409A vs IPEV vs IFRS 13

Introduction

Three valuation frameworks govern most of what happens inside a venture capital fund's reporting cycle and a private company's option pricing. They are constantly conflated, and the confusion costs both fund managers and founders defensibility points with auditors, LPs, and tax authorities.

409A is a US tax-code valuation of a private company's common stock, used to set option strike prices that satisfy Internal Revenue Code Section 409A. IPEV is a global set of guidelines published by the International Private Equity and Venture Capital Valuation board, used by funds to value portfolio holdings consistently across investment cycles. IFRS 13 is the global accounting standard defining fair value and the framework for measuring it — applied by IFRS-reporting entities (and via ASC 820 for US GAAP filers).

The three are sequential and complementary, not interchangeable. A VC fund running an IFRS-reporting structure will engage all three across a single portfolio company's lifecycle: 409A for the investee's option pricing, IPEV for the fund's NAV reporting, and IFRS 13 for the measurement basis underpinning the fund's audited financial statements.

TL;DR: 409A is a US-specific common-stock valuation supporting option strike prices under IRC §409A. IPEV is a global fund-reporting guideline applied by VC and PE managers to value portfolio holdings at fair value for LP reporting. IFRS 13 is the accounting standard defining fair value and how to measure it for any IFRS-reporting entity. The three frameworks operate at different levels — investee tax compliance, fund NAV, and consolidated accounting — and a single transaction may pass through all three in sequence.

409A Valuations

A 409A valuation is an independent appraisal of the fair market value of a privately held US company's common stock. Internal Revenue Code Section 409A, enacted in 2004, governs deferred compensation. Stock options granted with a strike price below the fair market value of common stock at the grant date are treated as deferred compensation, triggering immediate taxation on vesting plus a 20% additional tax and interest penalties.

To avoid this outcome, US private companies obtain a 409A valuation before granting stock options, setting the option strike price at or above the appraised fair market value. The valuation creates a "safe harbour" presumption of reasonableness, shifting the burden of proof to the IRS if challenged.

How a 409A valuation gets produced

1. The company engages an independent valuation provider — typically a third-party appraiser, not a related party
2. The provider reviews recent financing rounds, financial statements, projections, capitalisation table, comparable public companies, and recent M&A transactions
3. A valuation methodology is selected — most commonly the Option Pricing Method (OPM), Probability-Weighted Expected Return Method (PWERM), or a hybrid approach for later-stage companies
4. Common-stock fair market value is derived after discounts for lack of marketability and minority interest
5. The valuation produces a 409A report dated, signed, and good for up to 12 months (or until a material event triggers a refresh)

What gives a 409A valuation safe-harbour status

• The valuation is performed by an independent qualified party
• The methodology is one of the three IRC-recognised approaches (independent appraisal, formula-based for illiquid stock, illiquid start-up valuation method)
• Written documentation supports the conclusion
• The valuation is updated within 12 months or upon a material event (financing, acquisition, IPO filing, major customer loss)

Typical 409A use cases

• US private companies granting stock options to employees
• Private company tender offers, secondary sales, or other equity-compensation events
• M&A diligence — buyer often requests recent 409A as part of HR diligence
• Late-stage private companies preparing for IPO — 409A is replaced by public market pricing post-listing

IPEV Valuation Guidelines

The International Private Equity and Venture Capital Valuation Guidelines (IPEV) are a global set of recommendations published by the IPEV Board, whose members include limited partners, general partners and service providers, and endorsed by around 40 national and regional private capital associations. The guidelines define how PE and VC fund managers should determine the fair value of unquoted investments for fund reporting purposes. For the December 2025 edition and what it changed, see our IPEV guidelines 2025 explainer.

IPEV is the global standard — applied by funds in the UK, EU, US (alongside ASC 820), Asia, and emerging markets. It is not law, but it is the operating reference for LP reporting, audit defensibility, and consistency across the alternative-investment industry. The current edition is dated December 2025. It supersedes the 2022 edition and is in effect for quarterly reporting periods beginning on or after 1 April 2026, with early adoption encouraged. Like its predecessors, it is written so that fair value measured by following it is consistent with IFRS 13 and ASC 820.

