How Pulley Solves Carta’s 409A Valuation Risks

A 409A valuation can make or break your next audit or funding round. The bar is higher in 2025: Auditors are digging deeper, investors are asking harder questions, and boards expect airtight assumptions. A poorly prepared or rushed 409A might check a box today, but under real scrutiny, it can unravel fast.

Pulley and Carta are two of the most searched options for 409A providers. But the similarities between the two mostly stop at name recognition. Carta’s valuation methodology and how its team is staffed can impact whether your numbers hold up under auditor or investor scrutiny.

The differences between Carta and Pulley matter most when every assumption is scrutinized. Pulley’s in-house valuation team prepares reports that hold up in real audits and give CFOs and controllers the confidence to identify risks early and stand behind their numbers.

Why 409A valuations matter more than ever in 2025   

Once a formality, a 409A valuation is now a liability risk and a make-or-break factor in fundraising. Closer IRS scrutiny and the rise of secondary sales mean the margin for error is shrinking, and poorly done valuations carry higher costs. Investors are also applying more due diligence pressure, often requiring up-to-date valuations before committing capital.

Section 409A of the Internal Revenue Code provides guidance for determining the fair market value (FMV) of a company’s common stock. A valuation performed according to section 409A sets the strike price for stock options and supports compliance for IRS documentation, including Form 3921. Companies must file Form 3921 when employees exercise Incentive Stock Options (ISOs), enabling the IRS to track and enforce tax liability.

Under IRS rules, a company must show that the strike price meets or exceeds FMV to avoid penalties for discounted equity. The safest approach is to obtain a third-party valuation that follows recognized standards. This grants “safe harbor” status, meaning the IRS will accept the valuation unless it can prove it's unreasonable. Most companies use independent appraisals to document FMV and stay compliant.

The risks of treating 409As like a commodity

When it comes to defining “recognized standards,” things can get murky. Audit firms and regulators look closely at who prepared a report, how the data was sourced, and whether it accurately supports the fair market value you report to the IRS. 

Valuations based on internal datasets or automated models can appear credible but may not hold up under closer scrutiny. Unclear methods and assumptions can raise questions during review. For example, some providers use approaches like the Probability Weighted Expected Return Method (PWERM) in certain cases, which weighs possible exit scenarios such as IPO or acquisition. While PWERM is valid, its results depend on assumptions that reflect your company’s actual outlook.

Even small errors in 409A valuations can complicate equity planning and create compliance and credibility concerns for pre-IPO companies.

The Carta 409A valuation process: Key risks to understand

The biggest difference between 409A providers isn’t the software. It’s who’s doing the valuation and whether they stand behind it.

Audit risks from weak ownership and analyst inexperience

Redwood Valuation, a third-party firm, raised concerns in 2023 about the experience level of Carta’s in-house valuation team, noting an average of just 3.3 years per analyst. Many team members were estimated to have fewer than two years of experience, potentially limiting the depth and reliability of reports for companies with complex cap tables.

Carta also does not assign a named analyst to its 409A reports. According to Redwood's analysis, the company does not sign its valuation reports, meaning Carta is not legally accountable if the report is challenged during an audit. This lack of ownership can lead to ambiguity in financial statements and cause issues in due diligence, audits, or public filings.

Per its product release notes, Carta’s initial 409A valuations for early-stage companies are now at least partially automated, with limited human review. While Carta does offer support from valuation specialists, some customers have reported that more experienced analysts are reserved for larger companies—and that personnel assigned to a valuation may change in future updates. This can limit continuity and reduce the depth of insight available to early-stage companies.

According to Carta’s own website, its 409A valuations for early-stage companies begin with an automated pricing model. While human reviewers are involved later in the process, the initial valuation is algorithmically generated, which can limit early-stage companies' access to specialized review and direct analyst interaction.

Flawed data inputs

A key concern with Carta’s valuation approach is the data it relies on. Rather than sourcing independent market comparables or using external financial benchmarks, Carta primarily pulls data from its own customer base. This dataset may be broad, but it isn’t independently validated or publicly auditable. 

