Audit-ready 409A valuations

A 409A valuation report is valid up to 12 months from the valuation date or when a material event occurs – such as a new round.

With companies raising new rounds frequently, we include multiple 409A valuations in our Growth plans so you can better plan ahead.

We recommend you do a 409A valuation after all fundraising for the round is finalized.

We do valuations in half the time of most firms. It takes about 5 business days to get to a final draft of your 409A valuation for review. For later-stage companies, the timeline may be a little longer.

Once you have your report, you can review the valuation for accuracy. You can connect with your auditor at any time during this process.

Any company issuing stock options require a 409A valuation - this includes most startups who grant options as part of employee comp.

When you grant stock options to employees, you need a value to determine the value of these shares. For public companies, this is the stock price. For private companies, an independent 409A valuation is the only method to grant options on a tax-free basis to your employees.

There can be severe financial consequences for your employees for non-compliance. If the IRS determined your 409A valuation does not need standards, all of the shares you granted to employees at that value would be subject to gross income tax. The IRS can also levy up to a 20% penalty on stock options on top of the back-tax.

While enforcements are rare, the IRS has successfully pursued cases in the past (See Credit Karma). 409A compliance is part of the due diligence for every investor and acquirer. A missing or non-compliant report addition can delay or deter future investors.

At a high level, there are three steps in a 409A valuation:

1. Calculate company value: High growth, unprofitable tech companies often use the market approach. Your auditor finds public companies in your domain and applies the valuation multiple to your own metrics.
2. Determine the value of the common stock: The second step is to take that company value and divide it against all the shares within the different share classes. This is more complicated than it seems because different shares (preferred) have different economic rights.
3. Apply a discount for lack of marketability (DLOM). Your shares not tradeable if the company is private. Your auditor will then apply a discount to your share price because there is no liquid market to sell these shares.

You want to work with a provider who has experience valuing in your industry. For example, if you are a high-growth social network, don't pick an auditor in the south who is used to valuing profitable small businesses. This valuation will take longer and is less likely to be accurate.

Pulley only partners with firms like Aranca that have worked across markets - from small startups to unicorns to international companies. They have extensive experience across company sectors, industries, and stages.

Pulley chose Aranca as our preferred partner. Our partnership with Aranca offers Pulley users affordable valuations without leaving the platform.

Once you request your 409A valuation on Pulley and submit the required information, an Aranca representative will reach out to coordinate your valuation. Within 5 business days, you will receive an initial draft of your 409A valuation and will have an opportunity to provide feedback.