Private Company Valuation: How New York Courts Value Startup Shares
By Ethan A. Brecher, Esq., August 26, 2026
Equity is the currency of the startup world. Founders, early employees, and investors accept stock, options, and warrants in place of cash on the promise that the shares will be worth something later. But when a company refuses to honor an equity grant, the hard question is not whether the shares were promised. It is what they were worth. Private company stock has no ticker symbol and no daily closing price, and the company will almost always argue that the shares were worth little or nothing.
A New York Commercial Division case I litigated, O'Connor v. Society Pass Inc., Index No. 656938/2019 (Sup. Ct. N.Y. County), shows how New York courts answer that question. After a valuation hearing before a Special Referee that spanned nine hearing days between August and November 2024, the Referee valued my client's 1,148 shares of a pre-IPO technology company at $5,763 per share, for a total of $6,615,934 plus interest. Justice Joel M. Cohen of the Commercial Division confirmed the Referee's report in full on July 21, 2025 (2025 WL 2030286 (N.Y. Sup.). The analysis has broad application to anyone holding equity in a tech startup or a private-equity-backed company. (The Appellate Division, First Department, in a 2024 decision, affirmed Justice Cohen's summary judgment ruling holding that O'Connor was entitled to 1,148 shares of Society Pass stock under a warrant. 233 A.D.3d 239 (1st Dep't 2024)).
The legal framework
New York starts from a simple premise: damages for a company's failure to deliver stock are measured at the time and place of the breach. *Simon v. Electrospace Corp.*, 28 N.Y.2d 136, 145 (1971). The measure is the difference between what the shareholder was supposed to pay and the fair market value of the shares on the breach date.
For closely held companies, the Court of Appeals has said there is no uniform rule for valuing stock. The method must be tailored to the particular case after a discriminating consideration of all information bearing upon an enlightened prediction of the future. Amodio v. Amodio, 70 N.Y.2d 5 (1987). Amodio directs courts to the eight factors in IRS Revenue Ruling 59-60, the touchstone for valuing closely held stock:
1. The nature and history of the business
2. The economic outlook of the business and its industry
3. The book value of the stock and the financial condition of the business
4. The company's earning capacity
5. Its dividend-paying capacity
6. Its goodwill and other intangible assets
7. Other sales of the company's stock
8. The market price of stock of comparable companies
Two further principles do much of the work in a real dispute.
A recent arm's-length sale is the best evidence of value. When a sophisticated buyer has recently paid a negotiated price for the same or linked shares, that price is strong evidence of fair market value. Schonfeld v. Hilliard, 218 F.3d 164, 178 (2d Cir. 2000); W.T. Grant Co. v. Srogi, 52 N.Y.2d 496, 511 (1981). Once the shareholder proves such a sale, the burden shifts to the company to show that the price was abnormal or that special circumstances make it unreliable. Plaza Hotel Assocs. v. Wellington Assocs., 37 N.Y.2d 273, 278 (1975).
Value is judged by what investors expected at the time, not by hindsight. A company cannot defeat a claim by pointing to its later stumbles. The proper question is what knowledgeable investors anticipated the future conditions and performance would be at the time of the breach. Sharma v. Skaarup Ship Mgt. Corp., 916 F.2d 820, 826 (2d Cir. 1990); Kaminsky v. Herrick, Feinstein LLP, 59 A.D.3d 1 (1st Dep't 2008); Aroneck v. Atkin, 90 A.D.2d 966 (4th Dep't 1982).
The O'Connor Case
My client, Thomas O'Connor, was a co-founder and key employee of Society Pass, a Southeast Asian consumer loyalty and e-commerce platform. He held a warrant to purchase common stock. The company terminated him on September 12, 2019 and cancelled the warrant that same day. Justice Cohen granted partial summary judgment on liability in May 2023, holding that Mr. O'Connor had validly exercised his rights to 1,148 shares, and in March 2024 referred the question of value to a Special Referee.
The evidence that carried the day was the company's own conduct in the weeks before the breach:
- On August 19, 2019, just 24 days before the termination, an outside investor, Fund Singapore, bought Series C preferred shares in an arm's-length deal at $5,763 per share, reflecting a negotiated company valuation of roughly $150 million.
- The company's founder and CEO, Dennis Nguyen, testified that he arrived at $5,763 by dividing the company's valuation by its outstanding shares, and that he applied the same figure to the employee common stock warrants.
