Raising money
409A valuation
A 409A valuation is an independent estimate of what one share of a private US company's common stock is worth, used to set the price at which employees can buy shares through stock options.
Also called 409a, 409A appraisal, fair market value of common stock
Looking this up for a class, a job, or something you want to build? If it is the last one, nommi reads your idea before you spend months on it.
The name comes from section 409A of the US tax code. Common stock, the kind founders and employees hold, is usually valued lower than the preferred stock investors buy, because it carries fewer rights. Companies commonly get a new 409A after a priced round or a big change in the business, since an option price set too low can create a tax problem for the person who holds it.
This is not legal or tax advice, check with a lawyer or accountant.
When this shows up
Example, not a real founder: you promise your first hire stock options in an offer letter, then learn you cannot set a safe option price yet because the company has never had a 409A.
What to do next
Before you promise options to anyone, ask your lawyer or accountant whether you need a 409A first and who can prepare it.