The article discusses the importance of reevaluating a company’s 409A valuation in today’s market. A 409A valuation is an estimate of a company’s common stock value, used for tax purposes and to determine the strike price of employee stock options. The author argues that if a company’s current 409A was last updated between March 2021 and March 2022, it may be based on outdated multiples, which can lead to inaccurate valuations.

The article highlights several reasons why reevaluating the 409A is necessary:

  1. Outdated multiples: The COVID-19 pandemic and changes in market conditions have led to a shift in company valuation multiples. A company’s current 409A may be based on outdated multiples, which can result in inaccurate valuations.
  2. Tax implications: If employees exercise their stock options at an outdated strike price, they will have to pay taxes on the difference between their strike price and the new 409A valuation. This can lead to unnecessary tax burdens for employees.
  3. Equity package alignment: Reevaluating the 409A allows companies to reissue stock with a lower strike price, making it more attractive to employees and aligning their incentives with the company’s success.

The author concludes that reevaluating the 409A is essential to ensure that employee equity packages are fair, competitive, and aligned with the company’s market value. This will not only benefit employees but also demonstrate the company’s commitment to its employees’ well-being.

Some key takeaways from the article include:

  • A 409A valuation is a critical component of a company’s finance and HR strategy.
  • Reevaluating the 409A in today’s market can help companies ensure accurate valuations and avoid unnecessary tax burdens for employees.
  • Aligning employee equity packages with current market conditions can boost morale, retention, and overall company performance.

Overall, the article emphasizes the importance of regularly reviewing and updating a company’s 409A valuation to ensure that it accurately reflects the company’s value in today’s market.