Tightening 409A standards requires new guidance

BVWireIssue #88-1
January 6, 2010

“I have done a great deal of work in valuing VC-backed companies for 409A purposes,” says Ronald Schmidt, Ph.D., in a recent posting at the Business Valuation Professionals discussion group on LinkedIn (you may need to join before accessing the link.)  “We are now talking to some of the auditors and VCs about the rollout of 157 fair value standards to VCs in valuing their portfolios. At present, it looks like the rollout of 409A, [when] standards were pretty loose until the auditors took charge for 123R. It seems to us that ultimately the VCs will be required to value companies using values potentially from 409A—i.e., they will be required to value their holdings of preferred stock. Anyone seeing anything different?”

We see something that will help with 409A. In BVR’s Guide to Valuations for IRC 409A Compliance, author Neil Beaton focuses on the practical aspects of 409A valuations—in particular, how to apply traditional valuation methods and allocation analyses to these engagements. A company’s stage of development is a critical component, and the Guide will help appraisers understand and identify any additional economic, industry, and company variables to provide a well-supported, defensible valuation for 409A purposes.

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