• QuickRead Top Story - Valuation/Appraisal

    Understanding the Delta: When 409A Valuations Differ from Funding Rounds

    March 4, 2026

    In early‑stage and growth‑stage companies, it is common, and often surprising to founders, when the per‑share price established in an IRC §409A valuation does not match the price investors paid in a recent financing round. This difference can feel counterintuitive, especially when the company has just completed a successful raise and the preferred share price reflects strong investor interest. This article discusses why funding round and valuations differ. In early‑stage and growth‑stage companies, it is common, and often surprising to founders, when the per‑share price established in an IRC §409A valuation does not match the price investors paid in a…

  • QuickRead Top Story - Valuation/Appraisal

    Common Pitfalls to Avoid in a 409A Valuation

    June 8, 2022

    How to Avoid Them! A 409A valuation refers to a method of determining the value of a company’s common stock. In other words, the 409A valuation is a method of calculating fair market value (FMV) according to the regulations under the Internal Revenue Code (IRC). This valuation can be carried out using various types of valuation methodologies, however, it is important to avoid pitfalls in 409A valuation when carrying out the valuation to obtain a more accurate result. In this article, we will discuss some of the most common mistakes that can be made when carrying out a 409A valuation,…

  • QuickRead Featured - Valuation/Appraisal

    Using the Option Pricing Method Changes the Standard of Value

    June 21, 2017

    Does the IRS or Anyone Care? (Part II of II) Part one of this article presented the “current method” and “option pricing method” (OPM) for allocating value to common stock for 409a valuations, and how these two methods differ in pricing of common stock. Part two examines the implied changes made by OPM and how it affects stakeholders. The article begins with a brief review of the key impacts on the valuation problem.

  • QuickRead Featured - Valuation/Appraisal

    Using the Option Pricing Method Changes the Standard of Value

    June 14, 2017

    Does the IRS or Anyone Care? (Part I of II) In part one of this two-part article, the author presents the two methods for allocating value to common stock for 409a valuations, and then show how they affect the pricing of common stock. By way of background, to meet FMV, the standard of value requires measuring value under the representation of a hypothetical willing buyer and a hypothetical willing seller, both with equal knowledge of the facts, that engage in an arm’s-length transfer. Yet, the Option Pricing Method (OPM) used to price common stock is based on a model of…

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    Q&A: New Guidance on Valuation of Contingent Consideration (Earnouts)

    May 24, 2017

    How do you get buyers and sellers to execute an M&A transaction when the prospects of an industry are extremely uncertain?  Part of the answer may be to structure the deal in a way that defers payment of a (significant) portion of the purchase price in the form of contingent consideration.  In this blog post, Sujan Rajbhandary, vice president, interviews Travis Harms, who leads Mercer’s valuation for financial reporting practice, to get his thoughts on the new valuation guidance. To read the full article in Mercer Capital’s Financial Reporting Blog, click: Q&A: New Guidance on Valuation of Contingent Consideration (Earnouts).…

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    Financial Reporting Blog: Best of 2016

    January 4, 2017

    2016’s 10 most popular posts from Mercer Capital’s Financial Reporting Blog.  2016 proved to be an interesting year, both in terms of developments in financial reporting and the range of topics covered on this blog.  We’ve enjoyed sharing our thoughts in this forum over the last three years and look forward to new challenges and opportunities in 2017. To read the full article in Mercer Capital’s Financial Reporting Blog, click: Financial Reporting Blog: Best of 2016. This article is republished from Mercer Capital’s Financial Reporting Blog.  It is reprinted with permission.  To subscribe to the blog, visit: http://mercercapital.com/category/financialreportingblog/.

  • QuickRead Featured - QuickRead Top Story - Valuation/Appraisal

    Discounts for Lack of Marketability

    July 20, 2016

    Consideration for Closely Held Securities—DLOM Theoretical Models (Part II of II) This article summarizes the factors (and the empirical evidence) that the analyst may consider in the measurement of a discount for lack of marketability (DLOM) valuation adjustment associated with non-controlling securities of a closely held company. This security-level DLOM is different from the entity-level DLOM that is applied at the closely held company level. This second part of the article focuses on theoretical DLOM measurement models: the option pricing and DCF models.

