Why is common stock worth less than preferred?

Preferred stock comes with rights common does not have, most importantly a liquidation preference that pays investors back first in a sale. Common is also illiquid. Both push the fair market value of common below the price investors paid for preferred.

What percentage of the preferred price is a typical 409A?

Published guidance from Scalar, an independent valuation firm (September 2024), puts common at roughly 30% to 50% of the preferred price when the preferred has standard terms, and roughly 15% to 30% when investors have richer terms. Your result depends on your own capital structure and can fall outside these ranges.

How often do I need a new 409A?

Generally at least every 12 months, and sooner after a material event such as a new priced round, a term sheet, an acquisition offer, or a big change in revenue. A 409A that is older than 12 months, or that predates a material event, generally cannot be relied on for new option grants.

What happens if options are granted below fair market value?

If an option's strike price turns out to be below fair market value on the grant date, the option holder can face income tax on vested amounts as they vest, an extra 20% federal tax, and interest. That risk falls on your employees, which is why strike prices should come from an independent 409A.

Does the estimate change by funding stage?

Not in this tool. We could not find a verifiable, published dataset of stage-by-stage ratios, so we use one sourced range that varies by preferred terms instead. In practice, the gap between common and preferred tends to narrow as a company matures and gets closer to an exit.

Free Tool

409A Calculator

Get a rough range for what your common stock might be worth, based on the price investors paid for your latest preferred round. Useful for planning conversations. It is not a 409A valuation.

Rough planning estimate only. This is not a 409A valuation, not an appraisal, and carries no IRS safe harbor. Do not use it to set option strike prices or for tax reporting.

Real 409A values depend on facts this tool does not see: your capital structure, liquidation preferences, financials, comparable companies, and expected time to exit. A qualified independent appraiser must do the actual 409A.

Enter your latest priced round

Preferred price per share ($)

The original issue price of your most recent preferred round, from the term sheet or cap table.

Preferred stock terms

Richer investor terms leave less value for common, so the range is lower.

Months since that round (optional)

A material event has happened since (new round or term sheet, acquisition offer, big swing in revenue)

Rough estimate range, common stock per share

$0.225 to $0.75

Range source: “409A: Common Value as a Percentage of Preferred?”, Scalar (independent valuation firm), as of Sept 19, 2024. How this estimate works

Rough planning estimate only. This is not a 409A valuation, not an appraisal, and carries no IRS safe harbor. Do not use it to set option strike prices or for tax reporting.

Common as % of preferred

15% to 50%

Implied discount to preferred

50% to 85%

Talk to us about your 409A

Before you grant options or raise, talk to our team. We will help you prepare for an independent 409A and plan option grants around it. The appraisal itself is done by an independent appraiser, not by us.

How this estimate works

The math is one line: your latest preferred price per share times a common-to-preferred ratio range. The ranges come from Scalar, an independent valuation firm (“409A: Common Value as a Percentage of Preferred?”, September 19, 2024):

Standard preferred terms (1x liquidation preference, non-participating, no cumulative dividends): common at about 30% to 50% of the preferred price.
Investor-favorable terms (participating preferred, a preference above 1x, or cumulative dividends): about 15% to 30%.
Not sure: the full 15% to 50% range.

As a cross-check, Foundry reported that 409A values across its portfolio averaged about 36% of the last preferred price, with most between 30% and 40%, and little difference by stage (Seth Levine, August 15, 2018). We looked for a verifiable, published dataset of ratios by funding stage and did not find one we could cite, so this tool uses one sourced range rather than inventing stage bands. Ranges checked as of October 2026.

What a real 409A does

A 409A is an independent appraisal of your common stock's fair market value. The appraiser first values the whole company, often by working backward from the price investors just paid (an “OPM backsolve”), and then splits that value across your share classes. The option pricing method (OPM) treats each class like an option on the company's future value. The probability-weighted method (PWERM) weighs specific exit outcomes, such as an acquisition, an IPO, or a wind-down. Finally, the appraiser applies a discount for lack of marketability (DLOM), because common stock in a private company is hard to sell.

