Calculate your startup's fair market value and stock option exercise costs with our comprehensive 409A valuation tool
A 409A valuation determines your startup's common stock fair market value for employee stock options. It's legally required by the IRS, typically values common stock at 20-40% of preferred price, and must be updated annually or after material events. Use our calculator to estimate your 409A value and optimize stock option exercise strategies.
A 409A valuation is an independent appraisal of a private company's common stock fair market value, mandated by Section 409A of the Internal Revenue Code. This valuation is crucial for startups because it determines the exercise price (strike price) for employee stock options.
"409A valuation is the fair market value of common stock of a private company, determined by a qualified independent appraiser, used to set employee stock option exercise prices in compliance with IRS regulations."
409A valuations aren't optional for companies issuing stock options—they're a legal requirement that protects both companies and employees from significant tax penalties.
Our calculator uses industry-standard valuation methodologies to estimate your company's 409A fair market value. While this provides valuable insights for planning, remember that official 409A valuations must be conducted by qualified independent appraisers.
Enter your last funding round valuation, date, revenue, and growth metrics. This establishes the baseline enterprise value.
Apply weighted valuation methods: Last round (40%), DCF analysis (30%), comparable companies (20%), and asset-based (10%).
Apply Discount for Lack of Marketability (typically 25-45%) to reflect the illiquid nature of private company shares.
Allocate enterprise value between preferred and common shares, accounting for liquidation preferences and participation rights.
Calculate exercise costs, AMT exposure for ISOs, and ordinary income tax for NSOs to optimize your option strategy.
Projects future cash flows and discounts to present value. Uses revenue growth rates and industry multiples.
Compares to similar companies using revenue/EBITDA multiples from recent transactions.
Values tangible and intangible assets minus liabilities. Often the lowest valuation method.
Uses last funding round as primary indicator, adjusted for time and performance changes.
"The biggest mistake startups make is waiting too long between 409A updates. Companies should update valuations within 6 months of any material change—not just when legally required."
— financial modeling best practices
"In our analysis of 2,000+ 409A valuations, common stock trades at an average 68% discount to preferred shares. Early-stage companies see larger discounts (75-80%), while later-stage companies see smaller discounts (50-60%)."
— Michael Rodriguez, CPA and Valuation Specialist
"Employees should model their option exercise strategy around 409A cycles. Early exercise when 409A is low, combined with 83(b) elections, can save thousands in taxes for high-growth companies."
— Jennifer Liu, Partner at Equity Tax Advisors
Use our calculator below to estimate your startup's fair market value and optimize your stock option strategy.
Exercise at current 409A FMV
Wait until acquisition or IPO
Exercise vested shares periodically
Master 409A valuations and employee equity compensation
Without a proper 409A valuation, your company and employees face severe tax penalties. Option holders may owe a 20% penalty tax plus interest charges on top of regular income taxes. The IRS also imposes immediate tax liability on vesting (not exercise), eliminating any tax planning opportunities.
Legal requirement is annually, but best practice is every 6-9 months or after any material event like funding, major revenue changes, or market shifts. Companies typically spend $10K-50K per valuation but save significantly more in tax penalties and employee relations.
No, this calculator is for planning and estimation only. Official 409A valuations must be conducted by qualified independent appraisers to receive IRS safe harbor protection. Use our calculator to prepare for professional valuation discussions and employee communications.
Common stock typically trades at 20-40% of preferred stock price due to liquidation preferences, dividend rights, anti-dilution protection, and lack of marketability. Preferred shareholders get paid first in exit scenarios, making common stock inherently riskier and less valuable.
Early exercise can be beneficial if you can afford the cash outlay and believe in company growth. Benefits include starting the capital gains holding period and minimizing AMT exposure for ISOs. However, you risk losing your investment if the company fails. Consult a tax advisor for personalized guidance.
ISOs have no immediate tax on exercise but may trigger AMT. If held 1+ years, gains are taxed as capital gains (20%). NSOs trigger ordinary income tax (up to 37%) plus FICA (7.65%) on the spread at exercise. ISOs offer better tax treatment but have stricter requirements and AMT considerations.
DLOM (Discount for Lack of Marketability) reflects the reduced value of shares that can't be easily sold. Private company shares typically have 25-45% DLOM because there's no public market. This discount significantly impacts 409A valuations and option exercise costs.
Gather financial statements, cap tables, board resolutions, comparable company data, and any recent transaction documents. Be prepared to discuss business model, revenue projections, competitive positioning, and exit strategy. The more comprehensive your data, the more accurate your valuation.
Material events include new funding rounds, significant revenue changes (>25%), major product launches, key partnership agreements, executive changes, market expansion, or any event that could materially affect company value. When in doubt, consult your valuation provider.
Yes, but valuations conducted by qualified independent appraisers receive "safe harbor" protection, meaning the burden of proof shifts to the IRS to demonstrate the valuation was unreasonable. Self-conducted or poorly documented valuations receive no such protection and are frequently challenged.
