A 409A valuation is an independent appraisal of a private company's common stock fair market value, required by the U.S. Internal Revenue Code Section 409A so the company can set the strike price on stock options it grants to employees. It is the basis for every option grant's strike price and is what allows the company and its option holders to avoid significant tax penalties on grants.
A 409A is typically performed by an independent third-party appraiser (Carta, Pulley, Aranca, Scalar, and others), and a valuation performed under one of the IRS safe harbor methods carries a presumption of reasonableness. The valuation must be refreshed at least once every 12 months, or earlier if a material event occurs (a priced round, an ...