The Complete 409A Valuation Lifecycle
Managing 409A valuations across your startup's growth is an ongoing responsibility. This guide walks through every stage of the process — from your first option grant to pre-IPO readiness.
Before Your First Option Grant
The moment you decide to build an equity incentive plan (EIP) and issue stock options to employees, advisors, or consultants, you need a 409A valuation. The timeline is important: the 409A must be completed before the first option grant — you cannot retroactively apply a valuation to past grants.
For most early-stage companies, this means ordering your 409A when you start building your team and plan to use options as compensation. Pre-Seed valuations are typically straightforward and can be completed in 5–7 business days.
Choosing the Right Methodology
The correct valuation approach depends on your stage and financial profile:
- Pre-revenue / Pre-Seed: Asset approach (net asset value) plus market comparables based on comparable transactions and stage-appropriate risk adjustments
- Early revenue / Seed: Market approach using ARR or Revenue multiples from comparable public SaaS/tech companies, supplemented by DCF
- Post-Seed through Series A: Option Pricing Model (OPM) to allocate enterprise value across share classes; DCF for companies with meaningful revenue
- Series B and beyond: Probability-Weighted Expected Return Method (PWERM) modelling multiple exit scenarios, combined with OPM for current period allocation
- Growth / Pre-IPO: Full enterprise valuation using market comparables, DCF, and pre-IPO benchmarking; may include IPO as one of the PWERM scenarios
What to Provide Your Appraiser
The quality of your 409A report depends on the quality of information you provide. Prepare:
- Most recent financial statements (P&L, balance sheet, cash flow)
- Monthly revenue and ARR data for the trailing 12 months
- Financial projections for 3–5 years (even rough ones help)
- Cap table (fully diluted share count, all classes, all option pools)
- Details of your most recent preferred round (price, liquidation preference, participation rights)
- Company overview / pitch deck (business model, market size, competitive positioning)
- List of key customers, contracts, or LOIs (for revenue-stage companies)
Reading Your 409A Report
A complete 409A report should contain:
- Executive summary: The conclusion of FMV of common stock per share as of the valuation date
- Company overview: Business description, financial summary, industry context
- Methodology section: Which approaches were used and why; weighting applied to each
- Market comparables: The public companies or transactions used as benchmarks
- Equity allocation: How enterprise value was allocated between preferred and common using OPM/PWERM
- DLOM analysis: The discount applied for lack of marketability and the basis for it
- Conclusion of value: The final FMV of common stock per share
- Appraiser certification: Signed statement of the appraiser's independence and qualifications
409A Management Calendar
To stay compliant without disruption to your hiring plans, follow this calendar approach:
- Annual: Order a refresh valuation at least 30 days before the 12-month expiry of your current one
- Post-funding: Order a new 409A within 2–4 weeks of closing any priced round
- Pre-hiring push: If you plan to issue a large batch of options, order a 409A 2–3 weeks in advance
- Material events: If revenue doubles, a major customer is lost, or you receive an acquisition offer, consult your appraiser about whether a re-valuation is warranted