Who can do a 409A valuation?

Who can do a 409A valuation?

While there are many ways financial experts (e.g. M&A experts, equity research analysts, VC firms) can determine enterprise value, in 409A valuation work, there are three main methodologies: market, income, and asset-based.

When should I do a 409A valuation?

Generally, you should get your first valuation before you issue your first common stock options (typically to your first hire or advisor). You will also need a new valuation after raising a round of venture financing, as the previous 409A becomes obsolete once the new round is raised.

Can I ask for 409A valuation?

The 409A valuation is an appraisal done for tax purposes and done annually or upon a new round of financing. You should ask when the last 409A valuation was done. If it’s been a while, the company may have to do another 409A valuation, which means your exercise price may go up.

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What’s 409A valuation?

A 409A valuation is an assessment of the fair market value of a private company’s common stock by a third-party, independent appraiser. Obtaining a 409A valuation from an independent appraiser is one of the “safe harbor” methods of determining fair market value detailed in the tax code.

What are 409A valuations?

When do I need a new 409A valuation?

After 12 months (or sooner, if there’s a qualified financing round or material event), your company will need a 409A “refresh” or updated valuation. Any event that may change the valuation of the company means you need a new 409A. What is 409A safe harbor?

What is a material event under 409A?

Outside of a financing, whether an event is “material” varies case by case. These include acquisitions, divestitures, secondary sales of common stock, business model pivots, and missing or exceeding financial projections. If you aren’t sure, reach out to a 409A valuation provider or consult your lawyer.

What is the 409A safe harbor?

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The 409A creates a framework for private companies to follow when valuing private stock. When the valuation is conducted by an unaffiliated or independent party, it establishes a safe harbor, meaning the 409A is presumed to be “reasonable” by the IRS—save for a few exceptions.

Can a privately held company avoid Section 409A deferred compensation?

A privately held company will avoid having a stock option be treated as “nonqualified deferred compensation” under Section 409A if, among other factors, the stock option is granted with an exercise price that is no less than FMV on the date of grant. 2