Can I do my own 409A?

Technically yes, but you lose the safe harbor. Not worth the risk — the cost of an independent 409A is trivial vs the tax exposure.

How often does the 409A change?

At every priced round and material event. It generally goes up over time as the company grows.

Does a low 409A make my options more valuable?

Yes, for employees. But you can't artificially depress it — the valuation must be defensible on real financial and comparable data.

409A Valuation Explained: What Founders Need to Know (2026)

What a 409A valuation is, when you need one, how it differs from your preferred round price, and how it sets the strike price for employee options.

409A Valuation Explained for Founders

A 409A valuation is the IRS-compliant fair market value of your common stock. It sets the strike price for every option you grant. Getting it wrong exposes employees to real tax pain.

What it is

An independent appraisal of your common stock's fair market value, required under IRS Section 409A. Provides a 'safe harbor' — if the IRS challenges your option strike prices, a valid 409A shifts the burden of proof to them.

When you need one

Before granting your first employee options. After every priced round. After a material business change (acquisition, secondary sale, large customer). Otherwise every 12 months to maintain safe harbor.

Common stock vs preferred price

409A values the common stock. It's typically 20–40% of the preferred round price because common lacks liquidation preference, anti-dilution, and other rights. A $10/share Series A often produces a $2–4 common 409A price.

Why the discount matters

Options struck at the 409A price let employees benefit from appreciation from a lower starting point. Options struck at preferred price would be worth almost nothing until an exit above the preferred value.

The IRS penalty for getting it wrong

If options are granted below fair market value, the employee owes ordinary income tax on the spread AT VESTING (not exercise) plus a 20% penalty plus interest. Careers-ending for the CFO who let it happen.

Cost and providers

$1,500–$5,000 from providers like Carta, Pulley, Aranca, or a boutique valuation firm. Cap-table platforms often bundle it into their fee. Turnaround is typically 2–4 weeks.

Frequently asked questions

Can I do my own 409A?: Technically yes, but you lose the safe harbor. Not worth the risk — the cost of an independent 409A is trivial vs the tax exposure.
How often does the 409A change?: At every priced round and material event. It generally goes up over time as the company grows.
Does a low 409A make my options more valuable?: Yes, for employees. But you can't artificially depress it — the valuation must be defensible on real financial and comparable data.

Related fundraising guides (40)

Investor directory · Fundraising library · Articles A–Z · Company funding database