Pre-Seed 409A Valuations

If you are issuing stock options before a priced round, you still need a defensible fair market value. Here is what changes at pre-seed, and what it costs.

Do you need a 409A at pre-seed?

You need one as soon as you grant stock options, not when you raise a priced round. Any option granted with a strike price below fair market value exposes the recipient to Section 409A penalties, and that applies whether you have raised $0 or $2M on SAFEs.

  • Granting your first options to founders, advisors, or early employees
  • Setting up an option pool before a priced round
  • Raising on SAFEs or convertible notes with options already outstanding

How pre-seed valuations are approached

Without a priced round there is no preferred share price to allocate from, so the appraisal usually leans on the asset approach and any early traction evidence. SAFEs and convertible notes are considered, but a SAFE cap is not treated as a market price on its own.

What it costs

Most pre-seed companies fall in the lowest tier at $899, which covers companies that have raised under $1M, because a simpler cap table has fewer share classes and breakpoints to model. Tiers are set by total capital raised, so if you have raised more than that on SAFEs or notes you fall in the $1,249 tier. A draft arrives in 24 hours and the expert-reviewed final report in 7 business days. Every report includes your first 2 hours of audit support, so if an auditor or the IRS asks how a number was derived, someone who worked on it answers.

Frequently asked questions

Do I need a 409A if I have only raised on SAFEs?

If you are granting stock options, yes. The trigger is the option grant, not the financing structure. A SAFE round does not set a common stock fair market value, but options still need a defensible strike price.

Can I just use par value for early option grants?

No. Par value is an accounting artifact, not fair market value. Granting at par when the company has demonstrable value creates Section 409A exposure for the option holder, including ordinary income on the spread as the options vest, rather than at exercise, plus an additional 20% federal penalty tax.

How long is a pre-seed 409A valid?

Up to 12 months, and it ends sooner if a material event occurs. For pre-seed companies the most common material event is closing a priced round, which requires a fresh valuation.