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If you’re looking to exercise or sell your options, something you’ll want to know is how much your shares are actually worth. While this might sound as though it should be obvious, it actually isn’t, for a few reasons:
Private company shares are valued in different ways depending on who is valuing them. For instance, investors will use funding rounds to demonstrate how much they think a startup might be worth. Meanwhile, the IRS will value stock using a 409a valuation.
Value will change considerably over time. Of course, as companies grow, their value will likely grow too. But, also, 409a valuations need to be regularly updated, to ensure that companies are meeting their tax, compensation, and compliance obligations.
If you’re an employee, your shares’ value isn’t the same as what you’ll receive. Before you benefit from that value, you may need to pay to exercise your options, and you may also owe taxes. How much you ultimately keep will depend on factors such as your strike price, your tax situation, and where you live.
It can be complex to understand how much your shares are worth, and how their value can impact you. That’s why, in this guide, we’ll share in detail how to value private company shares, so you can be confident about your financial position.
We cover:
Why private stocks are valued differently to public shares
5 methods to value private company shares
How company valuations could impact your personal finances
How Secfi can help you make equity decisions with confidence
Want to get clarity on the value of your shares, forecast your equity wealth, and understand your taxes? Try our AI equity assistant, Maeve.
The reason why it can be difficult to value private company shares is that they're not traded on the public stock market.
With companies that have gone public — such as Nvidia, Apple, or SpaceX — shares can be bought and sold publicly. Anyone can buy a piece of the company (i.e., a share or a fraction of it) through a broker or a platform of choice.
As a result, the value of these public companies is determined by market forces, reflecting real-time supply and demand. The stock price moves continuously, and you can read a company's market capitalization straight off the exchange by multiplying the price per share by the number of shares outstanding.
On the other hand, companies like Stripe, Databricks and Anduril remain private. Their shares are not available on the public stock market and they’re typically held by few key people, such as founders, investors, and employees with equity compensation.
Private companies face fewer regulatory requirements, since they don’t offer shares to the general public. Plus, the nature of private stocks makes them less liquid, as not everyone can buy and sell them. That lack of liquidity is part of why a private company valuation is rarely a single, settled number.
Crucially, though, because there isn't a public market for these shares, and private companies typically disclose far less financial information than public companies, their value is much harder to determine.
In practice, different players use different methods to value private stocks that make sense for their own purposes. For instance, investors will value a company based on their proprietary underwriting models which leads to the price they pay, while the IRS will understand the value of stocks by reference to a company’s 409a valuation.
None of these methods is necessarily more accurate than another. Until a company goes public, no single valuation will tell you the full story. Rather, each method is a different lens for looking at stock value.
That’s why, if you’re looking to exercise your stocks — and get clarity on the tax implications — it makes sense to have an idea of all of these different valuation methods.
| Valuation method | What’s it best for? | Pros | Cons |
|---|---|---|---|
Preferred price
The price investors paid in the latest funding round. Set by venture capitalists and investors. | Understanding investor sentiment and future expectations. | Shows what institutional investors think about the company | Might be inflated compared with actual market value of common stock |
409a valuation
This is an independent valuation, set by third-party firms. It’s primarily used by companies for tax purposes and assessed yearly. | Establishing the legal strike price at which employees, founders, and contractors can purchase their stock options
Ensuring the company remains compliant with U.S. tax laws | It’s a legal requirement
Provides an independent valuation | Can be beneficial to keep the 409a as low as possible for the benefit of current and future employees |
Public comps, or comparable company analysis
A valuation based on similar public companies. It’s set by investors and analysts. | Benchmarking against competitors. | Provides a reference based on established players in the market | Finding a truly comparable public company is difficult, and private companies often don't disclose enough financial information to make a reliable comparison. |
Fund marks
The value that investment funds assign to their holdings. Set by investment firms and typically assessed quarterly. | Understanding how institutional investors value the company. | Gives insights into how major investors value similar assets | The valuation can vary depending on the fund |
Caplight MarketPrice™.
A proprietary price estimate derived from private market data, including public comps, secondary trades, and other factors, while the range indicates the high and low price for a given stock. Set by Caplight. | Providing a market-driven valuation that incorporates multiple data sources, offering a more dynamic and realistic estimate of a private company's worth. | Aggregates diverse data points | Subject to variations based on available private market data |
A quick note on the first two rows, since they trip up the most people. The preferred price comes from fundraising and reflects what investors paid for preferred stock, which usually carries extra rights. Your 409a sets the fair market value of common stock (the shares employees actually hold) which is why it tends to land lower.
