409A VALUATION · UNITED STATES

409A Valuations for IRS Section 409A Compliance

Audit-ready common-stock FMV that stands up to IRS scrutiny - led by CVA-credentialed valuer

Why it matters

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.

What a 409A valuation is (and isn't)

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 stakes

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.

When you need one?

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 ?

Deliverables

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.

Methodology

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.

Step 1

Establishing Enterprise Value

ApproachHow it worksBest fit
Income (DCF)Discounts projected cash flows to present valueCompanies with reliable forecasts or revenue
MarketBacksolves value from a recent financing round, or compares public and transaction multiplesRecently funded startups; benchmarkable sectors
AssetValues net assets on the balance sheetEarly-stage or asset-heavy companies, pre-revenue
Step 2

Allocating Value to Common Stock: OPM, PWERM & Hybrid

Once total value is set, we allocate it across preferred and common:

MethodWhat it doesTypical use
OPM (Option Pricing Method)Treats each share class as a call option on total equity valueEarly-stage companies with a single uncertain exit path
PWERMProbability-weights multiple future exit scenariosLater-stage companies with clearer near-term IPO/M&A visibility
HybridBlends OPM and PWERMOne 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.

Safe harbor

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

409A Questions Founders Actually Ask

1How long is a 409A valuation valid before it needs refreshing?
A 409A report is generally treated as valid for up to 12 months, or until a material event occurs whichever comes first. A new priced round or acquisition discussion usually resets that clock.
2Does a recent priced round set our 409A strike price automatically?
No. Your round prices preferred stock; a 409A values common stock, which is typically worth less. We may backsolve the round, but the common-stock FMV is a separate conclusion.
3Who can legally issue a 409A valuation for a US startup?
To qualify for safe harbor, the valuation should be prepared by a qualified independent appraiser with relevant credentials and experience. Equirium's US practice is led by a CVA-credentialed valuer.
4What's the difference between OPM and PWERM, and when does each apply?
OPM treats share classes as options on total equity value and suits earlier stages with a single uncertain exit. PWERM probability-weights specific exit scenarios and fits later-stage companies with clearer near-term outcomes.
5Will our auditor accept a 409A report from an outside firm?
An independent, well-documented 409A report is built to support both your board's option grants and your auditor's review of stock-based compensation. We supply the assumptions and detail your auditor will expect.
6Can a SAFE or convertible note trigger a new 409A valuation?
Conversion of a SAFE or convertible note into equity can be a material event that warrants a refreshed valuation, since it changes your cap table and equity value. It's worth reviewing whenever conversion is near.
7What happens to employees if our option grants fail 409A?
The tax consequences of a non-compliant grant fall on the employee - potentially earlier taxation, an additional federal tax, and interest. A defensible valuation is what protects your team from that outcome.

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.

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