Introducing Flash 409A: Faster, audit-ready valuations for startups

Introducing Flash 409A: Faster, audit-ready valuations for startups

Author: The Carta Team
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Read time:  3 minutes
Published date:  December 4, 2023
Now, certain early-stage startups can get a new 409A valuation without lifting a finger. Carta will automatically draft a new 409A valuation when the current one expires.

If you’re an early-stage founder, your lawyer probably told you that you need to get a 409A valuation to determine the fair market value (FMV) of your company’s stock before you could issue stock options. So, you did. 

But, between trying to build your product, get users, generate leads, and hire a team, you might have forgotten that you need to request a new 409A valuation at least every 12 months to ensure you remain under IRS safe harbor (to avoid putting employees at risk if they are issued options with an inaccurate FMV). Or, you remembered, but the thought of having to pull together the files and paperwork was too much—so getting a new 409A valuation kept falling further and further down the to-do list. 

That’s why we’re excited to announce Flash 409A for eligible early-stage startups. Now, certain early-stage startups can get a new 409A valuation without lifting a finger. Carta will automatically draft a new 409A valuation when the current one expires, so companies can stay compliant and continue to issue stock options without the hassle of having to request one or spend hours pulling together documents. 

A new 409A report designed specifically for early-stage companies

Valuing an early-stage company shouldn’t be the same as valuing a later-stage company. For one, a startup’s probability of success is far lower than that of a public company, making it riskier and more volatile. 

Since Carta has the largest set of private-company data, we can easily compare early-stage startups to other private companies of similar size, stage, and industry. This allows us to determine a more accurate valuation of your stock options since we’re not relying on public-market data, which can inflate your FMV.

With the introduction of more precise data and after extensive customer feedback, we’ve also reformatted the 409A report for early-stage companies to make it easier to read and less overwhelming than a traditional 409A.  

How can Carta determine an early-stage company’s 409A without additional documents? 

Since 2016, Carta has been the leading 409A valuation provider in the U.S., conducting more than 50,000 valuations for more than 40,000 private companies. In our years of conducting valuations, we found that for early-stage companies, we could generate a new, accurate FMV as long as a company's cap table was up to date, by using the cap table, company history, broader industry trends, market insights, and certain underlying assumptions. 

That means we can draft a new, accurate 409A valuation and send it to eligible early-stage companies on the day a 409A expires—without requiring any additional documentation—so startups can remain compliant with the IRS and avoid employees incurring unnecessary fines from the IRS.  

How does a Flash 409A work?  

For eligible early-stage companies, Carta now automatically delivers a new draft 409A report the day your previous FMV expires and notifies you via email. All you need to do is log in to accept your company’s new FMV so it can be applied to your account. As always, our dedicated valuations team is here if you have any questions about your report or the 409A process

It's important to note that when we conduct a Flash 409A we assume the following:

  • Your Carta cap table is up-to-date

  • No acquisition letter of intent has been signed

  • Your company maintains a cash runway of one to two years

  • There have been no significant business changes since your previous 409A

If any of these assumptions are incorrect, contact Carta’s valuation support team before accepting your Flash 409A at 409A@carta.com.

Flash 409As are only available to companies with up to $50M in post-money valuation, up to $20M in revenue, and Series B or earlier. To learn more about whether your company is eligible, click here. And for more information about our 409A valuation service for early- or late-stage companies, please contact our valuation team for a complimentary consultation

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The Carta Team
While we believe in assigning ownership at Carta, this blog post belongs to all of us.
DISCLOSURE: This publication contains general information only and eShares, Inc. dba Carta, Inc. (“Carta”) is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services.  This publication is not a substitute for such professional advice or services nor should it be used as a basis for any decision or action that may affect your business or interests.  Before making any decision or taking any action that may affect your business or interests, you should consult a qualified professional advisor.  This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security.  Carta does not assume any liability for reliance on the information provided herein.