Pre-IPO share repurchases have become a normal event at large private companies, and they raise a challenging economic question: What is a private share actually worth on the day it is sold? A public share has a market price. Anyone can look it up. A private share has no such price. The value has to be estimated. So, when a company buys back shares from a founder or a former executive, and a large funding round is announced soon after at a much higher value, that estimate becomes the heart of the dispute.
A lawsuit involving Oura Health has brought this question into public view. This article sets out the complaint’s key allegations, and then turns to the part that economists can answer: how private shares are valued, why two experts can reach very different numbers, and how the size of a value gap is measured.
The Oura Complaint’s Allegations
In May 2026, Harpreet Singh Rai, the former leader of the company Oura Health, started a legal case in a Delaware court against the company and some of its leaders and managers.
The complaint states the following:
- Rai served as chief executive from 2018 to 2021 and held more than three million shares.
- After he left, the company amended its shareholder agreement to give the board wide discretion over share transfers.
- The company then used this power to block several attempted sales to outside buyers over a period of about two years.
- In 2024, the company approached Rai through a broker about buying back his shares.
- Rai asked about the valuation, a possible financing, and who the buyer was. He was told only that the buyer was an existing investor.
- Rai agreed to sell at about 10 dollars per share and gave up the voting rights attached to those shares.
- Oura later disclosed a financing that valued the company at about 5.5 billion dollars.
- Rai states that he lost about 142 million dollars. He asserts claims that include breach of fiduciary duty, securities fraud under Section 10(b) and Rule 10b-5, and negligent misrepresentation, and he seeks rescission.
The Legal Question and the Economic Question
Two very different questions sit at the heart of a case like this.
The legal question is whether a duty was owed and whether that duty was met. A court decides that question.
The economic question is separate. What was one share of Oura common stock worth on the day it was sold? What was it worth once the financing was announced? And how much of the difference between those two numbers came from information that already existed on the day of the sale? These are questions of valuation and finance. They can be studied with evidence, and they are the subject of the rest of this article.
Why a Private Share Has No Single Price
A private company does not trade on an exchange. There is no daily price. So, the value of a share has to be built up from evidence, using methods such as:
- The price paid in a recent funding round.
- A discounted cash flow model, which takes the cash the business is expected to earn in future years and converts it into a value today.
- A comparison with similar public companies.
- An option pricing model, which splits the total value of the company across the different classes of shares.
Each method rests on assumptions. Change the growth rate, the discount rate, or the exit date, and the answer changes. Two careful experts using the same data can reach different results.
The Gap Between Preferred Shares and Common Shares
This is the point that headline numbers hide, and it matters more than any other point in this article.
Investors who put money into a funding round usually do not buy the same shares that a founder or an employee holds. They buy preferred shares. Preferred shares usually carry extra rights:
- They are paid back first if the company is sold. This is called a liquidation preference.
- They may carry a dividend.
- They may carry protection against future rounds priced lower than theirs.
- They may carry the right to block certain decisions.
Founders, employees, and former executives hold common shares. Common shares sit behind the preferred shares in the queue.
So, when a company announces that a funding round values it at 5.5 billion dollars, that figure is usually the preferred share price multiplied by all the shares in issue. It is not the value of a common share. Because common shares carry fewer rights and stand later in the queue, they are normally valued well below the preferred price. How large that discount is depends on the specific rights attached to the preferred shares, which is why the terms of the round matter as much as the headline number.
Comparing a common share sale price to a preferred share round price is not comparing like with like. It is one of the most common errors in this area.
Why Restricting Sales Lowers the Price for Two Different Reasons
When a board limits who may buy shares, two economic effects appear. Both push the sale price down, so from the outside they can look the same. They are not. One of them lowers what the share is worth. The other lowers what the seller is able to get for it. That difference is what a dispute of this kind turns on.
The first effect is a discount for lack of marketability. A share that cannot be sold freely is worth less than an identical share that can. Buyers pay less for an asset they may be stuck with. This is standard valuation practice, and the size of the discount depends on how hard the shares are to sell. So, a transfer restriction, on its own, genuinely lowers the economic value of the shares. When that is the whole story, the lower price is the correct price. The seller has been paid what the share was worth, and no value has moved from the seller to anyone else.
