Hello WSO! Currently I am interning at in finance at a tech start-up that is preparing to give equity options to employees. We are currently receiving our 409A valuation from an investment bank for this purpose. I have come across a circular reference in the valuation that I need some help understanding. The FMV (Fair Market Value) of a common stock is dependent upon the FMV of the new common options being issued (as you want to subtract the FMV of the common options from the equity value in the calculations to get to the FMV of a common stock. But the FMV of the new common options being issued is dependent upon the FMV of the underlying security, the common stock. Clearly this creates a circular reference, and we have been given different numbers for the FMV of the common stock in different drafts, thus shifting the FMV of the new options, but everything else outside of the circular reference has remained the same. How does one solve it?
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