If you’re a company planning to offer equity to anyone in the US, then it’s likely you’re going to need a 409A Valuation. Yep, that's right - even if your company is based outside the US, if you make an equity grant to anyone in the US, you're probably going to need a 409a Valuation.
A 409A Valuation sets the strike price for stock options, and it needs to be fair to comply with the IRS regulations. In this article, we'll explore:
What a 409A Valuation is;
When you need one; and
How to request one with Cake (skip to the bottom if this is all you need!).
If you're keen to dive deeper into the topic of 409A Valuations more generally, check out our Blog post - Demystifying 409A Valuations: What are they and do you need one?
If you know what a 409A is and you're ready to get started, you can do so from your account here.
So, what is a 409A Valuation?
A 409A valuation is an independent assessment of the fair market value of a private company. It determines the value of the company's common stock, which is used to set the strike price (exercise price) for stock options. The IRS requires that private companies get a 409A valuation to ensure that the stock options' strike price is fair and compliant.
If you're planning to offer equity to employees in the US, it's essential to get a 409A valuation to determine the fair market value of your company!
When Do You Need a 409A Valuation?
You need a 409A valuation if you plan to offer equity to employees. Here are some instances when you should get a 409A valuation:
Before issuing your first common stock options
After raising a round of capital
Once every 12 months (or after a material event, i.e., a capital raise)
If you're approaching an IPO, merger, or acquisition
How to Request a 409A Valuation with Cake?
We make it easy for you to get a 409A valuation! With Cake, you can be sure that your 409A valuation is compliant and fair to your employees.
Here's how to request a 409A valuation with Cake:
Go to the "Tools" tab in your account.
Click on "409A" in the dropdown menu.
Click Start 409A valuation.
You should allow about 20 minutes to provide all of the required information - you can always save and come back later. You can then expect a draft 409A to be provided in 3 business days after you've provided the required information, and you can request a call at any time.
Add the valuation to your Stock Option Offers in Cake - easy!
You can also add existing 409A Valuations within Tools -- 409A, just click Upload existing in the top right corner:
Enter the Fair market value, the date this valuation was received and upload your supporting documents.
Learn more about how Cake completes 409As here.