Traditionally, business valuations have been incredibly time-consuming, tedious, and expensive for companies. This tech startup is artificial intelligence software to reinvent business valuations. 409.AI is using AI to generate real-time business valuations and reports. It addresses the ultimate question that every company needs to know: How much is the company worth based on today’s market?
409.AI‘s technology compares over 10,000 data points using our 200,000-business machine learning trained model. The result is reports that are 10 times faster, 50% less expensive, and devoid of unnecessary subjectivity. After initial traction and graduating from one of Toronto’s top startup accelerators, the company has launched its real-time business valuation product. We sat down with the founder and CEO, Mike Magnacca, to delve into more details on business valuation and the future of AI.
What was the inspiration behind 409.AI?
We launched our first version of the product a few years back with a tool that helped lenders cut down due diligence time on loans by 90% through the use of AI. Interestingly, we found our clients were fascinated by our reports and kept requesting to have access to them as a tool to support their business decision making process. We spoke with over 25 businesses and industry professionals to learn more about their pain points. The results were overwhelmingly clear; growing businesses have a need for frequent valuations to make strategic decisions, ensure compliance, and scale their team properly.
The more we researched, the more it became clear that by completing 409a valuations specifically, founders and their employees would have access to increased financial upside upon an exit – without impacting existing or new investors. This spoke to us as founders ourselves, if we could help reward team members who work so hard through the ups and downs, there’s nothing we want more than to ensure these hard working individuals be rewarded with proper, defensible tools that maximize their return. And so, 409.AI was born.
What is a 409A Valuation for companies? Why is it important?
A 409A valuation is a comprehensive assessment of the fair market value of a company’s common stock. Named after Section 409A of the Internal Revenue Code in the United States, this valuation is crucial for determining the strike price of stock options granted to employees.
In other words, it’s a tool for businesses to create fair compensation packages for their employees and investors that have equity within a company. With these valuations, businesses can help ensure compliance with tax regulations, prevent the imposition of penalties, and provide a reliable benchmark for equity-based compensation.
Traditionally generating this report has been expensive. How do you help companies with it?
Yes! The average cost to hire a Valuation Consultant is $370 USD an hour. And even worse, much of that time is spent manually inputting data into Excel and manually looking up comparable companies. The reality is that it’s not an affordable option for most small to medium sized companies to do often, if at all.
Our solution is based on various forms of direct integrations and AI technology. When completing the online form, we ask businesses to connect their accounting software data. This gives us access to 10,000 data points in real time – not manually entered – to instantly start running initial calculations. We also use various forms of AI to help capture the cap table, find comparable businesses for benchmarking, and even writing the report. Then we have our valuation experts review and make any edits needed before it gets sent back to the business. We save 10’s of hours of work that benefits both our valuation firm and our customers. With those time savings – both for the business and for 409.AI – we are able to provide valuations faster and offer truly founder-friendly options like 12 months of unlimited reports for less than the cost of some of the competitors’ single report cost.
How is 409.ai leveraging AI on the platform as a differentiator?
Our competitor models are built around billing for consulting hours on an hourly basis. With us, we are not trying to maximize our billable hours, we instead aim to save everyone as much time as possible. Using AI helped us build the company differently from the ground up, minimizing the manual tasks while still providing accurate valuations. Here’s a few examples how:
1. API integration data that allows us to run 10,000 data points across our machine learning trained model in the matter of minutes to help us create accurate forecasts that we can run key valuation methodologies against.
2. We use various forms of topic modeling to help us capture the right business information and comparable businesses and benchmarks. Why have a person manually find businesses, when technology can help us find better comparables in the matter of seconds?
3. LLMs and Generative AI are used to help us write the reports. As 409a valuation reports are typically 30-70 page reports, it’s important we aren’t spending the businesses’ valuable capital on manually writing out reports one by one.
Building out these technologies has not been easy – especially since in some cases, we’re building something that has never been built before. I have immense appreciation for our team, especially Robert, Pasha, Kim, and Kris who have been fearless trailblazers in creating cutting edge technology that we wholeheartedly believe will change the way valuations are done forever.
Where do you see your industry in the next five years?
FinTech in my mind will focus on three main things.
Embedded Finance: Seamlessly incorporating financial services into non-financial platforms to streamline user experience integration. API’s are a strong leader in making this possible and represent a key to unlock opportunities that never existed before.
Fintech Finclusion: Creating tools for people and small businesses that would not otherwise have access. The World Bank recently wrote that 1.4 Billion – yes, with a B – still remain unbanked.
Sustainable Businesses: Building with the triple bottom line of people, planet and profit in mind. We need to create more businesses that customers are proud to be a part of.
What’s next with 409.ai?
The next six months are going to be incredibly exciting for us. From a product standpoint, we continue to add technology to make the valuation process easier for businesses every month. We have a partnership we’re excited to announce in the coming weeks that will also enable us to help hundreds of businesses at scale.
We’re also planning for a raise in early 2024 to help us scale up the team from the 5 full-time members we are currently at. So much to do, but so much to look forward to!
Where can people learn more?
Find us at www.409.AI. And, if you have any questions, feel free to reach out to us at hello@409.ai.
