17 ms·
There's typically a lower bound of 1/10 the paper valuation, otherwise you risk the IRS coming after you at some future date. That relative lower bound ratio sh
by hkmurakami 10y ago
There's typically a lower bound of 1/10 the paper valuation, otherwise you risk the IRS coming after you at some future date. That relative lower bound ratio should be consistent across rounds, hence I'm approximating with a paper valuation ratio with a fudge factor of 2.
- pfarnsworth 10y agoThe company doesn't control the 409A valuation. That's done by an independent company who determines the 409A. So it's not something that is in the control of the company.
- hkmurakami 10y agoYou can't control them, but you can definitely "provide guidance" to the independent company as to what your desires are. They obviously won't give you something egregious but it's you who's paying them and will continue to pay them every year (a 409a valuation needs to be within 1 year to be valid for options). If a firm doesn't do something you like, you'll move onto the next one.
- jdmichal 10y agoSure, just like a house appraiser is an independent entity who determines the value of the house... Except that they always take the contract price in mind and basically attempt to not rock the boat. If they can make a case for a valuation close to the contract price, that's what they'll use. If they go too high or low, they risk killing the deal -- and their continuing business with the involved parties. Same problem as with legal arbiters and binding arbitration contracts.