Private investments require not only the long view but a bit of X-ray vision. Betting on a start-up means multiple rounds of funding. From afar, it seems easy enough to deduce the value of the enterprise by taking the latest investment multiplied by outstanding shares. Think again. Headlines citing the billions of dollars a start-up is valued at in its last round of funding can be misleading. For a start, nascent companies often have different share classes. Later investors putting up more capital get preference in the case of any liquidation. These later rounds do not reflect the valuation for all shareholders. Funding round valuations only reflect the last investment, not previous stages. Most of us dream of getting in early for the next Apple or Netflix. But early-stage investors may well find themselves with less protection should the venture go out of business. All shares are not created equal. First, it does not mean first out in the case of trade sales or liquidations. Invest...

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