I agree with your description of the mechanics, but not with your conclusion that "there was a reason for discounting the value of the common at the time of the

I agree with your description of the mechanics, but not with your conclusion that "there was a reason for discounting the value of the common at the time of the A round but that reason goes away once the acquisition occurs" and that "it is legitimate for company valuations to be based on the latest preferred pricing." That analysis assumes that the acquisition will occur at a price that makes it worthwhile for the preferred investors to convert their shares to common, and therefore that the preference will be irrelevant. Of course if there is a tender at a high-enough price, then the common shares will be worth the same as the preferred. But until that occurs, the preference is valuable. After all, the point of the preference is that it's a hedge against an uncertain outcome -- in this case, an acquisition that takes place at less than the original price of the preferred shares. That's why you can't properly value the equity in a company by multiplying the price of the most valuable kind of shares by the total number of shares outstanding. In the presence of uncertainty about the value of a future buyout, the shares that don't have the preference really are worth less. Fortunately, the company does not really claim this fake-valuation as its value anywhere that matters -- only when boasting to the press and to prospective employees.