What data will I need to provide to complete a 409A valuation?

Takeaway: 409A providers use historical financials, financial projections, and information about your business and strategy to come up with a valuation. One of the valuation methods they use is market comparables, so they’ll need to assess how similar your company is to public company comparables.

A 409A valuation is a type of valuation used by startups to determine the fair market value of their stock options for tax purposes. In order to complete a 409A valuation, startups will need to provide a variety of information about their business and financials. I’ve outlined below some key pieces of information that a startup will need to provide in order to complete a 409A valuation.

Basic company materials

You will need to provide general information about your company including the name of your CEO and a copy of your certificate of incorporation and bylaws.

Capitalization table

The capitalization table provides a summary of the company's ownership structure, including the number of outstanding shares of common and preferred stock, the ownership percentage of each shareholder, and any outstanding stock options, warrants, or other equity instruments.

Financial statements

Startups will need to provide financial statements, including balance sheets, income statements, and cash flow statements. These statements should cover at least the last two years of operations to the extent your company has been in existence that long.

Business plan

The startup's business plan should provide an overview of the company's business model, target market, competitive landscape, and growth strategy.

Market data

Startups should provide market data that is relevant to their business and industry, including information about competitors, industry trends, and market size. 409A valuations often use public companies as comps so if you believe there are public companies that would be appropriate comps for your company, it can be helpful to provide them.

Operating metrics

Startups should provide key operating metrics that are relevant to their business and industry, such as monthly recurring revenue, customer acquisition costs, and churn rate.

Future projections

Startups should provide future projections of their financial performance, including revenue, profitability, and cash flow.

Information about recent financings

Startups should provide information about any recent financings, including the amount of funding raised, the valuation of the company, and the terms of the financing. It is also helpful to provide estimates of timing for any exit event, to the extent one is contemplated.

Conclusion

Completing a 409A valuation requires a significant amount of information about a startup's business and financials. By providing this information to a qualified 409A provider, startups can ensure that their stock options are priced in compliance with tax regulations and provide a valuable incentive for employees to contribute to the company's success.