Seed Stage 409A Valuations

When you need one after a seed round

Closing a priced seed round is a material event, so any 409A you held before it is no longer reliable. You need a new valuation before granting options at the post-round strike price, and most companies start the process as the round closes.

Why your common stock is worth less than the seed price

Your seed investors bought preferred stock with a liquidation preference that pays out before common. Common stock is also illiquid. Both reduce the value of common relative to the preferred price, which is why the strike price for employee options is normally well below what investors just paid per share.

What it costs

Seed companies typically fall in the $899 to $1,249 tiers depending on capital raised. Draft in 24 hours, 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

How soon after closing a seed round do I need a new 409A?

Before you grant options at the new strike price. Most companies commission it as the round closes so grants are not delayed, since the round itself is a material event that invalidates the prior valuation.

What is a typical common-to-preferred ratio at seed?

The concluded common stock value is normally a fraction of the preferred price, reflecting the liquidation preference and a discount for lack of marketability. The exact ratio depends on your waterfall, expected time to exit, and volatility, so it is determined by the allocation model rather than a rule of thumb.

Do I need a 409A if we did not grant options this year?

A valuation is only required to support option grants and related equity compensation. If you granted nothing and plan to grant nothing, you may not need a current one, though most companies keep one current so grants are never blocked.