409.ai – When Is the Right Time to Get a 409A Valuation Service

1. 409.ai – When Is the Right Time to Get a 409A Valuation Service? 409.ai emphasizes that timing is everything when it comes to securing accurate and compliant 409a valuation services. The valuation process is not simply a legal formality; it’s a strategic decision that shapes how a company structures its equity, attracts investors, and avoids costly compliance issues. Choosing the right time can make the difference between a smooth fundraising journey and unexpected roadblocks. Why Timing Matters for 409A Valuation Services? A 409A valuation determines the fair market value of a company’s common stock, which is essential for setting exercise prices for stock options granted to employees. If the valuation is not accurate, timely, or compliant with IRS standards, companies risk severe tax penalties for themselves and their employees. This makes the question of when to obtain a valuation as important as the valuation itself. The IRS requires that private companies granting stock options have a defensible valuation in place before issuing equity. If the valuation is outdated, it might not reflect the company’s true market conditions, potentially exposing the business to regulatory challenges. Situations That Call for a 409A Valuation Service Certain milestones in a company’s journey serve as natural triggers for obtaining or updating a 409A valuation. Key examples include:  Initial Equity Grants – Before granting stock options to employees for the first time.  Significant Funding Rounds – After closing a seed, Series A, or any major financing round.  Material Business Changes – When the company’s revenue, market position, or product line changes substantially.  Mergers or Acquisitions – Before or after significant corporate transactions.  Annual Updates – Even without major changes, valuations should be refreshed every 12 months to remain safe-harbor compliant. Early-Stage Companies and the First Valuation For startups issuing equity for the first time, obtaining a 409A valuation is a crucial first step before granting any stock options. Without it, companies risk non- compliance and potential IRS scrutiny. At this stage, the valuation process considers the company’s business plan, market potential, competitive landscape, and early financial data. Even if the business is pre-revenue, a professional valuation ensures that equity awards are priced fairly and defensibly. This early action builds credibility with employees and investors.

2. After Significant Fundraising Events Whenever a startup completes a new funding round, it changes the company’s perceived value. A recent capital injection from investors is a strong indicator to the IRS that the company’s fair market value may have shifted. An updated 409A valuation after fundraising ensures the option exercise price aligns with the most current financial reality. Delaying this can result in equity being priced too low or too high, both of which can have legal and financial consequences. Material Changes in Operations or Market Position Business growth often doesn’t happen evenly—it comes in jumps. A sudden leap in revenue, a major client acquisition, or entry into a new market can materially change the value of your company. In these scenarios, the valuation obtained months earlier may no longer be defensible. Seeking updated 409a valuation services promptly helps maintain compliance and ensures option pricing remains fair. Corporate Transactions – Mergers, Acquisitions, and More When a company is involved in an acquisition, merger, or significant asset purchase, the business’s value is reassessed in the market. These events make it critical to obtain a fresh valuation before granting any new equity. An updated valuation ensures that any stock options issued post-transaction reflect the true market conditions, minimizing risk for both the company and its stakeholders. Annual Renewal – Maintaining Safe Harbor Protection The IRS provides a safe harbor for companies that update their 409A valuations at least every 12 months. This protection helps defend the exercise price in case of IRS scrutiny. Failing to update annually can leave the valuation vulnerable to challenges, even if there haven’t been significant business changes. Maintaining a consistent schedule is an easy way to safeguard compliance. Why Timing Influences Investor Confidence? Investors often review a company’s valuation history during due diligence. Outdated or infrequent valuations can raise questions about the company’s governance practices and transparency. By obtaining timely 409a valuation services, startups signal that they are serious about compliance, employee fairness, and operational integrity—qualities that attract and reassure investors. Signs It’s Time for a New Valuation

3. Here’s a quick reference list for recognizing when it’s time to reach out to a professional valuation service:  You’re planning to issue new equity awards.  A funding round has just closed.  The company has achieved a major milestone in growth or revenue.  There’s been a change in leadership or ownership.  It’s been close to or more than 12 months since your last valuation.  You’re preparing for an acquisition or IPO.  The Risk of Delaying a 409A Valuation Delaying a valuation might seem harmless, but the risks are significant:  IRS Penalties: Non-compliance can lead to tax penalties for both the company and employees.  Overvalued or Undervalued Equity: Mispricing options can lead to employee dissatisfaction or loss of talent.  Lost Safe Harbor Protection: Without timely updates, the valuation loses IRS defense. Taking proactive steps to schedule valuations at the right time prevents these pitfalls and strengthens the company’s financial foundation. Why Choose 409.ai? 409.ai provides precise, IRS-compliant 409a valuation services tailored to the unique needs of growing companies. We combine in-depth financial analysis with market insight to deliver valuations that stand up to scrutiny. With 409.ai, you get more than just a number—you gain a reliable partner committed to helping your business stay compliant, attract top talent through fair equity, and maintain investor confidence. Our focus is on accuracy, timeliness, and compliance so that your company can issue stock options with complete confidence and peace of mind.