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409A valuation

CONCEPT · LAST REVIEWED 2026-09 · SOURCED FROM 2 SESSIONS, JAN–MAY 2026

A 409A valuation is an appraisal of your common stock’s fair market value, named for the tax-code section that requires option strike prices to be set at or above it. It is not the price investors pay for preferred stock; common is worth less, and the 409A is where that gap gets documented.

Why it matters

Section titled “Why it matters”

Every option you grant is priced off this number, and the incentive value of a grant is the spread between strike and eventual exit.

From the room

Section titled “From the room”

“This valuation analysis is really, like, what is the lowest justifiable valuation we can give people their shares at?”

— Startup securities attorney, 15 years of practice · session, Jan 2026

Before a priced round or meaningful revenue, the board can set the value itself. After either milestone, get a third-party 409A: it costs little through cap-table platforms and gives IRS safe-harbor protection. Refresh it after material events, and watch the default 90-day post-termination exercise window, which can strand pool equity with departed employees if you lengthen it carelessly.

Where founders get it wrong

Section titled “Where founders get it wrong”
  • Pushing the 409A up as if it were a fundraising signal.
  • Skipping the third-party valuation once revenue or a priced round exists.
  • Granting between a material event and a refresh.

Go deeper

Section titled “Go deeper”