409A Valuation

A 409A valuation serves as a means to establish the value of a privately owned enterprise by taking into account its securities like common stock, preferred stock, and convertible securities. Typically undertaken when a private company is preparing for an initial public offering or acquisition, this valuation process also comes into play at other junctures during the growth and development of a startup. The process of conducting a 409A Valuation typically includes the following actions – (i) Identifying the specific type of security under evaluation; (ii) Collecting pertinent financial and other data; (iii) Analyzing comparable companies and transactions; (iv) Estimating the discount or premium to be applied to comparable transaction information; (v) Determining the implied value per unit of common shares at the valuation date; and (vi) Calculating the worth of the preferred shares in consideration.