Fundraising & Equity
What Is a 409A Valuation?
Collated by Harry Prabandham
Curated by Rubric Financial
1 / 3
What a 409A Valuation Is and Why Startups Need One
- A 409A valuation is an independent appraisal of a private company's common stock fair market value, required under IRS Section 409A for setting stock option exercise prices.
- If you issue stock options with a strike price below fair market value, employees face immediate tax liability on the discount and a 20% penalty tax under Section 409A.
- Having a valid 409A valuation provides a safe harbor that protects both the company and employees from IRS penalties related to option pricing.
- Every startup that grants stock options or other equity compensation must obtain a 409A valuation before issuing those grants.
Related Resources
Fundraising & Equity
Board Pack Essentials
Build investor-ready board packs that communicate your startup's performance clearly and build confidence with your board of directors.
Fundraising & EquityAcquihires vs Real Acquisitions: Reading the Deal Terms
How to distinguish a real acquisition from an acquihire that returns investor capital while turning founders into employees — and why deal structure matters more than headline price.
Fundraising & EquityWhat Valuation Should I Expect?
How startup valuations work at each stage, what drives them up or down, and how to set realistic expectations for your fundraise.
