It is really needed for you to get a 409A valuation of your company as soon as possible, especially if you are about to issue stock options to justify the choice of the strike price. For those who have a company and are wondering how much does it cost to get a 409A valuation, you can check out the information below.
Apparently, the cost of the 409A valuation varies. The normal one should be anywhere from $1,000 to more than $5,000. For big corporations, it can reach more than $10,000. For the startups and Series A companies, it costs between $1,000 to $3,000. For bigger companies with multiple rounds of funding series (Series B and C), the cost can be anywhere from $3,000 to $5,000.
There are a few factors that determine the 409A valuation cost. These factors include:
- Stage of company
There is always a different number of shareholders, assets that the company holds, and overall value of every stage of the company. It is the reason why it is needed to look into the stage of the company before determining the price of the 409A valuation. Apparently, a company starts with a seed funding round. For those who are not familiar with a seed funding round, it refers to the first funding round. It is really useful to help the company get on its feet. At this stage, the company would not be that valuable, hence the price for valuing a company at this stage is normally pretty affordable to when the company is in the other rounds.
After the seed funding, there is the first Venture Capital (VC) funding called Series A funding. It is known as the class of preferred stock sold. This one is followed by the Series B funding, Series C funding, Series D funding, Series E funding, Series F funding, private equity funding rounds, and so on. Each of them makes the company bigger and the different stocks and equity options will be asked. Every single thing costs differently. In addition, due to the fact that the efforts and calculation process gets harder as moving to the next stage, the cost of a 409A valuation also increases.
- Size of company
The second factor that affects the price of the 409A valuation is the size of the company. Basically, the smaller company is and the lesser complexity in the operations is. The bigger the company the more complex their operations would be. Remember that the actual cost can be determined when the evaluator gets the financial statements of the company to see the revenue earned, the assets owned, and the operation process.
- Complexity of share structure
A simple share structure in a company is the situation when there is only one type of equity class and the only ones that are issued are the common shares. This kind of thing usually happens when a company is in the early stage and consists only of the founders and a few employees. However, everything becomes complicated as the company grows. For example, the time when the company might issue convertible notes is when it wants to take up funding with just the founders and some employees and does not have a high value.
As the company grows, some things will be issued by the company, including warrants, employee options, preferred shares and many more. From the statement, it can be concluded that the share structure in the company becomes more complex as the time passes. When the company has a complex share structure, it is almost impossible to get the valuation done easily. It is one of the reasons that may play a role in increasing the cost of the 409A valuation.
- Company industry
Everyone knows that the company industry is the factor that affects the 409A valuation costs. In fact, the traditional businesses, including trading companies and the brick and mortar companies, cost less to get a valuation done. It is said that the operations of such companies are more simple and easier to predict the e earnings in the future. However, the specialized businesses, such as tech companies or fintech companies are less predictable.
Looking into the industry is a must. Besides, it is also important to understand its value, see how things are valued in the industry, and the value of the assets of the company. There is probably a product sold by a brick and mortar company, such as clothes. As there is something real that can be measured, it is easier to get the value for such a company. On the other hand, it would be harder to value the service based on knowledge and industry experience like tech companies with service or software products, increasing the cost of valuation.
- Age of company
The fifth factor that affects the 409A valuation cost is the age of the company. Contrary to the popular beliefs, the newer the company does not mean the cheaper it would be to get a 409A valuation. The main reason is because a new company does not have any stable operations going on, making it longer to forecast the sales of the company and get the value. However, there is a possibility for it to cost a bit more. Everything depends on the other factors that are involved.
As you can probably guess, the company would have already stable operations if it is much older. If it is the case, the evaluator may get a good time when predicting the future sales of the company as it may be easier to do so.
- Other factors
In addition to these factors mentioned above, there are some other factors that can affect the 409A valuation costs. Some of them include possible pending court cases, intangible assets, and more. Not only the factors that can increase the cost of the valuations, there are also some factors that can reduce the cost. These factors include organized and clear sets of records and documents and a history of 409A valuation reports in the past.
