In broad strokes, a 409A valuation is a three-step process: The first step determines how much a company is worth (i.e. “enterprise value” – more on that below). The enterprise value is then allocated across the various equity classes to arrive at the fair market value (FMV) for the common stock.13 feb 2020
How much is a 409A valuation?
IRS tax code mandated 409A valuations typically cost between $2,000 to $5,000+ depending on the complexity of the exercise and the valuation provider. Startups that use cap table software companies spend over $3,000 annually, and many spend over $10,000.
Can I do my own 409A valuation?
You have three options to get a 409A valuation report: Do it yourself. This is the riskiest option of the three because there is no "safe harbor" protection should the IRS get involved. That means you have to prove that your valuation is correct.31 may 2017
How accurate are 409A valuations?
After working with several companies through the IPO process, I can anecdotally say that the last 409A valuation for a company is usually 20% to 30% lower than the initial public offering price. This has also been the case following an acquisition and is clearly true if a startup goes out of business.3 ago 2017
Is 409A fair market value?
Enter the IRS Section 409A valuation. A 409A is an independent appraisal of the fair market value (FMV) of a private company's common stock, or the stock reserved for founders and employees. This valuation determines the cost to purchase a share.22 oct 2019
What is a 409A value?
A 409A is used to determine the fair market value (FMV) of your company's common stock and is typically determined by a third-party valuation provider. 409As set the strike price for options issued to employees, contractors, advisors, and anyone else who gets common stock.
Is preferred price the same as fair market value?
The value that investors paid per share in the most recent round of fundraising. This is usually higher than the price that employees pay per share (fair market value or FMV). Investors get something called liquidation preferences. ...
Who can perform 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.13 feb 2020