# How Valuers Calculate 409A FMV (OPM, Backsolve, PWERM Explained Simply)

409A valuations may look complex, but the logic behind the calculation can be understood easily when broken into simple components.

### **1️⃣ Option Pricing Model (OPM)**

Used when your startup is early-stage or has multiple preference rights.  
It treats equity like financial options and considers factors like volatility, liquidation preferences, and discounts.

**Best for:** Pre-Seed, Seed, early Series A companies.

### **2️⃣ Backsolve Method**

Used when you recently raised a round.  
The valuer takes your preferred share price from the funding round and “backs into” the common share value based on rights and preferences.

**Best for:** Startups with a funding round in the last ~6 months.

### **3️⃣ PWERM (Probability Weighted Expected Return Method)**

Used when a company has multiple possible outcomes (acquisition, IPO, down-round).  
The valuer estimates outcomes → assigns probabilities → calculates today’s value.

**Best for:** Growth-stage companies or uncertain exit timelines.

### **4️⃣ DCF (Discounted Cash Flow)**

Used rarely for early-stage startups, because revenue & cash flows are unpredictable.  
More common for late-stage companies.

Each method has its place. A good 409A valuation chooses the right model based on stage, cap table, and funding history—ensuring audit-proof FMV.