For an IRS rule with such a short, cryptic name, the 409A value of a pre-IPO company has an outsized influence. It’s a component of a complex formula that yields a company’s strike price for common stock, one of the bedrocks of the Silicon Valley economy. It’s a sensitive measure that rises or falls with executive decisions about everything from who can invest in the company to IPO exit timing. It’s a score you want to remain low; the lower the price of common stock, the fewer shares the recruiting teams need to entice new employees.
The next section delves into the details of how a liquidity program might affect your company’s 409A valuation.