Upon learning from legal or tax advisors that to grant stock options a 409A valuation is needed, the next logical question startups and founders ask is “Okay, so what is a 409A valuation?” A 409A valuation is an independent appraisal of the fair market value (FMV) of a private company’s common stock. This valuation, required due to section 409A of the IRS’ internal revenue code (IRC), determines the strike price for option recipients to purchase a share. You can’t offer options that comply with rule 409A without knowing how much a share is worth. So, if you want to offer stock options, you’ll need a 409A valuation.
Key questions that will be discussed:
- What are 409A valuations? Why and when do you need them?
- How do liquidity programs impact them?
- What is happening with company valuations in the current market and why we should care?