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    A Layperson’s Guide to the OPM: Everything You Always Wanted to Know About the OPM, But Were Afraid to Ask (Part 2)

    May 18, 2016

    In Part 1, Travis W. Harms, Mercer Capital Financial Reporting Valuation Group lead, walked through the mechanics of the option pricing model (OPM) with a view to making the model more intuitive to non-specialist report users.  In this post, he addresses the model from a more qualitative perspective, evaluating the model’s use and potential misuse in practical application. To read the full article in Mercer Capital’s Financial Reporting Blog, click: A Layperson’s Guide to the OPM: Everything You Always Wanted to Know About the OPM, But Were Afraid to Ask (Part 2). This article is republished from Mercer Capital’s Financial…

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    A Layperson’s Guide to the OPM: Everything You Always Wanted to Know About the OPM, But Were Afraid to Ask (Part 1)

    May 11, 2016

    The option pricing model, or OPM, is one of the shiniest new tools in the valuation specialist’s toolkit.  Travis W. Harms, Mercer Capital Financial Reporting Valuation Group lead, discusses the purpose of this post is to clarify the fundamental insight underlying the model and illustrate its application so that non-specialist users of valuation reports can gain greater comfort with the model.  Part 2 will address some qualitative concerns regarding use of the method in practice. To read the full article in Mercer Capital’s Financial Reporting Blog, click: A Layperson’s Guide to the OPM: Everything You Always Wanted to Know About…

  • QuickPress - Valuation/Appraisal

    Unicorn Valuations: What’s Obvious Isn’t Real, and What’s Real Isn’t Obvious

    September 16, 2015

    Unicorn valuations are not directly comparable to public company valuations.  Travis Harms, leader of Mercer Capital’s Financial Reporting Valuation Group, looks at how the numbers could potentially be misleading. To read more about the results of this report in the Mercer Capital’s Financial Reporting Blog, click: Unicorn Valuations: What’s Obvious Isn’t Real, and What’s Real Isn’t Obvious.  This article is republished from Mercer Capital’s Financial Reporting Blog.  It is reprinted with permission.  To subscribe to the blog, visit: http://mercercapital.com/category/financialreportingblog/.

  • QuickPress - Valuation/Appraisal

    How to Value Venture Capital Portfolio Investments

    June 17, 2015

    This blog discusses the four-step process for providing fair value marks for venture capital fund investments in pre-public companies: 1) examining the most recent financing round economics, 2) adjusting valuation inputs to the measurement date, 3) measuring fair value, and 4) reconciling  and testing for reasonableness.   Sujan Rajbhandary, vice president in Mercer Capital’s Financial Reporting Valuation Group, discusses each step in the process including the option pricing method (OPM) and the probability-weighted expected return method (PWERM). Find out more in the Mercer Capital’s Financial Reporting article,  How to Value Venture Capital Portfolio Investments. This article is republished from Mercer Capital’s…

  • QuickRead Top Story - Valuation/Appraisal

    Current Controversies Regarding Option Pricing Models

    January 8, 2014

    A view of the use and limits of option models (Part 2 of 2) Option pricing models (OPMs) are increasingly used to estimate the discount for lack of marketability (DLOM) in the business valuation profession. Some analysts disagree about whether OPMs are applicable for estimating the DLOM. Since OPMs were originally derived to determine option prices for publicly traded securities, many analysts question the merits of applying them to closely held securities. This discussion explores the controversies of applying OPMs to estimate the DLOM for nonmarketable securities.

  • QuickRead Featured - Valuation/Appraisal

    Current Controversies Regarding Option Pricing Models

    January 2, 2014

    A view of the use and limits of option models (Part 1 of 2) Option pricing models (OPMs) are increasingly used to estimate the discount for lack of marketability (DLOM) in the business valuation profession. Some analysts disagree about whether OPMs are applicable for estimating the DLOM. Since OPMs were originally derived to determine option prices for publicly traded securities, many analysts question the merits of applying them to closely held securities. This discussion explores the controversies of applying OPMs to estimate the DLOM for nonmarketable securities.