It was a great year for start ups. It was a record year for companies going public, valuations for pre-IPO companies were sky high, and fundraising broke records.
It is going to be different. Many of the companies that went public last year have seen their stock prices plummet, and that has trickled into the private market as late-stage tech companies are starting to see their valuations decline.
Lower valuations aren't as bad as they're made out to be What goes down will most likely go back up. There is a chance for startups to reduce their valuation while things are down.
Reduce. Maintaining an inflated valuation doesn't do you any good It can hurt your company's growth in the long run.
Reevaluating your 409A now is the right thing to do for your employees, because their equity isn’t up to date with the rest of the market.
It may seemcounterintuitive, but a lowered valuation could benefit your employees. A high valuation increases the cost of exercising or buying stock options.
In a job market where recruiters are competing for talent, a lower valuation will make equity packages more attractive.
The strike price is the price at which a stock option is granted. When the option is granted, the strike price will be the same as it was when the option was first granted. The company's valuation is reflected in the 409 A valuation. The fair market value is impacted by that.
When an employee buys or exercises their options, they have to pay taxes on the difference between their strike price and the current price. The IRS considers the increased valuation of the stock to be income, which can be subject to income tax or the alternative minimum tax.
Employees wait and see their equity. They feel less risky buying stock options if they believe their company has made it.
A lower 409A valuation will result in a lower base cost for new recruits. Job offers are more attractive as a dip in valuation doesn't mean the company won't have a good exit. Current employees can pay less to exercise their options and be better prepared for a possible exit.
Instacart filed to go public after announcing that it would improve compensation packages for new hires.
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