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What is the price range for a private company 409a valuation cost these days?

409A Valuation CostsMy company is about to close its first investor round (series A) and is looking at its first 409a. It's been a couple of years since i got one done. We are a software company, pre-revenue, but with good forecast models in place and what I think would be some reasonable comps to look at. What range would this valuation fall into? Is it common for valuation providers to discount if we sign up for multiple valuations?


Topic Expert
Jim Timmins
Title: Managing Director
Company: Teknos Associates
(Managing Director, Teknos Associates) |

The range of fees for valuation report to allow a private company to comply with IRC 409A is fairly wide. At the low end, there are websites which allow a user to input data about a company and to receive an automatically generated report for $1,000 or less. At the high end, there are some nationally known firms which will provide a report for $15,000 to $30,000. In between, lies most of the of the market.

Most high quality companies with venture capital backing are obtaining valuation reports for a fee of $5,000 to $10,000. These reports comply with both the tax rule (IRC 409A) and the GAAP accounting standard (ASC 718 fka FAS 123R). (There are exceptions to this range for cases involving repeat reports at the low end or complicated capital structure or litigation or similar anomalies at the high end.)

Valuation reports priced lower than this range may have one or more of the following issues:
(a) The valuation report meets only the tax rule (IRC 409A) and not the GAAP accounting standard (ASC 718 and the AICPA Practice Aid) -- this could be a problem when the company is reviewed by an auditor, either for its own audit or during an acquisition.
(b) The valuation report was prepared by people who do not meet the IRS standard of "qualified appraiser" (basically, having an appraisal credential) -- the IRS has said that this is one of the "red flags" for which it looks in deciding what companies to audit.
(c) The valuation report was prepared by people working offshore -- they almost certainly will not meet the IRS standards for "qualified appraiser" and they also will not be available to answer routine SAS 73 review questions from the auditors.

Questions to ask the valuation provider are:
(a) Will the report be both tax and GAAP compliant (specifically, will the report follow the requirements of the AICPA Practice Aid)?
(b) Who will perform the valuation work (not just who will sign the report)? Where is he or she located? What are his or her credentials? What is his or her experience? Is he or she available during regular business hours to answer auditor questions?

The "cost" of an IRC 409A valuation fee is not just what a company pays upfront for the report. The total "cost" can easily be doubled because of extra review fees charged by the audit firm or other expenses. And the total "cost" could be astronomically high if the valuation report is later rejected in a dispute with an audit firm, the SEC, or the IRS (in California, the combination of federal and states taxes and penalties under IRC 409A can exceed 90% of the option gain).

Michael Jameson
Title: VP Finance
Company: Undisclosed
(VP Finance, Undisclosed) |

Thanks Jim. That is one of the most lucid commentaries I have ever seen on 409a. Greatly appreciated!


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