Embedded Derivatives

Embedded derivatives, identified and valued correctly.

Independent identification and fair valuation of embedded derivative features within your debt, equity, or hybrid instruments – from the same credentialed team behind your 409a.

What is an embedded derivative, and why it matters

An embedded derivative is a term inside a larger contract that behaves like a standalone derivative – a conversion option in convertible debt, a redemption right, or a down-round protection clause. Under ASC 815 it may have to be separated from the host contract and fair-valued on its own, with the value remeasured at each reporting date.

An embedded derivative is a feature within a larger contract – such as a conversion option in convertible debt, a redemption feature, or a down-round protection clause – that, under US GAAP (ASC 815), may need to be identified, separated (“bifurcated” – split out and accounted for separately) from the host contract, and fair-valued on its own. Missing or mis-valuing an embedded derivative can misstate your financial statements and draw auditor scrutiny.

Supports ASC 815 compliance

Correct bifurcation and fair valuation of embedded features.

Reduces audit risk

A defensible analysis your auditors can rely on.

Built by credentialed analysts

The same rigor as our other services.

Works alongside your other valuations

Coordinated with your 409a and complex securities work where relevant.

When you need this (triggers)

1

You've issued convertible debt with conversion, prepayment, or redemption features
2

Your instruments include down-round protection or other anti-dilution features
3

Your auditor has asked whether an instrument contains an embedded derivative
4

You're restructuring debt or equity instruments with unusual terms

From documents to signed report in days

01 Book a call

Your mandatory management discussion, to understand the instrument’s terms.

02 Share your instrument documents

Loan/note agreements and related terms, shared securely.

03 Our team analyzes and values the feature(s)

Identification, bifurcation analysis, and fair valuation.

04 Draft delivered

Review it, ask questions, request revisions.

05 Signed report

Partner-reviewed and final.

Custom pricing, based on your instruments

Pricing depends on the number and complexity of embedded features and is quoted after your management discussion call.

All Companies*

Standard entity structures — C-Corps and equivalent non-LLC entities, including non-US companies

$899

Per Value

LLC Companies

Membership interests & profits-interest structures

$1,199

Per Value

Complex Instruments

SAFEs, warrants, convertible notes, multiple share classes, embedded derivatives

Custom Pricing

based on complexity

Bifurcation questions we hear most

How do I know whether my instrument contains an embedded derivative?

If the contract contains a feature whose value moves with something other than the credit or interest profile of the host instrument – a conversion right, a redemption trigger, a price-protection clause – it is worth testing. The analysis under ASC 815 turns on whether the feature is clearly and closely related to the host contract; that judgment is what we document.

Does every convertible note contain an embedded derivative?

No. Many plain-vanilla convertible notes do not require bifurcation. It depends on the conversion mechanics and on whether the host is debt or equity, which is why the assessment has to be done instrument by instrument rather than assumed either way.

How often does an embedded derivative need to be revalued?

Once bifurcated, it is generally remeasured at fair value at each reporting date, with the change running through the income statement. We can scope recurring remeasurement alongside the initial analysis.

Do SAFEs affect my 409a valuation?

Yes, usually downward on a per-share basis. Outstanding SAFEs represent equity that will convert later, so the allocation of value across share classes has to account for them – which is exactly the kind of judgment call a software-only model tends to handle badly.

Get your embedded derivatives identified and valued.

Book a call to get your embedded derivatives identified and valued.