These valuations aren’t just numbers, they directly impact your equity decisions. In practice, different valuations might influence:
Whether and when you exercise your options. For instance, depending on the valuation, you might decide to exercise now or wait until a later date.
How much tax you’ll need to pay on exercise. Taxation is something that’s often overlooked when employees exercise, but it can be a considerable upfront cost. How much you owe in tax will depend on how much your stocks are worth based on the 409a valuation.
Whether you participate in a tender offer. A valuation can help you assess whether a price you’ve been offered is fair.
The price at exit. When your company goes public, its price is influenced by how investment banks assess market demand. This is often done in relation to private valuations. The same applies in mergers and acquisitions, where a buyer's offer sets the price that finally turns your shares into cash.
One thing to bear in mind when considering the value of your shares is timing.
For instance, a 409a valuation needs to be updated every 12 months at a minimum. But if it hasn’t been updated for a while, it may not reflect the most recent company performance. The same goes for preferred funding rounds, those completed years ago may also be outdated.
When evaluating your equity, timing helps you determine which valuation is most relevant to you. Ultimately, using the right valuation at the right time helps you assess your options with more context and make decisions that align with your financial goals.
When it comes to exercising your shares, though, the value of your company isn’t the only consideration. Your regular earnings and the state in which you’re taxed will both have an impact on whether it makes sense to exercise.
At Secfi, we support and empower startup employees and executives to make confident decisions about their equity.
As you’ve seen, equity is complex, and the right decision will depend not just on the value of shares. Instead, there are many factors that influence whether or not to exercise, including your income, residence, strike price, and more.
The trouble is that most financial advisors and tools only provide generic advice — and they often lack the specialist knowledge needed to give you accurate guidance on your personal situation.
That's why our founders built Secfi. They wanted to exercise their stock options but, like many startup employees, they didn't have the cash to do so. They started Secfi to help others overcome the same financial barrier and make informed decisions about their equity.
Today, we provide the tools and guidance you need to better understand your equity position. Our AI equity assistant, Maeve, can provide a personalized breakdown of your share value and help you model whether and when it makes sense to exercise. But we also offer specialist advisors who can talk you through your options and help you maximize your wealth long-term.
If you decide to exercise your options but you don’t have the finances to do so, Secfi may be able to help. We offer non-recourse financing to startup employees, as well as access to secondary market sales.
In the rest of this guide, we share three ways that Secfi can support you.
For most startup employees, understanding what your equity is worth is only the first step. The harder part is knowing what to do next.
In our experience working with employees, most people turn to Google to find answers to their questions about their shares. But exercising your options is a highly personal decision — and generic resources can only provide you with generic answers.
That’s why we created Maeve, our AI assistant built specifically for equity planning: to give you information tailored to your specific situation. The tool uses your specific details to help you model exercise decisions, compare scenarios, estimate tax implications, and evaluate potential outcomes.
Maeve can give you answers to questions such as:
Should I exercise now or wait?
What could my shares be worth under different valuation scenarios?
How much capital gains or AMT might I owe?
How would a tender offer, secondary sale, or exit affect my outcomes?
For illustrative purposes only. Actual results may vary and there is no guarantee of any particular outcome.
Maeve is built on Secfi’s proprietary equity and tax modelling engine, to provide reliable calculations and personalized insights so you can make more informed decisions about your equity.
Equity decisions rarely happen in isolation. Exercising your options, managing taxation, and planning your long-term wealth are all connected.
These are complex and high-stakes considerations, and they can be particularly daunting if you’re looking to make major life decisions — such as buying a home or having a child — at the same time.
You can work with experienced advisors at Secfi who specialize in equity compensation. As our advisors understand the unique challenges faced by startup employees and shareholders, they can give personalized advice on:
Option exercise strategies
Tax planning and AMT considerations
Liquidity and secondary sale opportunities
Wealth planning before and after a liquidity event
Evaluating different paths based on your goals and risk tolerance
Whether you’re simply curious about what your shares are worth today, or you're planning for a future exit or exercise, our advisors can help you build a strategy with clarity and confidence.
Plus, they can help you plan your wider strategy to help maximize your wealth. While they’re highly experienced in equity, that’s just one part of your wealth. They can also help you make decisions on your investments, savings, and more.
If you’ve determined that exercising your options is the right move, one major hurdle many employees face is the cost of exercising.
