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At what point should I do a 409A valuation?

Not sure what is the real need behind doing a 409A valuation especially for seed stage companies like mine. I wonder what is the value behind doing this and what is the best moment to do it from a timing perspective.


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Alf Poor
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Alf Poor Entrepreneur
Chief Operating Officer at Global Data Sentinel
The 409a valuation is important to benchmark the fair value of shares held in a company. The 409A covers pre-equity investmentS as well, as a convertible note is a "security" under state and federal law, and therefore the securities act applies. 409a valuations expire after 12 months, or any material event in the company which impacts the valuation. If you do not have a material event, or do not grant any new stock options or restricted stock, you could let the valuation period extend beyond the 12 months and just do it again when you hire your next employee who receives an option grant.
Neil Gordon
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Neil Gordon Advisor
Board Member, Corporate Finance Advisor and Strategy Consultant
It's a risk management question. You're never obligated to get a 409a valuation, but having one gives you a safe harbor against the IRS questioning the value. Best would be to consult with counsel and assess your risk of going without.
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