Everyone is getting it wrong - The investors who got in Square at a $6 billion valuation made a killing on the IPO

Everyone is crowing about the collapse of Square's valuation and how the late stage investors who valued the company at $6 billion are dumb.

Turns out, that's completely wrong.

Now that Square's IPO is out the door, there's one thing that is crystal clear: The investors who valued that company at $6 billion last year got an absolute deal.

This may come as a surprise to some people since Square priced its IPO at $9 per share, giving it a $2.9 billion valuation. When the IPO pricing was announced a lot of people thought it was an embarrassment for Square, and a bad deal for the investors who bought in at half the IPO valuation.

While it's certainly not ideal for Square, it's fine for the late stage investors. Especially now that the stock is popping by more than 50% in its first day of trading.

The late stage investors who invested at $6 billion protected themselves with "a ratchet," which is a financial term for guaranteed return.

The late stage, or Series E, investors valued Square stock at $15.50, and built in a guaranteed 20% return on those shares. According to Square's IPO filing, it promised a share price at $18.55 or higher for its Series E investors. Since it didn't hit that number in the IPO pricing, the Series E investors got 10.3 million shares valued at $9 per share to make up for the difference in price, per the WSJ.

When Square started trading, the stock opened at $11.24, but jumped as high as $14.78, with 30 million shares being traded, according to Yahoo Finance data.

We don't know when, or if, the investors who got 10.3 million shares sold their shares this morning. But, if they sold a few hours after trading started, they could have gotten as much as a 64% return on their investment if they nailed the top trade. Considering the broader market has been essentially flat for the year, a return of that size is a great, year-making investment.

As for Square, it's not the best. The headlines don't look great, since its valuation fell. But, as venture capitalist Fred Wilson noted, it doesn't really matter. The important thing is that the IPO deal is done. Square needed cash, and now it has cash. If it runs a good business, the share price will rise and this will all be a blip.