Introduction
Valuations are a key aspect of managing your company's equity and share plans. They help determine the value of your company, set strike prices for stock options, and ensure compliance with regulatory requirements. In Ledgy, you can manage various types of valuations, each serving a specific purpose depending on your location and needs. This guide provides an overview of the different valuation types and detailed instructions on how to add them to your account. Understanding these valuations will help you accurately represent your cap table and meet your legal obligations.
What is a valuation
A valuation is a process of determining the current (or projected) value of the company or its assets. Depending on the country you are based in, you might need to use different valuations to specify the strike price of your options, option expensing features, or similar. Your local authorities or independent appraisers give valuations and can be stored in Ledgy.
Valuation types
Company valuation
Company valuation is used to show stakeholders the value of their investment and changes after each financing round. The valuation applies across all share classes and changes the representation of your cap table accordingly. Suppose you are allowed to share valuation with your stakeholders. In that case, company valuation will change the current value of the grants your employees own, as well as the value of your company for your investors.
To add a Company valuation:
Go to Ownership > Transactions, then click Add transaction
Under Other, select Valuation to open the "Valuation" window
Company valuation will be automatically selected in the Valuation type dropdown
Create inputs with the valuation data:
Valuation date
Valuation event name - for example, Series A
Company share price
Optional: add documents, internal note and any custom field data you require
Click Save
Publishing changes will adjust your cap table and share the data with your stakeholders
409A valuation (US)
A 409A valuation is an assessment of the fair market value of a private company's common stock by an independent appraiser. It is not shown to your stakeholders explicitly but used to determine the lowest strike price. The lower boundary of the strike price is defined as the fair market value. If options are exercised below that price, the company, along with the employee, might be subject to tax penalties. 409A valuations are valid for one year unless a material event occurs (such as a financing round).
To add a 409A valuation:
Go to Ownership > Transactions, then click Add transaction
Under Other, select Valuation to open the "Valuation" window
Choose 409A from the Valuation type dropdown
Create inputs with the valuation data:
Valuation date
Price per share
Optional: add documents and internal note
Click Save
Note: Documents associated with the 409A valuation can be found in the Data room > Pools > Valuations folder.
Fair value
A fair value, defined by IFRS 2 Appendix A, is the amount for which an equity instrument can be exchanged or transferred between parties. The values given by this valuation are not shared with your stakeholders but are only used to create Option Expensing (or Share-Based Payments) reports.
To add a Fair value valuation:
Go to Ownership > Transactions, then click Add transaction
Under Other, select Valuation to open the "Valuation" window
Choose Fair value from the Valuation type dropdown
Create inputs with the valuation data:
Valuation date
Price per share (spot price)
Volatility
Risk-free rate
Optional: add documents and internal note
Click Save
Now the Option Expensing will use this fair value to calculate the option values
Note: Documents associated with the fair value valuation can be found in the Data room > Pools > Valuations folder.
EMI valuation (UK)
EMI (Enterprise Management Incentive) valuation is not shown to your stakeholders explicitly but used to determine the lowest strike price of the EMI grants. The valuation needs to be requested from the HMRC through the VAL231 form. The lower boundary of the strike price is defined as the actual market value (AMV) of the valuation. EMI options need to be granted before the expiry date of the valuation, which is specified on the valuation documentation (most commonly 90 days).
To learn more about EMI limitations and workflows, check the help article on Grant types.
To add an EMI valuation:
Go to Ownership > Transactions, then click Add transaction
Under Other, select Valuation to open the "Valuation" window
Choose EMI valuation from the Valuation type dropdown
Create inputs with data received from the HMRC:
Valuation date
AMV (Actual Market Value) price per share
UMV (Unrestricted Market Value) price per share
Valuation expiry date
Optional: add HMRC Reference, documents and internal note
Click Save
Publishing changes will adjust your scheme limitations accordingly
Note: Documents associated with the EMI valuation can be found in the Data room > Pools > Valuations folder.
CSOP valuation (UK)
CSOP (Company Share Option Plan) valuation is not shown to your stakeholders explicitly but is used to determine the lowest strike price of the CSOP grants. The valuation needs to be requested from the SAV team of the HMRC. The lower boundary of the strike price is defined as the unrestricted market value (UMV) of the valuation. CSOP options need to be granted before the expiry date of the valuation, which is specified on the valuation documentation (most commonly 60 days).
To learn more about CSOP limitations and workflows, check the help article on Grant types.
To add a CSOP valuation:
On the Ownership > Transactions, click "Add transaction" button
Selecting Valuation will open the "Valuation" window
Choose CSOP valuation from the Valuation type dropdown
Create inputs with data received from the SAV team:
Valuation date
AMV (Actual Market Value) price per share
UMV (Unrestricted Market Value) price per share
Valuation expiry date
Optional: add HMRC Reference, documents and internal note
Click Save
Publishing changes will adjust your scheme limitations accordingly
Note: Documents associated with the CSOP valuation can be found in the Data room > Pools > Valuations folder.