limited updates on the
performance of the startups post-investment. This observation is based on
insights from investors and individuals who have collaborated closely with Mr.
Musk. A representative from Founders Fund chose not to provide any comments on
the matter.
The recent trades reflect the scarcity of Neuralink shares.
Buyers on private exchanges paid a premium ranging from 84% to 137% above the
$3.5 billion valuation Neuralink achieved in its latest private fundraising
round last November. This information is based on a Reuters analysis of recent
trades and PitchBook data.
It's worth noting that most startups’ shares do not trade at
such high premiums. In fact, the majority of them trade at a discount.
According to brokerage Forge Global, the median private company trades at a 32%
discount from the valuation of its most recent fundraising.
BIG WINDFALL
The market valuation of Neuralink has experienced a
significant upward trajectory since its inception in 2016. Consequently,
employees who were granted shares at the company’s launch or shortly
thereafter, at a fraction of their current value, are poised to realize
substantial financial gains. Notably, certain buyers are expressing willingness
to pay up to $50 per share, representing an increase from approximately $35 per
share around the time of the commencement of human trials in January. This
information was shared by Sim Desai, the Chief Executive Officer of Hiive, a
secondary platform that facilitates transactions between buyers and sellers
interested in trading Neuralink shares.
SpaceX, Musk’s most valuable company aside from electric car
manufacturer Tesla, also trades at a premium on the secondary market. A recent
transaction at $130.11 valued the company at $232 billion, as per secondary
trade data. The company valued itself at approximately $180 billion in a
private fundraising round in April, according to Pitchbook. SpaceX did not
respond to a request for comment.
It has been reported that Neuralink has requested its
employees to refrain from trading their shares on the secondary market.
Instead, the company prefers that employees sell their stock during tender
offers, which Neuralink can control.
One reason, according to Hiive’s Desai, is that federal
regulations restrict private companies from having more than 2,000 direct
shareholders. Desai explained that allowing unrestricted trading on the
secondary market, particularly for popular companies like Neuralink, could
potentially cause a company to approach or exceed this limit. The other reason
is that companies prefer to retain control over who can invest in them and at
what price.
“Basically, it’s an opportunity for a company, if they
restrict the trades, to do their close friends and insiders a favor,” Desai
said.
Owing to trading limitations imposed by Neuralink, Hiive
only facilitates the matching of shares, and the parties must independently
arrange for payment and the transfer of shares, he stated.