IRC 409A Common Stock Valuation
This free, guided checker walks your team through the key decision points for IRC 409A Common Stock Valuation. Answer a few questions to see the likely approach and the evidence to document.
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Pre-IPO Cheap Stock Analysis
This free, guided checker walks your team through the key decision points for Pre-IPO Cheap Stock Analysis. Answer a few questions to see the likely approach and the evidence to document.
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Answer a few quick questions below. It is private - nothing is submitted or stored - and takes about a minute.
This tool is a high-level valuation screening aid for general information only and is not a valuation, appraisal, accounting, tax or legal opinion. A defensible conclusion of value requires a qualified valuation specialist applying professional standards to entity-specific evidence.
The questions this tool walks you through
Here is what the checker asks and why each step matters. Prefer to talk it through? Contact us and we will help directly.
Did the company grant share-based awards during the pre-IPO period whose cost depends on the grant-date fair value of its common stock?
Cheap stock scrutiny arises only where awards are measured off the value of the company's own common stock. Confirm the grant population and grant dates from the equity ledger, because the analysis fixes value at each grant date using facts known or knowable then.
No share-based awards require a grant-date common stock fair value in this period, so no cheap stock analysis is needed under ASC 718-10-30.
Official guidance: FASB Accounting Standards Codification
How was the fair value of the common stock underlying each grant determined?
The strength of support runs from a contemporaneous independent valuation, to a retrospective valuation, to an unsupported board estimate. Identify which underlies each grant, because the SEC staff expects contemporaneous evidence and treats hindsight in retrospective work as a reliability concern.
Proceed to test the equity value and allocation supporting the contemporaneous valuation. Proceed, and document why hindsight did not drive the retrospective conclusion. Obtain a contemporaneous or retrospective valuation; a board estimate alone does not support the grant-date fair value under ASC 718-10-30.
Official guidance: FASB Accounting Standards Codification
Was the company's total equity value estimated using an accepted valuation approach - an income approach, a market approach, or a backsolve to a recent arm's-length financing?
Per-share common value is only as sound as the total equity value it is allocated from. Confirm which approach was used and, where a recent financing is the anchor, that the round was arm's length and close in time, because a stale or related-party round undermines the backsolve.
Re-estimate total equity value using a recognized approach before allocating value to the common shares, per ASC 820-10-35.
Official guidance: FASB Accounting Standards Codification
Which method was used to allocate the total equity value across the capital structure to reach a per-share common value?
The allocation method converts total equity value into a common-share value and must fit the company's exit horizon. As an IPO becomes probable, scenario-based methods (PWERM or hybrid) usually capture the changing exit probability better than a single-horizon OPM or a liquidation-only CVM.
Test the OPM inputs, including volatility, expected term to exit, and the marketability discount. Test the scenario probabilities and the per-scenario discount rates and exit values. Test both the scenario weighting and the OPM allocation within each branch. Confirm CVM is defensible given the proximity of a liquidity event; reconsider if an IPO is anticipated.
Official guidance: FASB Accounting Standards Codification
Was a discount for lack of marketability applied and supported by the expected time to, and probability of, a liquidity event?
A private common share is illiquid, so a market participant would pay less than for a freely tradable share; the discount for lack of marketability captures that gap and should shrink as an IPO approaches and the holding period shortens. Confirm the discount is supported by a recognized method rather than a round-number assertion.
Apply and support a marketability discount consistent with the expected time to liquidity before relying on the per-share value, per ASC 820-10-35.
Official guidance: FASB Accounting Standards Codification
Were awards granted within roughly twelve months of the anticipated or actual IPO, or at values materially below the offering price?
The SEC staff focuses on grants close to the IPO whose fair values sit far below the offering price. Map each grant date against the IPO timeline and price, because a short interval with a large price step is what triggers the reconciliation expectation.
Document the contemporaneous valuation, method, and marketability discount support; the grants sit outside the cheap stock scrutiny window.
Official guidance: FASB Accounting Standards Codification
Is the difference between the grant-date fair values and the IPO price explained by identifiable, documented factors?
A credible reconciliation bridges each grant-date value to the IPO price using changes that actually occurred - higher exit probability, a lower marketability discount, milestones, and market moves. Where a residual step-up remains unexplained, the grant-date values may have been understated and additional cost or disclosure can follow.
Retain the reconciliation showing documented drivers bridge the grant-date values to the IPO price. Prepare a full reconciliation and assess whether additional compensation cost or expanded disclosure is required. Reassess the grant-date fair values, quantify any additional compensation cost, and expand disclosure.
Official guidance: FASB Accounting Standards Codification
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