The second effect is different in kind. It does not lower what the share is worth. It lowers what the seller is able to get for it. If the company is the only permitted buyer, then the seller faces a single buyer and has nowhere else to go. Economists call a single buyer a monopsony. A single buyer can pay less than the price the asset would fetch if several buyers were competing for it. The price then reflects bargaining power rather than the underlying value of the business. Here, the price sits below the value of the share, and the gap between the two is the value that has moved from the seller to the buyer.
This is why a low price on its own proves nothing. Both effects lower the price. The question is not whether the price was low. It is whether that low price was the fair value of the share, or below it. Under the first effect, the seller received what the share was worth. Under the second, the seller did not. Separating the two is an empirical exercise, and it is one of the central tasks in a dispute of this kind.
The Economics of Pre-IPO Share Repurchases
Pre-IPO share repurchases exist because they solve a real problem. Companies now stay private far longer than they once did. Founders, early employees, and former executives may hold valuable paper for many years with no way to turn it into cash. A repurchase run by the company gives them liquidity without letting unknown outside buyers onto the share register.
But the structure has an economic feature that deserves attention. In this kind of sale, the company is on both sides of the deal. The company helps choose the price, and the company is also the buyer. People who study market transactions have demonstrated that sales between related partners have different prices than sales between strangers who have other choices. This is a fact about how prices work, not a statement about bad behavior.
There is also the matter of asymmetric information. In any sale, the side that knows more about the item has an advantage. A company knows its own earnings, its plans for the future, and if a new funding deal is close. A worker who left the company does not know these things. People who study transactions have analyzed this pattern for many decades. The result is simple: a price made when people do not know the same facts is usually different from a price made when everyone knows everything.
How Economists Measure the Value Gap
When a value gap is disputed, the work is done in steps.
First, find the true value of the common share on the day of the sale. Use only the information that people knew or could have known at that time. This proof includes the newest independent calculation of value, papers from the board of directors, facts about earnings and profits, and the status of any real funding talks.
Second, value the common share implied by the later funding round. This requires converting from the preferred price to the common price, using the actual rights attached to the preferred shares.
Third, account for the time between the two dates. Value does not appear in a single moment. It builds.
Fourth, separate the value that came from genuinely new events after the sale from the value that was already present and simply not visible to the seller.
Fifth, apply the correct marketability discount for shares that could not be freely sold.
What remains after those five steps is the economic value gap. In practice, it is usually far smaller than the raw difference between a sale price and a later headline valuation, because the raw difference compares two different classes of shares, ignores the passage of time, and ignores the discount for shares that cannot be sold.
What This Means for Private Companies and Their Shareholders
The economic lessons here are practical.
An independent valuation carried out close to the date of a repurchase produces a defensible estimate of value. A valuation that is many months old does not.
The terms of the preferred shares should be built into any comparison between a repurchase price and a later funding round price, because those terms are what create the gap between the two.
A short gap between a repurchase and a funding round will always draw attention to the value question, simply because the two prices sit so close together in time.
And, any party estimating a loss should be careful to compare a common share with a like common share. The difference between 10 dollars and a headline billion-dollar figure is not, by itself, an economic loss.
Pre-IPO share repurchases are not going away because the need for liquidity in long-lived private companies is real. What the Oura filing shows is that the value of a private share is now a live financial question, and that answering it well requires careful valuation work rather than a simple comparison of two numbers.
Frequently Asked Questions
What is a pre-IPO share repurchase?
It is a transaction in which a private company buys back its own shares from an existing holder, such as a founder or a former executive, before the company goes public.
Why is a private share hard to value?
There is no public market price, so the value must be estimated using financial models. Different reasonable assumptions produce different numbers.
Why is a common share worth less than a preferred share?
Preferred shares are paid back first if the company is sold and often carry extra rights. Common shares stand behind them, so they are usually worth less.
Does a later funding round prove that an earlier price was too low?
Not on its own. Part of the increase may come from events after the sale, and a funding round may price preferred shares rather than common shares.
How do economists measure the loss in a case like this?
They value the common share on the sale date, value it again after the funding round, and then remove the part of the change that came from later events and from the shares being hard to sell.
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