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This article is frustrating because it never mentions why low 409A valuations would be helpful to anyone. It seems to say the companies are benefiting from diff
by Buge 10y ago
This article is frustrating because it never mentions why low 409A valuations would be helpful to anyone. It seems to say the companies are benefiting from different 409A and investor valuations, but not why. Does it mean someone pays less tax or something?
- lacker 10y agoIf you give an option where the strike price is "the current fair value", the employee doesn't have to pay taxes. But "the fair value" is defined by the 409A. The company usually doesn't care about the strike price and would rather just give the employee as much value as possible. A low 409A is much better for the employee, a teeny bit worse for the company, and so companies just go for a low one.
- hkmurakami 10y agoLower cost basis for all your equity.
- idunno246 10y agoThe 409a value is the strike price, say it's $1. Your investor comes in and buys for $10. Every new employee that comes in, you say 'you can buy it for $1 and sell for $10, so each share is worth $9,' which is basically lying to make the comp package sound better and hire people for less money. To be less cynical, the lower you force the strike price, the less anyone getting new shares has to pay to buy it. Early on, it's much easier to early exercise and buy them if its cheaper. Everyone gets more profit if they can buy at a discount, so they try to discount options as much as possible