A valuation from a qualified independent appraiser is presumed reasonable under the IRS safe harbor, which shifts the burden to the IRS to show it was grossly unreasonable. A calculator estimate, including this one, gets no such protection.

When you need a new 409A

Generally at least every 12 months, and sooner after a material event: a new priced round or signed term sheet, an acquisition offer, a large secondary sale, or a big change in revenue or outlook. If you entered more than 12 months since your round, or checked the material event box, the tool flags that you likely need a fresh 409A before granting more options. For the full picture, read what a 409A valuation is, what a 409A costs, and how we help founders prepare for and coordinate a 409A. We do not perform the appraisal ourselves; it has to be independent.

Frequently Asked Questions

Is this a 409A valuation?: No. It is a rough planning estimate, not a 409A valuation and not an appraisal. It carries no IRS safe harbor and must not be used to set option strike prices or for tax reporting. A qualified independent appraiser has to do the actual 409A.
Why is common stock worth less than preferred?: Preferred stock comes with rights common does not have, most importantly a liquidation preference that pays investors back first in a sale. Common is also illiquid. Both push the fair market value of common below the price investors paid for preferred.
What percentage of the preferred price is a typical 409A?: Published guidance from Scalar, an independent valuation firm (September 2024), puts common at roughly 30% to 50% of the preferred price when the preferred has standard terms, and roughly 15% to 30% when investors have richer terms. Your result depends on your own capital structure and can fall outside these ranges.
How often do I need a new 409A?: Generally at least every 12 months, and sooner after a material event such as a new priced round, a term sheet, an acquisition offer, or a big change in revenue. A 409A that is older than 12 months, or that predates a material event, generally cannot be relied on for new option grants.
What happens if options are granted below fair market value?: If an option's strike price turns out to be below fair market value on the grant date, the option holder can face income tax on vested amounts as they vest, an extra 20% federal tax, and interest. That risk falls on your employees, which is why strike prices should come from an independent 409A.
Does the estimate change by funding stage?: Not in this tool. We could not find a verifiable, published dataset of stage-by-stage ratios, so we use one sourced range that varies by preferred terms instead. In practice, the gap between common and preferred tends to narrow as a company matures and gets closer to an exit.

Talk to us about your 409A

Email me this 409A estimate

Your rough range with the sources written out, so you have it handy when you prepare for an independent 409A.

The tool stays free and open either way. No spam, unsubscribe anytime.

Rough planning estimate only. This is not a 409A valuation, not an appraisal, and not tax or legal advice. It carries no IRS safe harbor and must not be used to set option strike prices or for tax reporting. A qualified independent appraiser must perform your 409A.

Keep learning

Free tool

Startup Salary Benchmark

Cash and equity bands by role, stage, and location.

Guide

IPO and Going-Public Readiness

A founder-focused walkthrough of IPO readiness, the S-1, direct listings versus traditional IPOs, and what changes once you are public.

Insight

What Founders Can Learn From the Airtable and Miro Acquisitions

Two of the best-known SaaS companies of the 2021 boom sold to Bending Spoons within five weeks, at 2.7x and 2.3x ARR. The headlines focused on the markdowns. The lessons for founders are in the deal math: which number is really the price, why cash on the balance sheet earns 1x, and who gets paid first.

Glossary

SAFE (Simple Agreement for Future Equity)

Convertible instrument commonly used for early-stage rounds.

Guide

Warrants Explained

What warrants are, how venture-debt warrant coverage works, and how warrants affect your cap table and dilution.

Insight

How Much Does a 409A Valuation Cost? (2026 Guide)

Most venture-backed startups pay $2,000 to $5,000 for a 409A valuation, but the range runs from $1,000 bundled with a cap table platform to $10,000 and up at a Big Four firm. Here is what drives the price, what you actually get, and when paying more is worth it.

Back to all tools