Does every startup need a 409A valuation just to exist or raise money?

No. The common need arises when a private U.S. company plans stock option grants and needs support for common stock fair market value. Incorporation or fundraising alone is not the same question. Ask your advisers which valuation requirements apply to the equity compensation you plan to issue.

How long can a startup use a 409A valuation?

A common planning cadence is a new valuation at least every 12 months, with an earlier review after a material event. Twelve months is not a guaranteed usable period. A financing or another significant change can make the prior report unsuitable for later grants. Confirm applicability with your appraiser and advisers.

Can we use the price investors paid for preferred stock?

Do not assume preferred stock and common stock have the same fair market value. Preferred stock can carry liquidation preferences and other rights that common stock lacks. The financing is relevant evidence for the appraiser, but its price is not an automatic common stock exercise price.

Can Vanward or a valuation calculator produce our 409A?

No. The founder calculator computes ownership and share price from financing inputs you choose. It does not appraise the business, value different share classes, or produce a 409A report. Engage an independent qualified appraiser for that work.

What if we already granted options using an old report?

Collect the report, grant dates, board approvals, and details of intervening events, then ask your tax and legal advisers to review them. Do not assume a new report automatically fixes prior grants or change historical records without professional guidance.

Guide

What a 409A valuation is and when a startup needs one

By the Vanward team · Last updated October 24, 2026

A 409A valuation estimates the fair market value of a private company's common stock as of a specific date. U.S. startups commonly use it to support the exercise price of stock options. It is different from the preferred stock valuation negotiated in a financing. Plan for a valuation before the first option grants, review it at least annually, and reassess after a financing or other material event before further grants. Commission an independent qualified appraiser and review timing and use with your tax and legal advisers. This guide is a general description, not tax or legal advice.

What the report describes

The name comes from Section 409A of the Internal Revenue Code. In startup discussions, a 409A valuation usually means a report estimating common stock fair market value per share on a stated valuation date. That estimate helps support option exercise pricing. The report documents assumptions, methods, and the information available as of that date.

The valuation does not approve a grant by itself. The equity plan, board approvals, grant documents, and option ledger still need to agree. Keep the report with those records so a reviewer can connect each grant to the valuation used at the time.

Common stock value and financing value answer different questions

Question	Financing valuation	409A valuation
What is being considered?	An investment, usually in preferred stock	Fair market value of common stock
How is the value established?	Negotiated financing terms	A valuation analysis as of a specific date
What is it commonly used for?	Round price and investor ownership	Supporting option exercise pricing
Who should do the work?	Company and investors with their advisers	An independent qualified appraiser

Preferred investors may have liquidation preferences and other rights that common holders do not. The appraiser considers the company's capital structure, financing evidence, financial performance, outlook, and other relevant facts. There is no universal percentage of the preferred price that a founder can safely substitute for an appraisal.

For the financing arithmetic, use the pre-money and post-money valuation calculator. It shows the share price and ownership implied by your chosen inputs. It does not determine fair market value or produce a 409A valuation.

Plan around grants and material events

Engage an independent appraiser before the first planned option grants so the report is available for the board's review. For a company continuing to grant options, plan an annual valuation review and check sooner when circumstances change. A report does not remain suitable merely because its first anniversary has not arrived.

Situation	What to discuss with the appraiser and advisers
First option grants	Commission the valuation before the planned grants and align the supporting records.
Annual review	Review the valuation date and plan a refresh before relying on the report for further grants.
A financing	Provide the new terms and ask whether the prior report remains appropriate for subsequent grants.
Other material changes	Discuss significant changes in performance, a major transaction, or other information affecting value.
Possible issues with past grants	Have tax and legal advisers review grant dates, the report, and intervening events.

Whether an event is material depends on the facts. Let your appraiser and advisers assess that question rather than treating a calendar reminder as the only control. A valuation report is support for a decision, not a guarantee of a particular tax outcome.

Prepare a consistent packet for an independent appraiser

Bring the current cap table, equity plan, outstanding grants, SAFEs and notes, recent financing documents, historical financials, current forecast, and a summary of material developments. Separate signed financing terms from discussions still in progress. Label the financial periods and forecast assumptions so the appraiser can identify what was known at the valuation date.

Check that the share counts in the report reconcile to the cap table and that the report covers the intended date and share class. Retain the final report, supporting information, and grant approvals together. Use independent tax and legal advice for questions about compliance, a particular grant, or correcting prior actions.

Questions founders ask

Does every startup need a 409A valuation just to exist or raise money?: No. The common need arises when a private U.S. company plans stock option grants and needs support for common stock fair market value. Incorporation or fundraising alone is not the same question. Ask your advisers which valuation requirements apply to the equity compensation you plan to issue.
How long can a startup use a 409A valuation?: A common planning cadence is a new valuation at least every 12 months, with an earlier review after a material event. Twelve months is not a guaranteed usable period. A financing or another significant change can make the prior report unsuitable for later grants. Confirm applicability with your appraiser and advisers.
Can we use the price investors paid for preferred stock?: Do not assume preferred stock and common stock have the same fair market value. Preferred stock can carry liquidation preferences and other rights that common stock lacks. The financing is relevant evidence for the appraiser, but its price is not an automatic common stock exercise price.
Can Vanward or a valuation calculator produce our 409A?: No. The founder calculator computes ownership and share price from financing inputs you choose. It does not appraise the business, value different share classes, or produce a 409A report. Engage an independent qualified appraiser for that work.
What if we already granted options using an old report?: Collect the report, grant dates, board approvals, and details of intervening events, then ask your tax and legal advisers to review them. Do not assume a new report automatically fixes prior grants or change historical records without professional guidance.