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?
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. Cake offers 409A valuations as part of our US 'Growth' annual subscriptions (upgrade through Billing), or as a one-off service for an additional fee through our expert 409A valuation partner.
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.
Request your 409A (either as part of your annual plan or as a one-off fee) by clicking the button.
The Cake team will be in touch to kick off the next steps with a simple checklist.
Upload the relevant information into the folders created in the "Documents" tab of your account.
Once the docs are uploaded, let us know! Our valuation provider will be added to your Cake account with temporary Advisor access to retrieve the documents you've uploaded.
Add the valuation to your Stock Option Offers in Cake - easy!