- Contemporaneous emails showed the CEO approving employee warrant allocations at $5,763 per share and telling another employee that, at the Series C price of $5,763, his warrants were worth $749,190.
- Another employee's warrants at the same price were exercised and honored.
- The company's cap table, prepared for the Series C investor, listed a common share price of $1,319 even before the Fund Singapore deal closed.
Society Pass called a certified valuation analyst who opined that the common shares were worth only $200 each. He reached that number by averaging four small sales of common stock to friends of the CEO, at prices ranging from $400 to $1,336 per share, and then applying a 50% "lack of marketability" discount. He argued the company had no revenue, no completed product, and a going-concern warning, so the shares were essentially worthless.
Why the Referee Rejected the Expert
The Special Referee, Diego M. Santiago, credited the CEO's admissions and the Fund Singapore transaction and rejected the expert's opinion on several grounds that will recur in future cases:
- **Hindsight is not the test.** The expert valued the company by its actual 2019 performance rather than what knowledgeable investors expected at the time. That is the approach Kaminsky and Aroneck reject. Sophisticated investors like Fund Singapore and the company's own financial adviser would not have put money and time into a company worth nothing.
- **The expert did not follow his own methodology.** He testified that he always applies Revenue Ruling 59-60, but his report never cited it, and he admitted at deposition that he did not examine comparable companies at all.
- **A 50% marketability discount had no factual basis.** New York courts applying discounts for illiquid private stock have generally used 10% to 25%. Hall v. King, 265 A.D.2d 244 (1st Dep't 1999) (25%); Giaimo v. Vitale, 101 A.D.3d 523 (1st Dep't 2012) (16%); Carolina Gardens, Inc. v. Menowitz, 238 A.D.2d 189 (1st Dep't 1997) (10%).
- **He never explained the company's own numbers.** The expert could not account for the $1,319 common share price on the company's cap table, which alone was more than six times his $200 figure.
- **Too few data points.** Four friends-and-family transactions were not a reliable market sample.
The Referee also held, citing Nussberg v. Tatintsian, 137 A.D.3d 521 (1st Dep't 2016), that Mr. O'Connor did not need his own valuation expert. The CEO's admissions, corroborated by contemporaneous documents, were enough. A Board Chair with extensive knowledge of the company's business is competent to testify about the value of its stock.
Justice Cohen's Confirmation
Society Pass moved to reject the report, arguing that a valuation cannot stand without expert evidence and that the Referee wrongly discounted its expert. Justice Cohen disagreed. Applying CPLR 4403, he held that the Referee's findings were substantially supported by the record, that the CEO's admissions corroborated by documents were sufficient to prove value, and that the court would defer to the Referee's credibility determinations after the parties had such an extensive opportunity to present their cases. He also noted that the result was consistent with Narain v. Society Pass Inc., 234 A.D.3d 494 (1st Dep't 2025), a parallel case I litigated in which the Appellate Division affirmed a $5,763 valuation of a different employee's 130 shares based on the same CEO admissions.
What this Means for Startup Employees and Investors
The lessons travel well beyond this one company.
**For founders and employees holding equity,** the most valuable evidence often already exists inside the company: term sheets, cap tables, subscription agreements, board decks, and emails in which management prices equity grants. A company that tells its employees their warrants are worth $5,763 a share, and then tells a court they are worth $200, will have to explain the difference.
**For private equity and venture investors,** the case confirms that a recent priced round is powerful evidence of value in litigation, and that a company cannot walk away from its own valuation simply because it later underperformed. It also shows that a defense expert who ignores Revenue Rulin
g 59-60, skips comparables, and applies an outsized marketability discount may be given little weight.
**For companies,** the case is a warning. Loose statements about share value to employees and investors become admissions. Valuation discipline at the time of the grant is far cheaper than a ten-day hearing later.
I represent executives, founders, and financial professionals in disputes over stock, options, warrants, and deferred compensation. Call 860-590-0138 or email ethan@ethanbrecherlaw.com for a confidential consultation.
Ethan A. Brecher is the principal of the Law Office of Ethan A. Brecher, LLC, 244 Fifth Avenue, Suite B241, New York, NY 10001. Prior results do not guarantee a similar outcome. This article is for general information and is not legal advice. Attorney Advertising. Prior results do not guarantee a similar outcome.
Comments