Pre-Seed 409A Valuation: What You Need to Know
At the pre-seed stage, your company is typically pre-revenue or in very early revenue, operating on founder capital or angel investment. Despite the simplicity of your financials, you still need a 409A valuation before issuing stock options to your first employees, advisors, or contractors.
The good news: pre-seed valuations are the simplest and most affordable 409A engagements, with minimal documentation requirements and fast turnaround.
Methodology for Pre-Seed Companies
Since pre-seed companies typically lack the revenue history to support a robust market or income approach, the primary methodology is usually:
- Asset Approach (Net Asset Value): Total assets minus total liabilities, adjusted for any intangible value (IP, technology, team)
- Market Comparables: Comparable early-stage company transactions and funding rounds used to calibrate value
- Scorecard / Risk-Factor Summation: Adjustments for management team strength, market size, competition, technology risk, and stage of development
Unlike later-stage valuations, pre-seed appraisals do not typically require a full Option Pricing Model (OPM) — the cap table is usually simple enough for a direct allocation approach.
Common Stock FMV at Pre-Seed
A key concept to understand: the 409A common stock FMV will be significantly lower than the price paid by your angel investors for preferred stock. This is intentional and expected. Common stock lacks the liquidation preferences, anti-dilution protections, and other rights that preferred stock carries.
At the pre-seed stage, it is typical for common stock FMV to be 10–20% of the last preferred round price. For example, if your angels invested at a $3M post-money valuation with a $0.30/share preferred price, a 409A might establish common stock FMV at $0.03–$0.06/share. This gives your first employees attractive option pricing.
What to Prepare
- Company overview (2–5 page summary of what you do, market, team)
- Cap table (founding shares, any angel round terms)
- Balance sheet (even a simple one showing cash, IP, liabilities)
- Any convertible notes or SAFEs with their terms
- Number of option shares you plan to grant (for the appraiser's context)
After Your Seed Round
The moment you close your Seed round, your pre-seed 409A is invalidated by a material event (the priced preferred round). You must order a new 409A before making any new option grants post-Seed. Plan for this in your post-close checklist — typically ordering the new valuation within 2–3 weeks of closing.