409A Valuations for FinTech Companies


Private FinTech companies that issue stock-based compensation are required to have their common stock valued on an annual basis (at a minimum) by an experienced valuation specialist. As considerable judgment goes into this analysis, it is best to work with a valuation provider who truly understands your company’s business and both the opportunities and risks in your business model.

There are three general approaches to determine the value of a company:

  1. Income Approach – Estimates the value of a company based on the present value of the company’s estimated future cash flows, and the residual value beyond the explicit forecast period. The net present value of these future cash flows is then calculated using a discount rate that reflects the inherent risks of the company.
  2. Market Approach – Estimates the value of a company by:
    • Applying market multiples of comparable publicly traded companies in the same industry or similar line of business. Market multiples are based on key metrics implied by the enterprise or acquisition values of comparable publicly traded companies.
    • Considering recent arm’s length transactions in the company’s equity securities (i.e., a recent preferred financing round or secondary market transactions).
  3. Asset Approach – Estimates the value of a company based on the fair market values of its assets, net of liabilities. This approach is typically not used for early stage companies, since it does not adequately capture their growth prospects.

Once the enterprise value is determined, equity value is calculated and then allocated across the company’s capital structure to determine the fair market value of the common stock (adjusting for lack of marketability).

The FinTech industry represents a highly diverse category of business models that seek to disrupt the incumbent financial systems and corporations. In addition to the standard risks of early stage companies, FinTech companies may face one or more of the following risk factors:

  • Complex and evolving regulatory and competitive environments
  • Credit decisioning and scoring model risks
  • Financial and risk management controls and procedures
  • Non-traditional loan portfolios (client credit profiles, collateral)
  • Ability to profitably scale operations
  • Rapidly changing technology
  • Security and privacy risks

A valuation specialist’s proficiency in assessing the unique attributes your company’s business model is critical to getting an accurate, reliable outcome that will hold up to outside examination, whether by an auditor, the SEC, the IRS, or a prospective buyer of the company. BPM’s team of valuation experts can ensure that your valuation is done properly, lessening compliance costs in the long run.

BPM for FinTech Services

BPM is one of the largest California-based accounting and consulting firms, ranking in the top 50 in the country. It has served the San Francisco Bay Area's emerging and mid-cap businesses, as well as high-net-worth individuals, since 1986. Our FinTech professionals provide comprehensive financial and business counsel to platforms, investors and service providers across the country. Starting a business is difficult and unpredictable, and having the right advice every step of the way is critical. BPM's advisors work with early-stage and emerging clients from day one to establish a strong foundation. Our team is here to talk through options and to help you think through the implications of your decisions. With full-service capabilities in audit, tax and consulting, we possess in-depth knowledge of the financial services industry - its key processes, challenges surrounding growth and performance, regulatory compliance and governance, and the many other complex accounting and reporting issues you face. Our group’s collective knowledge representing a diverse client base in the financial services industry allows us to serve as experts in tech-enabled lending. We specialize in areas including auditing and technical accounting, mergers and acquisitions, student lending, Service Organization Control (SOC) reporting and IPO readiness. Get in touch with us to learn how we can help. For more information about the services we provide, or visit us at bpmcpa.com/FinTech.