Helping Venture-backed Technology Companies Mitigate Risk And Maximize Their Outcome.

Experienced. Proven. Trusted.

 

ABOUT ETON VENTURE SERVICES

Eton Venture Services is one of the leading valuation firms in the US and was established in 2010 to provide independent audit-defensible 409A valuations, utilizing the industry standard methods of the AICPA.  Since entering the market we have worked with hundreds of companies and completed more than 2500 valuations, with a unique focus on timely delivery at a reasonable cost. Eton was founded and is led by former securities lawyers from some of the country’s best law firms who also have experience working at startup companies. These unique backgrounds enable us to leverage experience  to deliver our valuation expertise to our wide range of clients.  As companies grow and talent acquisition and retention becomes a management priority, we believe that issuing stock options based on a professional, independent fair market value report is mission critical.   Eton delivers your work using highly qualified valuation experts who meet Internal Revenue Service regulations to perform the work and then independently review each engagement. Our successful approach is based on personal attention, client engagement and thoughtful analysis, in contrast to software-based services or self-performed valuations that could put potentially your company at risk. Eton regularly receives referrals from the country’s leading law, accounting and audit firms in addition to existing clients.

 

Contact Eton today to do it right, the first time.

 

Our extensive valuation experience covers:

  • equity securities issued as compensation (ASC 718; IRC 409A)

  • intangibles for purchase price allocations (ASC 805)

  • contingent considerations (earn-out) for purchase price allocations (ASC 805)

  • complex financial instruments, swaps, derivative contracts, embedded derivatives (ASC 820)

  • portfolio company investment valuations (ASC 820)

  • convertible debt valuation (ASC 470-20)

  • business and equity interest valuations for estate and gift tax purposes

 

 

CHRIS WALTON

Managing Director

Christopher co-founded Eton Venture Services in 2010 and currently serves as its Managing Director. Christopher started Eton to assist corporations and investment funds with the valuation of business interests, intangible assets, debt instruments, employee stock options, derivatives, and complex securities. As Managing Director, he works closely with clients’ executive leadership, boards of directors, internal/external counsels, independent auditors, investors, and advisors to develop detailed financial models of each client’s respective business or assets for the purpose of valuing that organization or asset.  He has been the project lead for thousands of valuations for companies and their leaders across a broad range of industries and sectors.

 

Christopher started his career as a corporate securities / M&A associate at the Silicon Valley-based law firm of Gunderson Dettmer Stough. As an attorney at Gunderson, Christopher provided legal advice to private and public corporations, investment banks, venture capital funds, and private equity funds. His work included M&A matters focused on negotiated acquisitions and mergers, leveraged buyouts and spinouts, and securities matters focused on financial instruments, structured products, initial and secondary public equity offerings, 144A debt offerings and private financings. Christopher also held senior leadership roles at two venture-backed startups. He is a member in good standing of the California Bar Association, the National Association of Certified Valuation Analysts, and the American Society of Appraisers.

 

section 409a valuations

Do you really need a 409A?

If you plan to issue stock options or other forms of equity as compensation, assuming you want to comply with tax law, the short answer is YES, you need a 409A fair market value report. Section 409A requires companies that issue stock options / equity to do so at no less than fair market value.

 

As young lawyers in Silicon Valley, we saw the boards of directors of many startups use rules of thumb based on the company’s preferred stock price to price the company’s options. Issuing options at 10%, 5% (or even 1%!) of the preferred price was quite common. This approach was simple and created cheap option prices to help companies attract, retain and incentivize employees. The problem is that the process those boards utilized to determine the fair market value of the options granted to employees was not based in any real valuation methodology. We are reminded of the common refrain: “There are no rules of thumb in valuation.”

 

Those “rules of thumb” got people in trouble because they resulted in value determinations that were completely untethered from the real value or price per share of the options companies were granting. So, Congress stepped in and enacted Section 409A of the Internal Revenue Code, mandating strict requirements on nonqualified deferred compensation plans (which include most stock option plans).

If you hire the right firm, Section 409A fair market value reports are quick, generally inexpensive, and they keep the company in compliance with tax law, an extremely important issue if you hope to go public or sell the company in the future.

Contact Eton today to do it right, the first time.

Why you shouldn't do your 409A yourself

Prior to 2007 (thank you for nothing Enron!), stock option grants were not taxable events. Now that Section 409A is part of the Internal Revenue Code, to issue a stock option grant to an employee without triggering a tax event, you must demonstrate that the fair market value of the stock options is “reasonable.” If you can demonstrate reasonableness, your employees may be able to take advantage of what is called the 409A “safe harbor.”

 

The easiest way to get that safe harbor for your employees is to engage a qualified, independent valuation specialist to perform the 409A fair market value analysis. Caroline Moon at Andressen Horowitz has used a good analogy to explain the rationale underlying the independence of the specialist: when you seek a mortgage lender for your home, the mortgage lender uses an appraiser to determine the value of your home. The mortgage lender doesn’t want to know your your opinion of the value of your home because you’re biased – they want the value determined by someone who can give them a dispassionate, arm’s-length (independence is really important!) assessment.

 

But simply hiring an independent third party to do the Section 409A analysis alone is not enough. You and your board still have a legal duty to ensure that the valuation expert’s work is reasonable and defensible. Remember the work must be reasonable to gain the protection of the safe harbor. Moreover, defensibility is critical because financial statement auditors, the SEC (if you go public), the IRS and potential acquirors may challenge the analysis even if you worked with a independent third party valuation specialist.

One interesting side question that you should ask yourself: Is my Section 409A fair market value assessment provider independent if they or an affiliate of their's provides other services to the company, such as cap table management services?

 

Contact Eton today to do it right, the first time.

 

other valuation services

Eton is a full-service valuation firm. Our extensive valuation experience covers:

  • equity securities issued as compensation (ASC 718; IRC 409A)

  • intangibles for purchase price allocations (ASC 805)

  • contingent considerations (earn-out) for purchase price allocations (ASC 805)

  • complex financial instruments, swaps, derivative contracts, embedded derivatives (ASC 820)

  • portfolio company investment valuations (ASC 820)

  • convertible debt valuation (ASC 470-20)

  • business and equity interest valuations for estate and gift tax purposes

 

Contact Eton today to do it right, the first time.

 

REPRESENTATIVE clients

ABOUT US

 

Contact Us

 

Eton Venture Services, Ltd. Co.

3112 Windsor Road

Suite A-208

Austin, Texas 78703

Tel: 888.918.ETON (3866)

www.etonvs.com

@etonventuresvcs

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