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Your company is getting a lot of things right. So many things, in fact, that you might be starting to explore a particularly important stage for your fledgling biz: the 409A valuation.

Going down this path for the first time can feel a little like opening Pandora’s box. But fret not. With a little help from Fidelity Private Shares, we put together the 411 on 409As. We’ll break down the what, why, when, and how of this essential fair market valuation so your biz can continue to get 

A 409A valuation is the assessment of the fair market value (FMV) of your company’s stock as required for tax compliance. While that may sound straightforward, 409A valuations are often clouded by misconceptions, like that they can be generated in just a few days, or that they represent the company’s overall value.

It’s also important to note that a 409A is not the same as a fundraising valuation. Investors might set a price for preferred stock during a financing round, but a 409A valuation establishes the FMV of common stock for option grants. The two serve very different purposes, which is why the numbers rarely align.

Tax compliance rarely lights a fire in a person (good for you if you’re the exception, but it’s not exactly a topic that fuels party chatter). It’s easy to throw something like this on the back burner, but without a 409A valuation, things can boil over quickly and create a huge mess for your company.

A 409A valuation can support your business in a number of ways, including:

Think of the 409A valuation as a safeguard against penalties. It also helps show investors, employees, and future acquirers that you mean business. No one wants to buy a car with a ton of parking tickets on it, and the same applies to a company with a bunch of penalties to pay off. For more details on exactly what the 409A valuation protects against, check out Fidelity’s latest guide, 

So, Someone Told You to Get a 409A Valuation

Not everyone has a lawyer in their family to tell them exactly 

they need this sort of thing. There are a few key points in your business’s timeline when it makes sense to have it.

before granting your initial common stock options

following the completion of a venture financing round

when you’re nearing an IPO, merger, or acquisition

on an annual basis or following a material event

Material events include things like significant contract changes that affect annual recurring revenue, substantial acquisitions, new partnerships, or regulatory alterations that expand or contract your potential market. If you’re still not entirely sure when your company needs a 409A, consider skipping the call to your uncle’s law firm and 

. They can help with fewer guilt trips about how you call only when you need fair market valuations.

So it’s fairly clear that a 409A valuation is important, and while it may not be urgent, you should have a sense of when you need one. The only problem left is figuring out 

to actually get one. While it’s not exactly simple, that doesn’t mean it has to be hard. In fact, 

Once you have all the necessary materials, there are three primary methodologies to acquire a 409A valuation: the income approach, the market approach, and the asset approach.

The income approach is typically suitable for companies with substantial revenue and positive cash flow. It calculates a company’s value based on its expected future cash flows while considering associated risks.

When a company undergoes a financing round, valuation providers often utilize the option pricing model (OPM) backsolve method. The market approach assumes that new investors paid a fair market value for equity, although they receive preferred stock. Adjustments are made to determine the FMV for common stock. Other market-based methods involve analyzing financial data from comparable public companies, such as revenue, net income, and EBITDA (earnings before interest, taxes, depreciation, and amortization), to estimate the company’s equity value.

The asset approach commonly applies to early-stage companies that haven’t raised capital and don’t generate revenue. This methodology assesses a company’s net asset value to establish an appropriate valuation.

Regardless of which approach is right for your company, Fidelity’s got your back. If it’s time for you to plunge into the deep end of FMVs, don’t go it alone. 

 can help you every step of the way. Plus, they have additional info regarding common pitfalls to avoid when getting your 409A valuation. 

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The what, why, when, and how of 409A evaluations

What to know when prepping for your fair market valuation

Get the 411 on 409As

Jordyn Grzelewski

Amid tariff-related uncertainty, it may be hard to find in the auto industry. In releasing Q1 earnings, automakers suspended financial guidance, slashed profit forecasts, and cut outlooks for vehicle deliveries.

In a research note, Wedbush Securities analysts said the tariff situation “will change the paradigm for the US auto industry for years to come.”

Rivian reported gross profit of $206 million in Q1, the second consecutive quarter in which it posted a gross profit. This allowed the company to unlock $1 billion in funding from Volkswagen Group as part of the terms of a 

Ford’s net income ($471 million), revenue ($40.7 billion), and adjusted EBIT ($1 billion) all fell from a year ago. The automaker’s EV business reported an EBIT loss of $849 million, better than Q1 2024’s EBIT loss of $1.3 billion.

General Motors reported $2.8 billion in net income (down 6.6% YoY) on revenue of $44 billion (up 2.3%). Adjusted EBIT of nearly $3.5 billion was down 9.8%.

The Trump administration recently gave the auto industry some relief on tariffs, but 

 on imported vehicles remain in place. Experts have estimated that the 

 about $100 billion in annual costs for the domestic auto industry.

Changes to trade policy have dominated recent corporate earnings reports and calls. Even companies like Tesla, which makes its US vehicles domestically, have reported impacts from the tariffs. Amid myriad challenges, Tesla recently 

 a 71% YoY drop in profits and said it would “revisit” its guidance later.

Rivian builds its vehicles in the US, but warned that it “is not immune to the impacts of the global trade and economic environment.” CEO RJ Scaringe said he expects to see impacts on “material costs, material availability, capital expenditures, and the demand backdrop.”

The company revised downward its delivery outlook for the year, to 40,000 to 46,000 deliveries, down from an expected range of 46,000 to 51,000, and boosted its capital expenditure guidance from $1.8 billion to $1.9 billion.

CFO Claire McDonough said Rivian has enough battery cells in the US to support production “into early 2026.” She estimated that each Rivian vehicle will face a “couple thousand dollars” of tariff impact.

Ford estimated it would see a $1.5 billion hit to adjusted EBIT this year due to tariffs. It suspended its profit guidance for the year, citing “material near-term risks, especially the potential for industrywide supply chain disruption impacting production, the potential for future or increased tariffs in the US, changes in the implementation of tariffs including tariff offsets, retaliatory tariffs and other restrictions by other governments and the potential related market impacts, and finally policy uncertainties associated with tax and emissions policy.”

GM lowered its full-year adjusted EBIT guidance and estimated its tariff exposure to be between $4 billion and $5 billion, though CFO Paul Jacobson said the company should be able to offset 30% of those increases.

CEO Mary Barra said GM has taken steps such as boosting domestic production of full-size pickup trucks and is “developing plans to further increase US vehicle production.”

“GM teams are also working directly with our suppliers to further increase their US content and drive even higher levels of USMCA compliance,” she said. “And we are increasing production of US assembled battery modules, a low-cost way to increase US content. Alongside these actions, we are scrutinizing our discretionary spending everywhere and we are taking steps to ensure that we stay aligned with a strong consumer demand for our ICE vehicles and the evolving regulatory environment around vehicle emissions.”

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Earnings

Get the 411 on 409As

What US auto execs had to say about tariffs during Q1 earnings calls

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