Business Valuation Methods for Startups
Written by Harry Prabandham
Curated by Rubric Financial
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Why Valuations Matter for Startups
- Valuations are required for 409A compliance (setting stock option exercise prices), fundraising (negotiating with investors), and M&A (selling the company)
- Different contexts use different methodologies: the valuation for a 409A is typically 25-35% of the preferred share price, while a fundraising valuation reflects the price investors pay
- Getting the valuation wrong has real consequences: 409A set too high means unattractive options; set too low risks IRS penalties for the company and employees
- Understanding valuation methods helps founders negotiate better with investors, acquirers, and 409A valuation firms
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About the author
Harry PrabandhamFounder & CEO
Founder and CEO of StartupCFO. MBA from Wharton, MS in Computer Science, and decades of experience building and advising venture-backed startups.
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Independent valuation of common stock used to set option strike prices.
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