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Documents · playbookHow to read a 409A valuation report
A 409A is the independent appraisal your company uses to set option strike prices. If you've been handed one, here's what the numbers mean — and the big thing it does not tell you.
What the report sets, and what to look for
- The fair market value (FMV) of common stock — the headline number, and what your strike price is set to.
- The valuation date and method — market, income or asset approach; and when it was done (409As are typically refreshed yearly or after a round).
- The discount for lack of marketability (DLOM) — why common is marked down for being illiquid.
- The common-vs-preferred gap — why your common shares are valued well below the last round price paid for preferred.
The one thing a 409A does NOT tell you
A 409A is a conservative, tax-compliance number for setting strike prices — it is deliberately not a prediction of what you'd get in a sale. A real secondary price depends on the buyer, your share class, transfer restrictions and market demand, and can sit well above the 409A. Treat the 409A as the floor for your strike, not the value of your stake. See 409A vs last-round price for the full picture.
Frequently asked questions
Why is the 409A lower than my company's last funding valuation?
Is the 409A what my shares are worth?
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Read next
409A vs last-round price · Common vs preferred · What are my shares worth? · 409A valuation (glossary)
Sources & further reading
Primary references: IRS, the US SEC / Investor.gov and gov.uk / HMRC, plus established market practice, cross-checked against our PTS Open Framework. General information, not advice — your own documents and local law govern your situation.
Educational information only — not financial, tax or legal advice, and not an offer to buy or sell any security. Your own documents and local law govern your situation. PrivateTechShares is independent and not a broker or marketplace.