What are acceptable methodologies for 409A valuation?

Choosing accurate and appropriate methodologies for a 409A valuation is dependent on the specifics of each company and project. Factors which influence the type and balance of methodologies include a company's funding history, historical financials, financial forecasts, liquidation preferences of preferred share classes, and replacement cost of company assets. 

Example valuation methodologies accepted by the AICPA and IRS include, but are not limited to, the following:

Enterprise & Equity Value Calculations  

  • Market Approach  
    • Guideline Public Comparable Companies  
    • Guideline Merged and Acquired Companies  
    • Backsolve method
  • Income Approach (Discounted Cash Flows)  
    • WACC
    • Terminal Value
      • Gordon Growth  
      • Hybrid ("H") Model
      • Multiple  
    • Asset Approach
    • Book Value
    • Reproduction

Allocation Value 

  • Cap Table, Waterfall and Breakpoint Analysis  
  • Allocation Methodology
    • Current Value Method  
    • Black Scholes Option Pricing Model  
    • Probability Weighted Expected Return Model  
  • Discount for Lack of Marketability (DLOM)
    • Synthetic Put 
    • Empirical Studies
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