What IPEV covers

• Definition of fair value (aligned with IFRS 13 / ASC 820 — exit price between market participants)
• Five investment-level valuation techniques (multiples, industry valuation benchmarks, available market prices, discounted cash flows, net assets); the price of a recent investment is used to calibrate them and is not a standalone technique (paragraph 3.10)
• Calibration to the entry price and to later orderly transactions, and backtesting against realised prices
• Application across the investment lifecycle — from initial recognition to exit
• Guidance on early-stage and venture capital investments, including milestone and scenario approaches, complex capital structures and liquidation preferences

How IPEV is applied in practice

1. At entry, the fund records the investment at transaction price as the initial fair-value indicator
2. At each subsequent reporting date, the fund re-assesses fair value using one or more of the five techniques
3. Calibration to the original entry transaction is documented — what has changed since entry that justifies a different value
4. Milestone progress (commercial, technical, regulatory, financial) is assessed
5. Where multiple outcomes are plausible, scenarios are weighted
6. The chosen technique and supporting evidence are documented for audit review

Round-Ready companies under IPEV

For early-stage and Round-Ready companies — those where revenue is limited or absent and where conventional DCF inputs are too uncertain to support a defensible single-point output — IPEV notes that many seed, start-up and early-stage investments are valued using a milestone approach or scenario analysis, calibrated to the price of a recent orderly investment. That price may be a starting point at later measurement dates, but it is not automatically fair value: the valuer adjusts for milestones, market movements and other changes since the round.

IFRS 13 Fair Value Measurement

IFRS 13 is the global accounting standard issued by the IASB defining fair value and providing a framework for measuring it. It applies whenever another IFRS standard requires or permits fair-value measurement — including financial instruments under IFRS 9, intangible assets under IFRS 3 acquisitions, and investment property under IAS 40.

The US-GAAP equivalent is ASC 820 (Fair Value Measurement); the two are substantively converged. For VC and PE funds reporting under IFRS, IFRS 13 is the underlying measurement standard; IPEV is the practical application guidance. For US funds reporting under US GAAP, ASC 820 is the underlying standard and IPEV provides the same practical application layer.

What IFRS 13 defines

• Fair value: the price that would be received to sell an asset (or paid to transfer a liability) in an orderly transaction between market participants at the measurement date
• Market-participant view: measurement reflects assumptions market participants would use, not entity-specific assumptions
• Exit price: the measurement basis is the price received on sale, not the price paid on entry
• Three-level hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), Level 3 (unobservable inputs requiring management judgement)
• Highest and best use: for non-financial assets, fair value reflects the highest and best use, even if different from current use

How IFRS 13 applies to private fund holdings

Most private VC and PE holdings sit at Level 3 of the fair-value hierarchy — the inputs are unobservable and require management judgement. IFRS 13 paragraph 93 mandates extensive Level 3 disclosure: quantitative information about significant unobservable inputs, sensitivity analysis showing the effect of reasonably possible alternative assumptions, and a reconciliation of opening to closing carrying values.

For an IFRS-reporting VC fund, the chain is straightforward: IPEV provides the operating methodology, IFRS 13 provides the disclosure framework, and the audit trail must reconcile to both. The fund's published NAV is calculated using IPEV techniques; the financial statement disclosures classify each holding at Level 1, 2, or 3 of the IFRS 13 hierarchy and provide the required quantitative and sensitivity disclosures.

Where IFRS 13 differs from IPEV in practice

The frameworks are converged on principle — both define fair value as the market-participant exit price. They differ in scope and depth of disclosure: IPEV is a practitioner-facing guideline focused on technique selection; IFRS 13 is an accounting standard focused on measurement principles and disclosure rigour. A fund following IPEV will routinely produce outputs that comply with IFRS 13 measurement, but the IFRS 13 disclosure obligation is independent and substantial.

Side-by-Side Comparison

The table below is the practitioner's quick reference for distinguishing the three frameworks.

How the three frameworks intersect — a worked sequence

A UK-headquartered VC fund holds Series B preferred shares in a Delaware-incorporated SaaS company. The intersection across one annual cycle:

1. Investee commissions a 409A valuation — independent appraiser sets common-stock fair market value at $11.40 to support option grants to new hires. This is a US-tax exercise concerning the investee company's option pool.
2. Fund applies IPEV to value its Series B position — using multiples calibrated to the investee's most recent funding round, milestone analysis on commercial progress, and scenario weighting. Fund records the position at $24.7m fair value at quarter-end.
3. Fund's auditor applies IFRS 13 to the fund's financial statements — classifies the holding at Level 3, requires sensitivity disclosure showing reasonably possible alternative assumptions, and confirms the IPEV methodology output satisfies the IFRS 13 exit-price principle.

The three outputs are produced independently but reference each other: the 409A informs (but does not determine) the IPEV scenario inputs; the IPEV output is the IFRS 13 measurement output; the audit chain runs IFRS 13 → IPEV → underlying evidence.

Why the Distinction Matters

Three areas drive the practical importance for VC fund managers, founders, and auditors.

Option pricing and tax exposure. A US private company that fails to obtain a 409A valuation, or obtains one that does not satisfy the safe-harbour requirements, exposes its option-holding employees to the §409A tax penalty: immediate income recognition on vesting plus 20% additional tax plus interest. The fund's portfolio company governance routinely includes a check that 409A valuations are current and defensible.

