Private companies face a unique set of challenges. Multiple rounds of financing can leave companies with a complicated and confusing capital structure, making it difficult to determine not only how much the company is worth – the business valuation – but also how much of that value belongs to each class of investor. Companies approaching their initial public offering will be heavily scrutinized, perhaps triggering significant restatements if valuations weren’t properly done upfront.
Private companies issuing equity compensation face additional challenges. First, they must be sure that their plan design is consistent with their compensation objectives. Second, they must be sure that plan terms are not subject to ambiguity and later misinterpretation. Finally, they must be concerned with the implications of Internal Revenue Code Section 409A, which can generate stiff penalties for both employers and employees if the company lacks reliable calculations of its common stock value.
Business Valuation Services
We help private companies by doing the following:
- Perform periodic or retroactive valuations of the company
- Allocate the value of the company among multiple classes of securities
- Following a round of funding, use the funding to estimate the implied value
- Determine whether a revision of a prior valuation is needed
Relying on our extensive valuation and derivatives experience, Equity Methods focuses on helping companies with complex business valuation and equity allocation issues. Equity Methods will carefully apply valuation techniques, considering the facts and circumstances most relevant to your business. We specialize in helping companies with:
- Complex capital structures, including multiple rounds of financing, warrants, and other complex instruments
- Companies issuing equity compensation for the first time, or building new types of compensation
- Companies approaching a liquidity event, including those going through a retrospective review of their prior valuations
Experience a smoother transition and audit process, avoid uncertainty about rule 409A, be confident that grants issued to employees match intentions, and help holders understand the value of the rights and preferences of their shares within your capital structure.