Neuralink’s rise leaves Musk employees willing to cash in

According to insiders, some employees of Elon Musk’s Neuralink are preparing to sell shares of the brain implant company, which has seen its value rise significantly after its first human trial.

Equity 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 company approval must use complex turnarounds on niche private market exchanges.

Some Neuralink employees and investors are bracing for Musk’s company to launch a public offering next month to buy back shares from employees who want to sell theirs, according to two sources with knowledge of the matter who spoke on condition of anonymity because they were not authorized to speak publicly.

Neuralink and Musk did not respond to requests for comment.

The jump in Neuralink’s valuation following the launch of its first human trial in January is evident in secondary market trading. While these trades are thin on the ground and don’t provide a reliable measure of Neuralink’s current valuation, they all point to an increase in value — some as much as $8 billion, more than double what the company was worth last year.

Neuralink called its first human trial a success. The company said it had solved an initial problem with the implant’s wires pulling out of its first patient’s brain and is preparing for more trials in Britain and Canada. Musk recently said the company plans to implant a second patient soon.

It was unclear whether Neuralink had formally planned a public offering or what the terms would be. Last fall, Neuralink launched a public offering to employees that priced at around $19 per share, with some shares trading on the secondary market for as much as $35, according to a review of transactions by Reuters and sources familiar with the matter. Startups commonly launch public offerings at a discount to secondary market values.

Musk has for years created a scarcity of shares in his startups, which include rocket company SpaceX and artificial intelligence developer xAI. He has transformed the startups into exclusive clubs that accept only a select few investors, such as Peter Thiel’s Founders Fund.

That scarcity has made the stocks sought after and investors content to receive little information about how the startups have performed after they invest, according to investors and people who have worked closely with Musk. A spokeswoman for Founders Fund declined to comment.

The impact of this scarcity is evident in recent transactions. Buyers on private exchanges in recent weeks have paid a premium of between 84% and 137% on the $3.5 billion valuation Neuralink achieved in its most recent private fundraising round last November, according to a Reuters analysis of recent transactions and PitchBook data.

Most startups aren’t trading at such premiums, and the majority of them are trading at a discount. The median private company is trading at a 32% discount to the valuation of its most recent fundraise, according to brokerage Forge Global.

GREAT MASTER

Neuralink’s valuation has skyrocketed since its launch in 2016, and employees who received shares at a fraction of their current value at launch or shortly thereafter are in for a nice windfall. Some buyers are offering as much as $50 a share, up from about $35 when the human trial began in January, said Sim Desai, CEO of Hiive, who said his secondary platform matches buyers and sellers interested in trading Neuralink shares.

SpaceX, Musk’s most valuable company next to electric carmaker Tesla, also trades at a premium on the secondary market. A recent $130.11 trade valued the company at $232 billion, according to secondary trading data. The company valued itself at about $180 billion in a private fundraising 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, but rather sell them in public offerings that the company itself can control.

One reason, according to Hiive’s Desai, is that federal regulations prevent private companies from having more than 2,000 direct shareholders. Allowing unlimited trading on the secondary market, especially for popular companies like Neuralink, could push a company up against the limit, Desai said. The other reason is that companies retain the ability to provide access to the investors they want at their chosen price.

“It’s actually an opportunity for a company, if they restrict trading, to please their close friends and insiders,” Desai said.

Due to trading restrictions imposed by Neuralink, Hiive only facilitates the matchmaking for shares and the parties must arrange payment and transfer of shares themselves, he said.