409A Valuation

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Greener Equity is a leading provider of IRC 409A and ASC 505/718 (previously FAS 123R) valuation services to growing private companies. Greener Equity has performed numerous 409a valuations since Section 409a was added to the Internal Revenue Code over five years ago. We work with leading law firms, accountants, venture capital firms and their portfolio companies. Big Four accounting firms such as Ernst & Young and leading regional accounting firms such as Tanner LC endorsed our 409a valuations.

Greener Equity has the specific experience, expertise, and client care focus that makes us the preferred valuation firm of many growth equity companies. In addition, our fair and competitive pricing for our top quality valuations makes us the outstanding choice for valuation services.

Information needed to conduct 409A valuation: 

  1. Most recent balance sheet, income and cash flow statements
  2. Monthly Revenue and EBITDA for the last twelve months
  3. Historical financial statements for the past 3-5 years if available
  4. Financial projections for the next 5 years
  5. Capitalization table, history of the company’s financing–Round
  6. Name, Round Price, Liquidation Preferences, including Warrants, etc.
  7. How many options have been granted at what prices, total options, authorized option pool currently
  8. Term sheets (summary of conditions) for any bank debt or other debt to which the company has obligations
  9. Industry / competitor overview information and as many relevant
  10. Comparable companies as possible
  11. Company presentation / business plan / executive summary
  12. Discussion of exit timing, etc.

Option Pricing Methodology

This methodology models the value of the various components of an entity’s capital structure as a succession of call options on the proceeds expected from the sale of the business or the pending liquidation of the Company’s assets at some future date. Furthermore, this model also treats the fair market value of a security as a function of the current fair market value of the aggregate equity and debt and assumptions based on the securities’ rights and preferences through the use of an option model, such as the Black-Scholes formula shown here:

The Black-Scholes model supports the premise that an investment in an underlying security that is financed with debt results in a payoff stream that is equivalent to the payoff stream of an option on the security. If the values for the two positions were different, arbitrage would be possible. Hence, the Black-Scholes model provides a reasonable estimate of the option’s value.

In addition, the valuation of the Subject Security is rooted in the long-standing tenets of option-pricing theory. In short, the Subject Security is basically a call option on the combined debt and equity of the business with an exercise price equal to the principal due to the debt holders plus the liquidation preferences of the preferred securities.