409A · Valuation

Does anyone have experience with 409a or other business valuations?

Luis Berga Co-Founder at Music Meets Video

December 11th, 2013

Hi everyone, 

I was hoping to get some feedback on the general process for business valuations from the entrepreneurs point of view. Hopefully, soon enough I'll get to the point of needing one for my own entrepreneurial projects, but right now for my day job I only deal with finance people and attorneys for valuations and would love to hear what the experience is like for the entrepreneur.

Is it a hassle?
How did you select a firm?
 Is it something that you were actively involved with or did you just pass it off to your finance people?

Any help is really appreciated! 

Mike Mitchell Consultant: Technology Development and Management

December 16th, 2013

We were stuck needing to get an evaluation because equity or options does not matter if they have any value. The experience was not good, thousands paid just to do something fairly simple, but the only way to get safe harbor was to hire it out. For a bootstrapped company it was allot of rigmarole. But we learned an important lesson, get the equity agreements on paper early when the company is worthless, or pay the price in lawyers and assessors later. 

It would have been great to find some with low flat fees. It's especially problematic when trying to recruit a second round of founders on an equity basis. We just went with someone local. 

Steve Newman CEO/Founder @ Scalyr

December 12th, 2013

As it happens, I asked the question that started that thread. I'd been meaning to follow up: in the end, we wound up skipping stock options entirely and giving outright stock grants instead, with a buyback clause to achieve vesting. We did this primarily to avoid the expense and hassle of a 409a valuation. It also has a benefit for the recipients, in that they are much more likely to be able to get long-term capital gains treatment someday down the road when they are able to sell their shares.

Of course, this won't work for everyone. We are bootstrapped, and so we haven't had to set a high valuation on our shares for fundraising purposes. This makes it much more palatable to sell shares outright to our employees and gross them up for the purchase price.

Jessica Alter Entrepreneur & Advisor

December 11th, 2013

Already a good thread on this http://members.founderdating.com/discuss/97

Deepa Ayer Senior Benefits Consultant at Menke & Associates

March 22nd, 2016

In my line of work I end up interacting with appraisers all the time, valuations are not cheap,  however most companies get one only if they are required to or are doing some sort of feasibility study in relation to equity.