Weekly Update #146, Lo-Fidelity (How Fidelity missed the mark on Stemcentrx)

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Hello Investors,
Curious on the accuracy of all those Fidelity and Morgan Stanley valuations of their pre-IPO tech investments? So was the CEO of one of the companies that Fidelity invested in. Here's what CEO Brian Slingerland of Stemcentrx, who just got acquired for $9.8 billion, had to say:
"Fidelity marked us down 40% while we were trending upwards," Slingerland told me, noting that he was told the decision was driven purely by an audit committee and that the portfolio manager didn't agree. "It is insane to have an audit committee determine your valuation," he added, saying the writedown earlier this year caused anxiety among multiple parties that had been interested in acquiring Stemcentrx. "The assumption is that the investors know something. They didn't." (source: The Information)
I'm quick to acknowledge that acquirers typically have to pay a premium (think of when a public company acquirers another public company: the offer is almost always at a premium to the stock's current price). But, all things considered, a 40% markdown by Fidelity in February of Stemcentrx seems baseless.
So should Mutual Funds' valuations of pre-IPO shares be ignored entirely?
Not necessarily. But I would stay focused on the actual price paid by the mutual funds when they purchase shares, particularly when they purchase common stock. Marks are just marks. But the price that an investor actually pays for shares should be taken into consideration when evaluating any pre-IPO investment opportunities you come across.
In other news...
SpaceX Undercuts ULA to Win Rocket Launch Contract With U.S. Air Force The U.S. Air Force will save 40% by buying a GPS satellite launch from Elon Musk’s SpaceX compared with what United Launch Alliance has been charging.
There has been a lot of public debate over the past several weeks about whether it’s a good thing to be “gross margin positive” or not and commentary always reminds me that some people at startups don’t quite understand financial metrics or even how to think about which ones are healthy.
NextView's Rob Go discusses the trend over the past twelve months of a health return towards more modest seed rounds.
Phil Haslett | Founder + Head of Investments | EquityZen 

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