LP reporting and consistency. IPEV exists because LPs need consistent, comparable fair-value reporting across funds, fund managers, and vintage years. A fund manager who uses IPEV badly — for example, by carrying investments at entry price for too long, or by failing to reflect material developments — risks LP challenge, audit qualification, and reputational damage. The December 2025 edition reconfirms that the price of a recent investment is not automatically fair value and that fair value will generally change from one measurement date to the next.

Audit and disclosure. IFRS 13 (and ASC 820) drives the financial-statement disclosure burden. Level 3 disclosures — quantitative unobservable inputs, sensitivity analysis, reconciliation of opening to closing balances — are the substantive content of an audited fund's notes to the accounts. Weak Level 3 disclosure produces audit-management points and, in the worst case, qualified audit opinions.

FAQ

What is the difference between 409A and IPEV?

409A is a US tax-code valuation of a single company's common stock, used to set option strike prices and obtain safe-harbour protection from §409A penalties. IPEV is a global fund-reporting guideline used by VC and PE managers to value portfolio holdings at fair value. 409A is investee-company-specific and US-tax-driven; IPEV is fund-wide and LP-reporting-driven.

Is IPEV the same as IFRS 13?

No — IPEV and IFRS 13 are aligned on the underlying definition of fair value (exit price between market participants), but they serve different purposes. IPEV is a practitioner guideline focused on valuation techniques and judgement; IFRS 13 is an accounting standard focused on measurement principles, hierarchy classification, and disclosure. A fund following IPEV will typically produce outputs that satisfy IFRS 13 measurement, but the disclosure obligation is independent.

Why are 409A valuations only used in the US?

§409A is a section of the US Internal Revenue Code applicable to compensation paid by US persons. Other jurisdictions have their own option-taxation regimes — UK, Australia, and Canada all have equivalent rules — but the 409A framework itself is US-specific. UK private companies use different mechanisms (EMI valuations for HMRC clearance, for example) to support option strike prices.

Do UK VC funds use IPEV?

Yes — IPEV is the global standard for VC and PE fund reporting and is used by UK-headquartered funds, EU-headquartered funds, and many US funds alongside ASC 820. UK Private Capital (formerly the BVCA) is among the associations that endorse the Guidelines.

How often does a fund have to re-value its portfolio under IPEV?

At each LP reporting period — typically quarterly. Material events between reporting cycles (financing rounds, exits, major customer loss, regulatory developments) should trigger an inter-period reassessment. Carrying investments at entry price indefinitely is inconsistent with the IPEV fair-value principle and with IFRS 13 / ASC 820.

Which edition of the IPEV guidelines is current?

The December 2025 edition, which supersedes the 2022 edition and is in effect for quarterly reporting periods beginning on or after 1 April 2026, with early adoption encouraged. The Board changed only one of the Guidelines themselves (1.4, for clarity) and expanded the explanatory text: calibration, known or knowable information, complex capital structures and liquidation preferences, whether a transaction price is fair value, and new guidance on co-investments, more frequent valuations, and venture debt, convertible loan notes, SAFEs and ASAs. See our IPEV guidelines 2025 explainer.

Can a single valuation output satisfy all three frameworks?

In practical terms, yes — but only for an IFRS-reporting fund holding a US portfolio company. The 409A is run at the investee level. The fund applies IPEV to value its position in the same investee. The IPEV output is then the IFRS 13 measurement output for the fund's financial statements. The three frameworks reference each other but each carries its own documentation and disclosure obligations.

What is the IPEV hierarchy of valuation techniques?

IPEV identifies five investment-level techniques: multiples, industry valuation benchmarks, available market prices, discounted cash flows and net assets. The price of a recent investment is used to calibrate them; paragraph 3.10 says it should not be considered a standalone technique. There is no hierarchy of techniques — the valuer selects the technique or techniques most appropriate to the investment, its stage and the available evidence. For early-stage companies, a recent orderly round, calibrated and adjusted for milestones and market movements since, is often the starting point.

When to Seek Expert Support

The three-framework intersection is where most private-company valuation disputes originate. Edge cases — late-stage US companies preparing for IPO, cross-border funds reporting under both IFRS and US GAAP, secondary transactions repricing existing positions, and material-event reassessments — typically warrant specialist input.

Opagio's Asset Valuator module (within Opagio Intangibles) works at asset level: it values individual intangible assets inside a private company with methods such as RFR, MPEEM, With and Without and the cost approach, with the evidence behind each valuation. That evidence can inform the inputs an appraiser or a fund's valuer uses, such as maintainable earnings, growth assumptions and comparable selection.

Opagio does not produce 409A valuations, a fund's fair value of its investment under IPEV, or IFRS 13 disclosures. Those judgements, and the accountability for them, stay with the appraiser, the valuer and the auditor.

Book a demo: See how the Asset Valuator values the intangible assets inside a private company, with the evidence behind each valuation. Book a demo or speak to our team.

Related Glossary Terms

Learn More

• View lesson →