Carta uses historical data from other clients to justify lower strike prices. Companies are compared against others on the platform using opaque success or failure weightings rather than clear financials. Some companies have raised concerns that their own financial data could indirectly influence another client’s valuation, even without explicit consent. If the SEC or IRS reviews a report built this way, every data point may need to be disclosed and defended, which most companies aren’t prepared for.

Carta has also had issues in the past when their team contacted cap table clients about its secondary market business, raising concerns about how customer data was being handled.

Audit concerns and red flags 

Concerns are growing that Carta’s 409A methodology may not hold up under audit scrutiny. According to an analysis by Venture First, recent Carta 409A reports have omitted total equity value and total enterprise value. Their absence raises questions about whether the conclusions are supportable. In addition, appraisers are generally required to certify their assignments under specific USPAP standards.  Failure to list the responsible appraisers could create audit challenges.

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Carta has reportedly discontinued its  “hybrid” valuation approach following audit feedback. Despite updates, some Carta reports still include disclaimers such as “not intended for financial reporting.” This raises further concerns about compliance with ASC 718 guidelines. Pulley reports, by contrast, are prepared to meet both IRS 409A and ASC 718 standards.

Additional critiques have emerged from other valuation firms. Redwood Valuation, for example, has highlighted the risks of using internal datasets and imprecise methods. Even without an immediate penalty, a flagged footnote can be a trail marker that invites scrutiny later. For pre-IPO companies, this can undermine investor confidence.

Some finance teams have also raised concerns about Carta’s use of aggregated private-company data in valuations, arguing that it blurs the line between platform data and independent analysis.

Carta’s valuation process is often described as a “black box,” meaning founders, CFOs, and legal teams may have limited insight into how the numbers are calculated. Their limited transparency can trigger additional scrutiny that a startup may not be equipped to resolve.

Pulley, by contrast, takes a transparent approach to valuations. Reports meet IRS 409A and ASC 718 standards, disclose full methodology, and are signed by credentialed appraisers. Pulley’s valuations give finance teams and investors confidence that they will hold up under audit.

Pulley’s 409A valuation service: Designed for audit-readiness 

Pulley approaches its valuations differently. Every detail is built to withstand audits and provide finance leaders with confidence when the stakes are high.

Credentialed, in-house experts   

Pulley doesn’t outsource valuations or rely on generic reports. Every 409A valuation is prepared and signed by a credentialed, in-house expert who understands your business. That same expert stays with you for both the initial valuation and any future refreshes. If an auditor has questions, your analyst is available to walk them through the methodology. And with Pulley, you receive lifetime support for all your 409A valuation needs.

You’re assigned a dedicated analyst who learns your cap table, company, and priorities—and stays with you for both the initial valuation and any future refreshes. If an auditor has questions, your analyst is available to walk them through the methodology. And with Pulley, you get lifetime support for your 409A valuation needs.

Defensible, independent data

Pulley uses publicly available comparables and trusted financial databases to ground its valuations, not internal customer data. Every source is external, auditable, and tied to your company’s actual metrics, creating an objective foundation that auditors trust.

Rather than relying on proprietary benchmarking tools or platform-specific trends, Pulley’s valuations reflect what your business is worth in the market, not what someone else’s startup raised years back. It clearly explains discounts backed by established audit-approved practices, resulting in a valuation that’s fair, transparent, and defensible.

Built-in compliance confidence

Pulley’s reports meet both IRS standards and financial audit requirements. This dual compliance provides safe harbor protection and complete ASC 718 alignment in the same document. CFOs and controllers preparing for audits or public filings get clarity and avoid last-minute surprises. Each Pulley valuation comes as a 60+ page report outlining methods, inputs, and rationale. 

Pulley also takes responsibility for defending its valuations. If questions arise, their team works directly with auditors to explain the methodology in detail. In fact, auditors have reviewed over 2,000 Pulley valuations without a single failure. 

