409A Valuation

Independent 409A valuations help private companies ensure IRS compliance, avoid penalties, and set fair option prices for employees.

November 24, 2025

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- An independent appraisal of the fair market value of a private company’s common stock.

Scenario:

A fast-growing SaaS startup is preparing to issue stock options to new hires. To comply with IRS regulations and avoid tax penalties, the company engages a valuation firm to conduct a 409A valuation, determining the fair market value of its common shares.

Why This Matters:

Ensures tax compliance, avoids penalties, supports fair option pricing, attracts and retains talent, provides defensible valuations.

The Process:

The company’s finance team gathers financials, cap table, and recent transaction data. The valuation firm analyzes market comps, financial projections, and applies appropriate valuation methodologies (e.g., DCF, market approach). The final report is delivered to the board and used to set option strike prices.