Facing yet more investor skepticism, electronic payments company Square reportedly priced shares for its upcoming public offering at $9—lower than the company’s proposed IPO range of $11 to $13 a share, and far below the $15.46 price Square had set for private investors during its fundraising round last year. That puts Square’s valuation at around $2.9 billion—dramatically lower the company’s earlier, much more optimistic private valuation of $6 billion.

Square’s IPO announcement comes at a time when the market has become increasingly wary of possibly overvalued tech startups, and some critics have clamored for Silicon Valley to be more realistic about how the companies it prizes will hold up under public scrutiny. Recently, mutual funds including Fidelity and Blackrock marked down the value of their stakes in several late-stage startups, including Snapchat and Dropbox. Square, a six-year-old payments company founded by Twitter CEO Jack Dorsey, has been held up as one of the more highly anticipated tech IPOs over the past few months. But this excitement apparently hasn’t extended to investors.

Because a provision in Square’s most recent private round of funding guaranteed later-stage investors a so-called ratchet, Square will issue those investors extra shares to make sure they receive a 20 percent return on their investment—further diluting the value of the company’s shares. Square will begin trading under the ticker symbol “SQ” on the New York Stock Exchange tomorrow morning.

Square’s Low IPO Price Could Signal Hard Times for Unicorns

Square hit Silicon Valley with a dose of reality this morning, when it announced plans to price its upcoming IPO at $11 to $13 a share. Even at the high end, that would give Square a valuation of around $4.2 billion, nearly $2 billion shy of its most recent private valuation of $6 billion.For Square, it’s an attempt to err on the side of caution in an IPO market that hasn’t been particularly kind to tech companies this year. And yet, it also lends a certain credibility to critics of the frothy venture capital environment who say that so-called unicorns are fetching private valuations they could never justify on the public market.

But what may be most troubling to early investors in Square is a provision in Square’s most recent round of funding called a ratchet. It promises that even if the IPO is priced below the private valuation, Square will issue those investors additional shares in order to ensure they receive a 20 percent return on their investment.

It’s a practice that’s becoming increasingly common in late stage deals, giving influential investors additional protections post-IPO. As Buzzfeed points out, Box recently guaranteed ratchets to its biggest investors, as well. Already, cautionary tales about ratchet deals gone wrong are starting to emerge, with companies like Chegg becoming poster children for how these deals can screw over early investors.

The arrangement puts early stage investors and even early employees at a distinct disadvantage compared to late stage investors, who are guaranteed a payout no matter the outcome. Viewed that way, it’s hard not to see these deals as a product of an environment in which private companies are drastically overvalued. Even as they drive private company valuations higher and higher, these heavyweight investors are simultaneously hedging their bets, negotiating safety nets to protect themselves when a company’s public offering inevitably disappoints.