“We don’t cut corners to deliver fast valuations—we build them to hold up. If it ever comes to an audit, we don’t just hand you a PDF. We’re in the room with you.” 

— Pulley Valuation Team

Speed, support, and transparency  

Most companies that use Pulley receive a draft valuation in just a few business days. Rather than handing you off to a ticket system, your analyst remains involved from the moment you submit your materials. You get consistent support through each step, so you won’t be left guessing how the report was created.

Pulley makes its pricing easy to understand, with plan tiers listed clearly upfront. The Growth plan includes 2 409A valuations per year and support. If your valuation needs to be refreshed within the year due to hiring, changes in revenue, or other events, Pulley includes the additional valuation as part of the same plan. This flexibility helps finance teams stay ahead of compliance deadlines without last-minute stress.

Additionally, Pulley’s methodology is clearly documented in every report, and Excel exports include the underlying formulas. The added transparency gives finance teams and auditors full visibility into how values are calculated.

Pulley vs. Carta: Side-by-side comparison of 409A valuation services 

When it comes to 409A valuations, details matter. Here’s how Pulley and a typical Carta 409A valuation compare in the areas that CFOs and founders care about for audits or funding.

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Choosing a valuation firm for convenience can seem fine at first. But during audits or funding, those gaps become real problems.

How Pulley supports finance teams navigating growth 

Pulley’s valuation service is integrated with the broader equity platform, giving finance leaders the context they need to make informed decisions. There’s no need to manage valuations in isolation or reconcile data across disconnected tools.

Finance teams, CFOs, and controllers can rely on consistent, up-to-date ownership information across key priorities:

• Secondary sales: Model transaction impact before execution to prevent surprises when shares change hands.
• Option pool updates: Adjust the equity pool before a new funding round to maintain alignment across teams.
• ASC 718 disclosures: Generate audit-ready reports with fewer manual steps and faster turnaround.

Pulley’s unified system helps reduce reporting errors and streamlines audit prep. For example, companies like DataOceans report migrating complex equity records and gaining greater confidence in their reporting.

What finance leaders say about switching to Pulley 

For founders and CFOs, switching to Pulley often comes down to confidence—confidence that the numbers are right, that the report will pass the audit, and that the team behind it will show up when it counts.

Several finance and company leaders who migrated from Carta or low-cost providers cite Pulley’s hands-on support and audit-readiness as key differentiators:

• Onboarding experience: “You have been insanely helpful . . . huge difference in onboarding experiences [between Pulley and Carta].”
• Scaling simplicity: "Equity management becomes exponentially complex as you scale. We chose Pulley because they turned that complexity into simplicity—letting us focus on building our product, not managing our cap table."
• Operational confidence: “Managing our cap table was time-consuming, labor-intensive, and frustrating. Pulley has helped us to streamline our cap table management and gain confidence. We are now able to focus on growth and strategic initiatives, knowing that our cap table is accurate and up-to-date.” 

As companies move from early funding rounds to late-stage growth, having a partner that scales with you makes all the difference.

Don’t let a weak 409A partner derail your next round  

409A providers relying on outsourced reports, proprietary datasets, and vague assumptions might get you through a filing, but they often fail when investors ask questions or auditors look closer. For many teams, Carta’s broad reach hasn’t always delivered strong outcomes. Its factory model prioritizes convenience over rigor and can leave finance leaders without the ongoing support they need.

With Pulley, every valuation is prepared in-house, signed by credentialed experts, and backed by audit-ready documentation. The data is independent, the valuation methods are transparent, and the team stays involved throughout the review. Pulley is built for CFOs who need valuations that hold up, since the risks of getting them wrong are real.

Whether you're preparing for a new funding round or reassessing your current valuation strategy, Pulley delivers fast, defensible reports built by specialists who understand how startups scale. 

Schedule a demo today and see why more companies are choosing Pulley. Make the switch from Carta and get a free two-week trial.