What to look for in a 409A provider

What to look for in a 409A provider

Author: Chad Willbur
Read time:  3 minutes
Published date:  30 November 2023
A 409A valuation should be strategic—not perfunctory. Carta can help companies of all sizes get a fast, accurate, and data-backed valuation in a matter of days.

The IRS requires that every private company obtain a 409A valuation on an annual basis, as well as after any material event (like a primary fundraise or a secondary liquidity transaction). The obligatory nature of a 409A valuation might make it seem like it’s just a formality—a box to check before getting back to the business of running and scaling a company. 

But as with taxes and small-business tax strategy, a 409A valuation should be strategic—not perfunctory.

Choosing a 409A provider can have lasting effects on your business. Here’s what you should look for. 

High-touch service

For middle-market and late-stage startups, 409A providers should dedicate a full team of valuation analysts to help your company reach a Fair Market Value (FMV) that’s both strategic and defensible, allowing you to maximize financial upside for your employees and other shareholders while adhering to accounting best practices. 

All companies are required to update their FMV annually or after a material event, but some companies choose to update their 409A valuation on a quarterly cadence if they’re nearing an IPO or acquisition. Choosing a 409A valuation provider that can scale up service as your company grows will prevent the disruption of having to search for a new provider if you outgrow a smaller firm.

Knowledgeable guidance

Valuations are complicated, and the tax outcomes they affect are highly regulated and scrutinized. Choosing a team with experienced valuation analysts and technical managers can help your company mitigate regulatory risk. 


Independent 409A appraisers may use a variety of valuation approaches that can pass a customary IRS audit. For instance, early-stage startups often rely on a market-based benchmarking approach. Late-stage startups typically use the discounted cash-flow method, which leans on current financial performance and future revenue projections. 

Before making a decision, ask your 409A provider about their valuation methodologies for companies at your stage and how they adapt those policies as a company matures. 

Willingness to work with the needs of your company

A 409A provider should be willing to work with a company to establish an FMV that’s both accurate and reflective of the company’s concerns. Some 409A providers even work with auditors from the outset to agree on the specific valuation methodology they’ll use, thus lessening the chances of mistakes that could lead to follow-up 409A valuations or penalties. Doubts about prior 409A valuations can also cause delays and generate investor skepticism when it comes time to take your company public. At Carta, we work closely with founders to establish accurate and audit-ready valuations.


When a company is preparing for an IPO or acquisition, the stakes are high. A company with an overvalued or undervalued 409A valuation will look sloppy to potential investors and auditors. 

Historically, most companies have tried to attain the lowest FMV as a way to lessen the initial tax burden on employees. But there’s such a thing as too low: Artificially deflating shares could also make it look to investors and auditors like you’re avoiding tax liability. And if the IRS considers an FMV unreasonable, employees and other security-holders could be left with a significant bill for back taxes and associated penalties.  


Early-stage 409As should be completed within a few business days. For more sophisticated startups, the process will likely take a few weeks. Late-stage startups can see longer processes. 

An independent 409A provider should be upfront from the beginning about the amount of financial information required and how long it will take to turn around an audit-ready FMV.

Carta’s 409A valuation services

Carta provides flexible and strategic 409A valuations for private companies of all sizes and stages, offering a high-touch, transparent service. Our dedicated team cumulatively has more than 100 years of experience with top accounting and valuation firms to provide quality guidance and accurate analysis of your business. Our valuations draw on Carta’s unparalleled dataset of more than 40,000 private companies with cap tables on Carta to deliver fast, accurate, and audit-defensible valuations backed by historical data for comparable companies.

To learn more, reach out to a member of our team.

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Author: Chad Willbur
Chad Willbur is the GM of Carta's valuations business.
DISCLOSURE: This communication is on behalf of eShares Inc., d/b/a Carta Inc. ("Carta"). This communication is for informational purposes only, and contains general information only. Carta is not, by means of this communication, 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. ©2024 eShares, Inc. dba Carta, Inc.("Carta"). All rights reserved. Reproduction prohibited.