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409A as a Service: Cash Cows Get Slaughtered
- Orangeair 13y agoWith the 2048-as-a-service thing earlier, I thought at first that this was just a misspelled attempt to try to one-up them.
- danielweber 13y agoIronically meta, considering how Threes was accused of being a clone of 2048.
- chrismorgan 13y agoDitto.
- yiedyie 13y agoI wanted to make a similar comment, thumbs up.
- No1 13y agoFrom the article: "at the early stage, these valuations are generated in an almost entirely automated fashion." I'm curious, anyone know what the typical formula is?
- henward0 13y agoTake a look at the top voted post on Quora about 409A valuations. http://www.quora.com/409A-Valuations/What-is-a-good-firm-I-can-use-to-get-a-409A-valuation-for-my-startup http://www.quora.com/409A-Valuations/What-is-a-good-firm-I-c...
- danieltillett 13y agoBasically option pricing. Quoting Henry Ward "There are tons of large and small firms to choose from. Almost all firms valuing early stage companies use the Option Pricing Model (OPM) (Black Scholes or Binomial) valuation method. So if you have a recently priced round, every firm will give you basically the same answer."
- chasb 13y agoThere are many legal/legalistic-type assurance and regulatory frameworks that can be automated, in significant part. I work in a compliance-as-a-service startup (HIPAA specifically, to start). It's absurd how much mediocre consultants and lawyers make doing work that is mostly boilerplate.
- carbocation 13y agoAny chance you'd be interested to link to your startup in this thread? You've piqued my interest.
- chasb 13y agoAptible (https://www.aptible.com https://www.aptible.com). I'm Chas - email me at chas@aptible.com if you'd like to chat. Honest advice is always free, if you're looking to work in healthcare and want to get your bearings. That goes for anyone.
- pattisapu 13y agoEh, it's similarly absurd how much software developers make from work that is mostly boilerplate.
- ChuckMcM 13y agoGod this is an insanely good idea. Not only do you solve a real pain point for startups (the whole 409a eval) but if they sign up and feed you monthly updates on their financial position you could massively front run the market on what startups were going to pop and which were going to expire quietly. Google thinking about acquiring your startup? Lets have a look at the other six companies in your space for which is the right one to grab and for how much. Ka-CHING!
- frandroid 13y agoI'm pretty sure it would be illegal for 4aaS firms to use the data they get through this service to front run the market.
- confluence 13y ago> I'm pretty sure it would be illegal Doesn't mean they won't do it. I don't know why I'm being downvoted here. It's a statement of fact. You see the same thing happening with investment banks, with the buy side front running sell side clients across that oh so opaque Chinese wall every so often. This stuff happens. I'm not saying it will happen in this case, but it is a reasonable possibility.
- aeturnum 13y agoHow exactly world you pitch that in your business plan? Under the 'Illegal but potentially lucrative' category? :) Might add well throw in some drug running on the side as well.
- TeMPOraL 13y agoUnder the "every one of you knows what we're doing, we know that you really, realy need us, so let's not talk about this out loud, shall we?" category ;).
- gamblor956 13y agoWhat you have just described would most likely be considered insider trading.
- shivaas 13y agoBrilliant!! Like how the landing page explains the fees clearly and how it works.
- danieltillett 13y agoDoes anyone here know if there is an equivalent to 409a in Australia?
- lhgaghl 13y agoI can't see the page, says "403 forbidden"
- erichurkman 13y agoDo you mean the blog post on http://www.siliconhillslawyer.com http://www.siliconhillslawyer.com or the links to https://www.esharesinc.com https://www.esharesinc.com? Both seem to be working fine for me.
- csense 13y agoDoesn't the IRS need some algorithm to determine the fair market value of your shares? I see two different possible answers to this question: - The IRS doesn't use such an algorithm. In this case, how can an IRS audit overcome the "there's no evidence we acted incorrectly, the IRS is just picking on us" defense? If there's no objective standard, how can the IRS ever figure out if anyone's valuation's too low? - The IRS does use such an algorithm. In this case, what's preventing companies that issue the shares from just using the same algorithm the IRS uses?
- phillmv 13y agoWell, they do have an algorithm. That's why this service works. Unless you were selected at random, no one reads the paperwork you submit until someone thinks you've done something wrong. They're just evidence that will be examined in the future, so it needs to check out. For one accounting is fiendishly complex but I would also bet that there is some tiny, irreducible step you need a human being to glance at the paperwork and say "it doesn't look like they're trying to scam us".
- danieltillett 13y agoThey do - they basically all use the Black-Scholes Model [0] and just plug in the numbers. I assume most of the cost of these 409a's is for the backside covering aspect - if the IRS says how did your come up with your pricing you can point them in the direction of someone "serious" and blame them if they typed in the wrong numbers. [0] http://en.wikipedia.org/wiki/Black–Scholes_model http://en.wikipedia.org/wiki/Black–Scholes_model
- yesimahuman 13y agoThank god. I'm going through this right now, and all it's done is keep us from issue options and getting an advisor on board, for almost a month now. I'll do anything to make sure we never have to deal with that again.
- rdl 13y agoThank you! This was a horrible tax on startups -- not just the cost, but the cognitive load before every transaction, and sometimes delaying grants or onboarding at (not very well run) companies due to confusion.