What is a 409A Valuation?

409A valuation is a method of valuing a private company based on its securities, generally including common stock, preferred stock, and convertible securities. 409A valuations typically occur when a private company is planning to go public or get acquired, although valuation reporting comes into play at other points in a startup’s lifetime as well.

The process for performing a 409A Valuation generally involves the following steps:

1. Determine the type of security being valued

2. Gather financial and other relevant information

3. Identify comparable companies and transactions

4. Estimate the discount or premium to apply to comparable company/transaction data

5. Develop an implied common share value per unit at the valuation date

6. Calculate the value of the preferred shares in question