Today we’ve Nathan Krishnan, who recently joined the Eqvista team as a valuation analyst specialized in 409a valuations and early-stage valuations. We got a chance to have a quick chat with him to talk about his experience in the field of business valuations and many more.
First of all, Welcome to Eqvista team, Nathan 🙂 We’re thrilled to add another member to our growing team. Could you please tell us more about yourself.
I am a CFA Charterholder with over 20 years of experience in corporate finance, private equity, investment banking and financial planning having worked in the United States, Middle East, Asia and India. In my last full-time role, I led a Transaction Advisory Services team handling valuations for Ernst & Young.
I know you’ve many years of experience in the field of valuations and corporate finance, so as an expert, why do you think valuations are important for businesses?
Valuation, to me, is where the rubber meets the road. You could have a great business in a great industry; but if it doesn’t deliver a reasonable return on capital to equity holders over the long term, it is better to take the money elsewhere. Valuation is looking at this from another perspective and extending it to saying the business is worth only so much, but if you do this and that other thing, you could be worth more.
Many startup founders are confused with the term 409a Valuation with post money investment valuations (VC valuations), could you please explain the difference between these two.
VC Valuations are done as part of a funding round. VC valuations usually are affected by negotiations and desirability of an investment to the investor. Some investments which are the flavor of the season may get a higher valuation in the funding round while some desperate companies may get a lower valuation. That is to say, the VC valuation is partly dependent. A 409A valuation is performed under the IRS code to obtain a fair market value (FMV) of the business. FMV is not party dependent and is usually determined by an independent valuation service.
Does every business need to do 409a Valuation?
Not every business needs to do a 409A valuation. Only businesses that have issued stock options or deferred compensation arrangements similar to options that are not governed by IRC 401. As a general guideline, you need to check if 409A is applicable to you when you issue employee stock options, at every round of financing when a potential merger or acquisition or an IPO is on the horizon and a few other events. Once you get a 409A valuation, it is advisable to keep it updated every 12 months at least or on the occurrence of any of these events.
How do startups get a safe harbor valuation?
The best way to get a safe harbor valuation is through a third-party valuation service provider like Eqvista. The safe harbor valuation helps keep the IRS off the founders attention span leaving them to focus on building the startup.
Are Restricted stocks subject to 409a Valuation?
If Restricted Stock Units (RSUs) are not structured to vest correctly, an RSU may be treated as deferred compensation arrangement and come within the scope of 409A.
Lastly, why do you think Eqvista will be a perfect 409a Valuation provider for any businesses?
Eqvista has a great team of valuation professionals who are driven by its values of great customer service. Eqvista has an experienced team that provides a range of compliance services ranging from incorporation services to cap table management using a world-class technology platform. Eqvista brings the same passion for excellence as a valuation service provider as well.
Thank you so much Nathan, for your time and effort in answering the above questions. Once again congratulations on joining our team and good luck!