Early stage companies often issue various forms of equity as compensation. As a result, valuations may be needed not only to satisfy the safe harbor requirements under IRC §409A, but also in some cases to maintain compliance with current financial reporting standards and U.S. GAAP. Given the complicated capital structures of many early stage companies, valuations of such entities may be difficult and require the experience of a seasoned valuation firm such as MPI.
There is no single authoritative method applicable to the valuation of all early stage companies. Rather, judgment must be applied to assess a variety of qualitative and quantitative factors to determine the appropriate valuation method(s) applicable in any given case.
With regard to financial reporting, a task force formed by the SEC and FASB authored a guide entitled, "The Valuation of Private Equity Securities Issued in other than a Business Combination", also referred to as the “Practice Aid”. The Practice Aid has become the standard relied upon by most valuators performing early stage company valuations. When appropriate as a best practice, MPI uses the methods proscribed in the Practice Aid to ensure your valuation will meet the standards required by your CPA firm.