A 409A is a private company's independent appraisal for common stock or equity reserved for founders' and employees' FMV(fair market value).

1. 409A
VALUATION
FACTORS THAT
AFFECT 409A
VALUATION

2. WHAT IS A 409A
VALUATION?
Key points
A 409A is a private company's
independent appraisal for common stock
or equity reserved for founders' and
employees' FMV(fair market value)
The valuation determines the cost of
purchasing a share
The employees, contractors, advisors, and
anyone who receives common stock are
determined by 409As and have options
for the striking price
409A VALUATION

3. WHY DOES YOUR
BUSINESS NEED A
409A VALUATION?
Key points
A company's post-money value is often
different from its 409A valuation
The 409A is based on how much investors
pay for their position after fundraising
Since preferred stock is provided to
investors, a post-money valuation is based
on the preferred stock price, whereas a
409A is based on the common stock price
409A VALUATION

4. HOW DOES BUSINESS
VALUATION AFFECT
409A VALUATION?
Key points
Employees are often rewarded with stock
options as a means for firms to retain top talents
But, issuing them comes with its own set of
rules. Following the 2001 "Enron accounting
disaster," the government started requiring
firms to value stock options granted to
employees perfectly
The law, as per "section 409A of the tax code,"
requires companies to conduct routine audits to
determine the value of the common shares they
give to their employees
409A VALUATION

5. Earnings
Debt Product
diversification
Competition
Growth
FACTORS THAT AFFECT
409A VALUATION

6. GROWTH
Potential buyers and
investors will always be
interested in the company's
future growth possibilities
Still, they are unimportant
for tax purposes or your
company's current value of
assets
409A VALUATION

7. EARNINGS
When analyzing a small business's
worth, potential buyers pay particular
attention to the revenue trends of the
subject organization
Small companies have regularly
outperformed the market's average
EBITDA multiple in the past
And in the future, it will often fetch a
premium over the current average
market EBITDA multiple
409A VALUATION

8. COMPETITION
The company's competitive advantage
value is essential in the business
purchase/sale or the context of
investment
It is also more relevant if the appraisal
is for selling specific intellectual
property (IP) or tangible assets to
enable competitive advantages
A business that is located in a high-
traffic region might provide a
competitive advantage
409A VALUATION

9. DEBT
A corporation's enterprise value
is determined by short- and
long-term debt and cash
reserves
By the amount of money
invested in the company by its
shareholders or its shareholder
contribution
409A VALUATION

10. PRODUCT
DIVERSIFICATION
Since these scenarios are not
uncommon, putting too much trust in an
individual can lead to a great company
risk or the organization's perception
When all the other factors are similar,
the market is more likely to value the
company with complete team
management, which includes sales,
marketing, finance, operations, and
engineering
409A VALUATION

11. Reach out to an expert team of
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queries related to 409a valuation or
other business services
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