409A Valuation

Also called 409A

An independent appraisal of a private company's common stock, required in the US to set the strike price for employee options at fair market value and stay onside with tax rules.

Why it matters

The 409A sets what employees pay to exercise options, so a lower valuation means cheaper options and more upside for the team. It is a routine but important piece of running an option pool by the book.

For example

A two-year-old startup gets a 409A that values its common stock at 2 rupees a share, so it can grant new employees options with a 2 rupee strike price, even though investors just bought preferred at 10.

Related terms

ESOP Common Stock Regulatory Compliance

Go deeper

See how founders actually handle this on Raising your first round, part of the Starting Up hub.

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