Realistically, investors get their money back first, so 50% (picking an arbiter number) of that valuation value won’t ever been seen by employees. Then it gets even worse with multipliers and preferences.
Preferences also don't stack with the rest of a liquidity event. E.g. say an investor puts in $100m at a post-money of $1b with a 1x liquidation preference. If the shares go for $900m, the investor gets back their $100m, and that's all. They don't lose money, but they don't make money either. If the shares go at a $1.1b valuation, the investor converts their preferred shares to common shares like everyone else has. The investor doesn't get their money back first and sell more shares on top of that. It's either/or.
But I do assume the 409A for the fair marker value of the common stock takes these into account? Not a US tax expert :-)
To answer your question, yes, doling out company value to different share classes is part of the 409A calculation. I've used Carta and Pulley for this, but it looks like neither has their docs posted publicly. Here's Pulley's overview page from our last 409A, though:
Valuation Analysis
To determine the fair market value of the Subject Interest in our analysis, the following steps were taken:
Step 1 - Determine the value of the Company using an appropriate methodology(ies)
Step 2 - Allocate the value of the Company to the various share classes taking into account share classes economic rights and preferences
Step 3 - Apply a discount for lack of marketability (“DLOM”) to the resulting per share value of common
Step 4 - Analyze any secondary transactions that have incurred in the past and determine to what extent they should be considered relevant in determining the value of the Subject Interest in the analysis
The system is built to handle non-standard liquidation preferences, but anything more esoteric (e.g. your participating preferred shares) probably needs a bespoke valuation. You won't see this stuff from successful VCs, though. It would be a bit like investing in SpaceX, but having one of the terms be an increase in Earth's gravity.
Serious question -- if you are right, then why hide the cap tables?! Typically cap tables are even hidden from employees who have millions of theoretical dollars riding on the company.
Transparency is usually an indicator of above-board terms, and opaque things are usually opaque for a reason.
Many startups are happy to give relevant details, though, like the percentage of fully diluted shares you own, the last preferred share price, whether any investors got non-standard terms, etc. Rather than asking to see the cap table, ask the questions you want the cap table to answer. If they won't tell you, maybe pass on working there.
While the points about uncertainty of options are quite accurate, this detail isn’t really true.
For the most part a 409a is the lowest reasonable valuation the company could talk the auditors into accepting. The lower it is the less tax paid and everyone knows that.
(In my experience, the 409a is on the order of 20% of the most recent raise, and preference is not more than 50%, in my area. And obviously you hope to sell for more than the last raise!).
Yeah, and most companies wont share the cap table with you, so you do not know the multipliers and preferences. Its like you get $(409a/X) in value, but you dont know what X is and they wont tell you -- but you still have to buy in or lose everything (you typically have to exercise all options upon departure, or lose it!)
Then, once you exercise, you wait for 5yrs to 10yrs for a liquidity event, if the company even survives that long. My annual discount rate would be like 10% or higher.