How do I select a date for my 409A Valuation?

The two considerations that you have to keep in mind are:

  1. You can’t grant options in the past, and
  2. Although you may have “promised” options in the past, unless all facts of the contract (i.e. the option) are known (one of those facts being the strike price, which would’ve been equal to the Fair Market Value), you actually have not granted the options.

With that said, you are always granting options as of “now.” 

Here are a few examples that will help:

  1. You have raised financing as of July 15th, 2015 and you need a new 409A valuation to issue options to your new employees. On July 27th, you contact Preferred Return to get a new 409A valuation. We suggest setting the valuation request date as of July 15th. You should get your valuation report on or around August 1st, and you can use that report to issue options for the next 12 months.
  2. You have started a new company on March 1st, 2018 and issued shares to the founding team on day 1. A few months have gone by of investing time, money, and energy into your company and you are now considering granting options to new employees as of September 1st, 2018. You should get your valuation report on or around September 1st, 2018.
  3. You are about ready to close a valuation round (i.e. advanced investor conversions), but remember that you have promised someone options 3 months ago. You should wait until the financing round closes and then get a valuation report.

The question you should be asking yourself is: “Can I substantiate the Fair Market Value of my Common Stock as of the date of grant?” Your 409A valuation report is good for a period of 12 months or until a material event has taken place. All events that are known/knowable as of any valuation date must be reflected in the valuation to ensure “safe harbor” protection.

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