Neuralink’s jump in value leaves some Musk employees on the verge of leaving

By Rachael Levy

(Reuters) – Some employees of Elon Musk’s Neuralink are preparing to sell shares in the brain implant company after its value jumped following its first human trials, people familiar with the matter said.

Stock compensation is a big incentive for employees at startups like Neuralink. The shares they receive aren’t publicly traded, and employees who want to sell them without the company’s approval must use complex turnarounds 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 sources familiar with the matter who asked not to be identified because they were not authorized to speak publicly.

Neuralink and Musk did not respond to requests for comment.

The jump in Neuralink’s valuation after the launch of its first human trial in January is clearly visible in transactions on the secondary market. While these transactions are small and do not provide a reliable number for Neuralink’s current valuation, they all indicate an increase in value – some as high as $8 billion, more than double the company’s value last year.

Neuralink called its first human trial a success. The company said it had fixed an initial problem, namely the implant’s threads pulling back from the first patient’s brain, and is now preparing further trials in the UK and Canada. Musk recently said the company plans to implant a second patient soon.

It could not be determined whether Neuralink has formally announced a tender offer or what the terms would be. Last fall, Neuralink made a tender offer for employees that was priced at about $19 per share, while some shares traded for as little as $35 on the secondary market, according to an analysis of trading activity by Reuters and sources familiar with the matter. It is common for startups to make tender offers at a discount to secondary market value.

For years, Musk has made sure that shares in his startups, which include rocket company SpaceX and artificial intelligence developer xAI, became scarce, turning them into exclusive clubs that accept only a few investors, such as Peter Thiel’s Founders Fund.

That scarcity has made the shares sought after, and investors are content with receiving little information about how the startups have fared after they invested, say investors and people who have worked closely with Musk. A spokeswoman for Founders Fund declined to comment.

The impact of that scarcity is reflected in recent transactions, with buyers on private exchanges paying a premium of between 84% and 137% in recent weeks to the $3.5 billion valuation Neuralink reached in its most recent private funding round last November, according to a Reuters analysis of recent transactions and PitchBook data.

The story goes on

Most startups’ shares do not trade at such premiums, and the majority of them trade at a discount. According to broker Forge Global, the average private company trades at a 32 percent discount to its last capital raising.

GREAT SUCCESS

Neuralink’s valuation has skyrocketed since its founding in 2016, and employees who received shares at a fraction of their current value at launch or shortly thereafter are in for a windfall. Some buyers are bidding as much as $50 per share, compared to about $35 when human trials began in January, says Sim Desai, CEO of Hiive. Its secondary platform brings together buyers and sellers interested in trading Neuralink shares.

SpaceX, Musk’s most valuable company besides electric car maker Tesla, also trades at a premium on the secondary market. A recent transaction at $130.11 valued the company at $232 billion, according to secondary trading data. The company was valued at around $180 billion in a private funding round in April, according to Pitchbook. SpaceX did not respond to a request for comment.

According to the sources, Neuralink is asking its employees not to trade their shares on the secondary market, preferring to sell them in takeover offers that the company can control.

One reason, according to Hiive’s Desai, is that government regulations restrict private companies from having more than 2,000 direct shareholders. Allowing unlimited trading on the secondary market, especially for hot companies like Neuralink, could push a company to that limit, Desai said. The other reason is that companies still have the ability to gain access to the investors they want at the price they want.

“Basically, restricting trading is an opportunity for a company to do its close friends and insiders a favor,” Desai said.

Because of the trading restrictions imposed by Neuralink, Hiive merely facilitates the brokerage of shares and the parties must arrange payment and transfer of the shares themselves, he said.

(Reporting by Rachael Levy in Washington, DC; Editing by Greg Roumeliotis and Anna Driver)