You’ll need to pay the strike price upfront, plus any associated taxes. And for many people looking to exercise, this is too much to afford out of pocket.
At Secfi, we help startup employees explore their options. Depending on your situation and eligibility, that may include non-recourse financing to help cover the cost of exercising your options without paying upfront.
If financing is available, you'll retain ownership of your shares and participate in potential future upside while reducing the need to take on personal risk or liquidate other assets. In some cases, financing can also help you start the clock on long-term capital gains treatment sooner and position yourself ahead of a future exit.
If financing isn't the right fit, we may also be able to help you access the secondary market, where eligible employees can sell shares to vetted private investors before their company exits.
A startup employee, Amanda, faced a common challenge after learning more about her equity: exercising her stock options would require significant upfront costs and could trigger a tax bill.
While she wanted to preserve the potential upside of her shares, she was understandably reluctant to put her personal finances at risk.
Through Secfi’s equity planning tools and guidance, she gained a clearer understanding of her options, including the tax implications of exercising early and the potential impact of AMT. Ultimately, she chose a non-recourse financing solution that allowed her to exercise her options without risking her savings, only repaying if a future liquidity event occurred.
Her experience highlights an important lesson for startup employees: valuing your shares is a crucial first step, but having the right information and support can help you make confident decisions about what comes next.
Read more: Why a startup employee used Secfi to buy her stock options
Testimonials are specific to an individual Client’s experience and may not be representative of all Clients. Unless otherwise indicated, Clients offering a Testimonial do not receive compensation and their statement does not present a conflict of interest.
Valuing your private company shares is an important part of understanding your equity, but it’s only one piece of the puzzle.
The decisions that follow — whether to exercise, sell, hold, or seek financing — can have significant financial and tax implications. The right path will depend on your personal circumstances, goals, and risk tolerance.
That’s where Secfi can help. By offering the tools and guidance you need to understand your equity position, and by providing access to non-recourse financing, we give you the support you need to make informed decisions with confidence.
Ready to better understand your equity? Sign up for Secfi and start planning your next move today.
A 409a valuation and a funding valuation serve different purposes. A funding valuation reflects the price investors were willing to pay for preferred shares during a financing round, while a 409a valuation is an independent appraisal used to determine the fair market value of common stock for tax and compliance purposes.
As preferred shares typically come with additional rights and protections, a company's 409a valuation is often lower than its latest funding valuation. But understanding both can help you make more informed decisions about exercising your options and planning for taxes.
No valuation method can predict exactly what your shares will be worth in the future. But you can model different scenarios based on factors such as future company growth, potential funding rounds, secondary market activity, or an eventual IPO or acquisition.
Tools like Secfi's AI equity assistant, Maeve, can help you compare multiple valuation scenarios and understand how different outcomes could affect your potential returns.
Not necessarily. While a higher valuation may indicate company growth, the decision to exercise depends on several factors, including your strike price, tax situation, available cash, risk tolerance, and long-term financial goals.
In some cases, exercising earlier may reduce future tax exposure, while in others it may make sense to wait. Secfi's equity planning tools and advisors can help you evaluate different exercise strategies based on your personal circumstances.
There are a few standard approaches. A discounted cash flow analysis forecasts a company's future cash flows and discounts them back to today, using a discount rate that reflects the time value of money and the company's cost of capital.
A market approach values the company against similar businesses instead, applying valuation multiples like ev/ebitda or price-to-sales.
And asset-based approaches work from the net asset value on a company's books, though this tends to undercount startups, since so much of their value sits in intangible assets rather than physical ones.
Most rely on financial models that blend the methods above. A dcf model, for example, discounts a company's projected earnings using a rate built partly from its cost of equity, then adds a terminal value for the years beyond the forecast.
A market check compares the company's enterprise value and earnings per share against public peers, using figures pulled from its financial statements. Because early-stage companies hold so much of their value in intellectual property and bank on future revenue growth, analysts usually apply valuation discounts before landing on a final number.
The tool shown here uses artificial intelligence and is for illustrative purposes only and not necessarily indicative of future results and there is no guarantee that similar results can be achieved. The information provided by the tool is not professional advice and is not intended by Secfi, Inc., its affiliates, and Secfi representatives, to be deemed as investment, legal, tax or other professional advice or recommendations of any kind, or to form the basis of any decision to do or to refrain from doing anything. Secfi does not review the accuracy or completeness of the information provided to us within the tool.