Valuation Shell Game: Silicon Valley’s Dirty Secret - The New York Times

You want to know the dirty, little secret of Silicon Valley? It’s called the 409A valuation.

Yes it’s obscure, and yes, it’s a little bit technical. Here’s how the process works: In order to attract and to retain high-powered employees, high-flying tech companies want to issue them common stock or options. To do so and to comply with Internal Revenue Service rules, they need to obtain an independent, third-party valuation of the company.