Startup Valuation 101: What Founders Need to Know About Valuation
At QSBSrollover.com, we specialize in helping founders unlock the full value of Qualified Small Business Stock (QSBS). But valuation, the process of determining what your company is worth, isn’t our lane. That’s why we brought in Dan Eyman of Meld Valuation for a recent episode of QSBS Solved, where we unpacked the valuation process and its implications for early-stage founders, estate planning, and financial compliance. This article is a good summary of that conversation.
What Is Valuation and Why Does It Matter?
Valuation isn’t just about setting a number. It’s about assigning fair value to your company and each class of stock, including common, preferred, and Series A/B/C shares, based on their rights and preferences. It’s a critical step during fundraising, M&A, and estate planning.
Too often, founders assume that their post-money valuation from a SAFE or funding round is “good enough.” But as Dan pointed out, valuation for tax or estate purposes is very different. The IRS has specific requirements around report structure, support letters, and methodology that go far beyond what most cap table software platforms provide.
“If you're talking to a valuation firm that doesn’t know how to structure a gift and estate report properly, go the other way.” – Dan Eyman, Meld Valuation
When Do Founders Need a Valuation?
Most often, third-party valuations are required when:
Issuing stock options (409A valuations)
Conducting estate or gift planning
Preparing for a priced funding round
Facilitating M&A transactions
In many cases, a founder’s CPA or attorney will initiate the valuation process. Occasionally, it’s a VC firm or auditor who flags the need.
Early-stage founders often don't think about valuation until it’s too late, right before a funding round closes or after an acquisition offer lands. Planning ahead avoids scrambling and ensures your stock position is substantiated.
Thanks to Dan Eyman at Meld Valuation for collaborating on this podcast episode. This post is not sponsored.
Choosing the Right Valuation Provider
Here are some red flags and best practices Dan recommends when selecting a valuation firm:
Experience Matters: Make sure you're working directly with someone who has deep experience and technical skill, especially with complex assets or estate planning.
Avoid “Bargain” Providers: Cheap valuations often won’t stand up to audit scrutiny and may apply unreasonable discounts to common stock.
Ask Where the Work Is Done: Some firms outsource valuations overseas without your knowledge. Ask where your data is being sent and who is actually doing the work.
High Quality Without High Cost: That’s Meld promise, and it’s something every founder should seek.
Valuation firms like Meld often bundle 409A and gift/estate valuations together at early stages to reduce costs. This can be especially helpful when a company is just getting started and founders are still bootstrapping.
Final Thoughts: Be a “Grown-Up” Founder
Keeping your financial house in order, from clean books to a simple cap table, isn’t flashy, but it’s vital. As Dan put it, “Be a grown-up.” Whether you're issuing options, fundraising, or planning for an exit, good housekeeping can save time, money, and stress down the line.
If you’re a founder who’s unsure when or how valuation fits into your tax planning or QSBS strategy, contact us. We’ll connect you with trusted providers and help you navigate your options.
