Rachel Levy
(Reuters) – Some employees at Elon Musk’s Neuralink are preparing to sell shares in the brain implant company as its valuation surges after its first human trial, people familiar with the matter said.
Stock compensation is a big incentive for employees at startups like Neuralink. The shares they received were not publicly traded, and employees who wanted to sell them without the company’s consent had to go through a complicated turnaround on niche private market exchanges.
Now some Neuralink employees and investors are preparing for Musk’s company to launch a tender offer as early as next month to buy back shares from employees who want to sell, according to two people familiar with the matter. No authority to do so.
Neuralink and Musk did not respond to requests for comment.
Neuralink’s valuation has surged since launching its first human trials in January, which is evident in secondary market trading. While the transactions were small in volume and did not provide reliable data on Neuralink’s current valuation, they all signaled an increase in the company’s value – some as high as $8 billion, more than double the company’s market capitalization last year.
Neuralink says its first human trial was a success. The company said it resolved initial issues with the implant’s wires retracting from the first patient’s brain and was preparing to conduct more trials in the UK and Canada. Musk recently said the company plans to implant a second patient soon.
It is unclear whether Neuralink has formally arranged the tender offer or its terms. Last fall, Neuralink launched a takeover bid for employees at about $19 a share, with some shares trading at nearly $35 on the secondary market at the time, according to a review of the deal by Reuters and people familiar with the matter. Startups often launch takeover offers at a price lower than secondary market value.
For years, Musk has been creating stock scarcity in his startups, which also include rocket company SpaceX and artificial intelligence developer xAI, turning them into exclusive clubs that accept only a handful of investors, such as Peter Thiel’s Founders Fund.
Investors and people who work closely with Musk say that scarcity makes the stocks sought after, and investors are content with having little information about the performance of startups after investing in them. A Founders Fund spokesman declined to comment.
The impact of this scarcity is reflected in recent transactions. Over the past few weeks, buyers on private equity exchanges have paid 84% to $1.37 billion of the $3.5 billion valuation Neuralink secured in its most recent private financing round, according to a Reuters analysis of recent deals and PitchBook data. % premium.
Most startup stocks don’t trade at such a premium, and most trade at a discount. Private companies are trading at a median discount of 32% to their most recent financing valuation, according to brokerage Forge Global.
windfall
Neuralink’s valuation has soared since its founding in 2016, and employees who received shares when the company was founded or soon after for a fraction of its current value are in for a huge windfall. Hiive Chief Executive Sim Desai said some buyers were offering as much as $50 a share, up from around $35 a share when human trials began in January. Buyers and sellers trading Neuralink stock are matched.
SpaceX, Musk’s most valuable company besides electric car maker Tesla (NASDAQ: ), also trades at a premium on secondary markets. The most recent deal, priced at $130.11, valued the company at $232 billion, according to secondary trade data. The company was valued at about $180 billion in a private financing round in April, according to Pitchbook. SpaceX did not respond to a request for comment.
Neuralink asked employees not to trade shares on the secondary market, preferring to sell shares during a tender offer that the company can control, sources said.
Hiive’s Desai said one reason is that federal regulations prohibit private companies from having more than 2,000 direct shareholders. Desai said allowing unlimited trading on the secondary market, especially for a popular company like Neuralink, could push a company to its limits. Another reason is that companies retain the ability to attract the investors they want at a price of their choosing.
“Basically, if a company restricts trading, it’s an opportunity to help their close friends and insiders,” Desai said.
He said that due to Neuralink’s restrictions on transactions, Hiive only facilitates share matching, and parties must arrange payments and share transfers themselves.
(This story has been refiled to remove extraneous words in paragraph 10)
