409A Valuations for IRS Section 409A Compliance
Audit-ready common-stock FMV that stands up to IRS scrutiny - led by CVA-credentialed valuer
If your US startup grants stock options, a 409A Valuation is the report that sets a defensible strike price and keeps those grants compliant with IRS Section 409A. Get it wrong and the cost lands on the people you least want to penalize your own employees. Equirium Analytics delivers independent, audit-ready 409A Valuation services for founders, CFOs, and legal teams who need a common-stock fair market value (FMV) they can defend.
An independent appraisal of common-stock FMV
A 409A Valuation is an independent appraisal of the fair market value of a private company's common stock, used to set the strike price of employee stock options under IRC Section 409A. It values common stock only not your preferred shares, and not the headline post-money figure from your last round.
That distinction matters. Investors buy preferred stock, which carries liquidation and other preferential rights; employees receive options on common stock, which sits behind preferred and is worth less. A 409A Valuation isolates that common-stock FMV so option strike prices can be set at or above it — the core requirement of Section 409A.
The Real Cost of an Underpriced Option Grant
When options are granted with a strike price below FMV, the IRS treats the discount as deferred compensation that fails Section 409A and the tax consequences fall on the option holder, not the company.
For the employee, that can mean taxation on vesting rather than at exercise, an additional federal tax on top of ordinary income, and interest charges. A defensible IRS Section 409A Valuation is what stands between a routine option grant and an unexpected tax bill for your team and an awkward conversation with a future acquirer's diligence lawyers.
Six Moments That Trigger a New 409A
A 409A Valuation isn't a one-time task. You typically need a fresh report when:
- You're issuing stock options for the first time.
- Your last valuation is about to pass its validity window generally around 12 months.
- You close a new priced equity round.
- A material event changes your outlook (major financing, M&A discussions, a secondary sale, a significant commercial shift).
- A convertible instrument — a SAFE or convertible note — converts into equity.
- You're approaching an IPO or acquisition and diligence is imminent.
What Lands in Your 409A Report ?
A written 409A valuation report with a clear common-stock FMV conclusion.
The valuation date, the approaches applied, and every material assumption documented.
The allocation method used and the discount for lack of marketability (DLOM) applied.
A board- and audit-ready support pack your directors can rely on to grant options and your auditors can review.
Every report is written to withstand external scrutiny from your auditor, an acquirer's diligence team, or the IRS.
How We Arrive at Your Common-Stock FMV ?
We establish your company's total equity value, then allocate it across your share classes to isolate the common stock FMV — using the approaches and allocation methods recognized under US valuation standards.
Establishing Enterprise Value
| Approach | How it works | Best fit |
|---|---|---|
| Income (DCF) | Discounts projected cash flows to present value | Companies with reliable forecasts or revenue |
| Market | Backsolves value from a recent financing round, or compares public and transaction multiples | Recently funded startups; benchmarkable sectors |
| Asset | Values net assets on the balance sheet | Early-stage or asset-heavy companies, pre-revenue |
Allocating Value to Common Stock: OPM, PWERM & Hybrid
Once total value is set, we allocate it across preferred and common:
| Method | What it does | Typical use |
|---|---|---|
| OPM (Option Pricing Method) | Treats each share class as a call option on total equity value | Early-stage companies with a single uncertain exit path |
| PWERM | Probability-weights multiple future exit scenarios | Later-stage companies with clearer near-term IPO/M&A visibility |
| Hybrid | Blends OPM and PWERM | One likely near-term outcome alongside genuine uncertainty |
A discount for lack of marketability (DLOM) is then applied, since common stock in a private company cannot be freely sold.
How Safe Harbor Shifts the Burden to the IRS ?
Under IRC Section 409A, a valuation performed by a qualified independent appraiser carries a presumption of reasonableness known as safe harbor.
This shifts the burden of proof: rather than you proving your strike price was fair, the IRS must prove the valuation was grossly unreasonable.
For most startups, an independent 409A Valuation is the most practical route to 409A safe harbor. It's why boards prefer an outside appraisal to an internal estimate the same report that documents your FMV also protects the grant if it's ever challenged.
Why Equirium ?
Why US Startups Bring Their 409A to Equirium ?
CVA-led practice.
US engagements are led by Harsh Patel, a NACVA Certified Valuation Analyst (CVA) with five years' experience delivering compliant valuations.
NDA-first confidentiality.
Your cap table, financials, and forecasts are handled under strict confidentiality.
Independent by design.
We act as an outside appraiser the independence the safe harbor presumption depends on.
Timeline-driven.
We work to your grant, audit, and closing deadlines.
Our Process for 409A Valuation reports
We scope your stage, trigger event, and timeline.
You share your cap table, financials, and round details, under NDA.
We select the approaches, build the model, and allocate value.
We walk you through the FMV conclusion and assumptions.
You receive the signed, board-ready 409A Valuation.
We remain available for your auditor, and for your next refresh.
409A Questions Founders Actually Ask
Ready when you are
Setting option strikes, or due for a refresh?
Setting option strikes for the first time, or due for a refresh? Get a defensible, CVA-led 409A Valuation built to hold up with the IRS.