What is a 409A valuation?

A 409A valuation is an independent appraisal of a private company's common stock, required by US tax rules to set the strike price of employee stock options. It is distinct from — and almost always far below — the preferred-share valuation investors pay, because common stock lacks the preferences investors receive.

Companies refresh the 409A at least every 12 months and after material events like a financing. A defensible 409A protects employees from tax penalties on their options; it is a compliance number, not a market signal.