409A valuation
In accounting, 409A valuation means an appraisal of a private company's common stock at fair market value, so options granted with a strike at or above it avoid the tax penalties of IRC §409A. A tax safe harbor; the books measure option expense under ASC 718, often starting from the same common-stock value.
- Layer
- Lexicon
- Defined in
- Lexicon
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- 4
Authority
This definition follows IRC §409A; Treas. Reg. §1.409A-1(b)(5)(iv).
Every citation in this system, with the text we read and the date we checked it, is in US GAAP and where these rules come from.
For founders
The same idea written for a founder: what it costs a startup that ignores it, and what to do in a real month.
- Stock options, 409A valuations and vesting for startupsHow option strike prices are set by a 409A valuation, how vesting and the cliff work, and why ASC 718 makes every grant an expense on your P&L.
- Why startups should close their books every monthA monthly close turns a bank balance into numbers an investor, an auditor or a 409A firm will accept. What it is, and why it gets expensive to skip.
- US GAAP for early-stage startups, in plain EnglishAccrual accounting, revenue recognition (ASC 606), leases (ASC 842), stock compensation and capitalized software: what each means for a small company.
What it is not called
Each of these is a real word for a different thing. Using it here is what makes a product read as though it was built by someone who has not done the work.
- the valuation (the priced round sets the preferred price, not the common)
Nearby in the catalog
No component names this concept outright. These are the ones in its part of the system, which is a weaker claim — but a component nothing links to is a component nobody finds.
Terms this one depends on
- ExpenseOutflows or other using up of assets, or incurrences of liabilities, from delivering or producing goods, rendering services or carrying out other activities — recognized when incurred, not when paid
- SAFECash from an investor in exchange for a right to shares in a future priced round, usually at a valuation cap or a discount. Not debt and not yet stock; because a SAFE can require cash on a change of control, it is often classified as a liability under ASC 480 and remeasured at fair value — the terms decide
Also in Equity & financing
Defined in Lexicon. This page is generated from that document, so the two cannot disagree.