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Investment & Finance

409A Valuation

In one line

An independent fair-market-value appraisal of common stock used to set tax-compliant strike prices for employee stock options.

Definition

A 409A valuation is an independent appraisal of a private company's common stock fair market value, performed under the safe harbor of IRC Section 409A (added by the American Jobs Creation Act of 2004). The valuation determines the strike price at which employee stock options can be granted without triggering punitive 409A tax penalties on the employee. 409A valuations are typically refreshed annually, after each priced financing round, or following any material corporate event.

Why it matters

MedTech 409A valuations typically reflect a material discount to preferred stock price because of the preferred's liquidation preference and protective provisions; this discount narrows as the company approaches an IPO.

Common pitfalls

•Letting a 409A valuation lapse and granting options at a stale price — exposes employees to personal tax penalties.
•Granting options between a financing close and the refreshed 409A.

Sources

IRC § 409A — Inclusion in Gross Income of Deferred Compensation · Cornell LII
Treas. Reg. 1.409A-1 — Definitions and Coverage · Cornell LII
PitchBook - MedTech Coverage · PitchBook

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MedTech terminology is full of pairs that look interchangeable but carry very different regulatory, clinical, and commercial consequences. Picking the wrong framework, pathway, or standard early in a project can add months to a submission, invalidate clinical evidence, or trigger an audit finding. Side-by-side comparison is the fastest way to surface those differences before they become costly mistakes.

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Common comparison patterns

Regulatory pathway choice - 510(k) vs PMA, 510(k) vs De Novo, Abbreviated vs Special 510(k).
Quality systems - QSR vs ISO 13485, QMSR vs QSR.
Software classification - SaMD vs SiMD, Locked vs adaptive AI.
EU frameworks - MDR vs IVDR, CE Mark vs UKCA.
Cybersecurity artifacts - SPDX vs CycloneDX SBOM, CVE vs CVSS.
Post-market actions - Recall vs field action, Removal vs correction.

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MedTech Terms is a vendor-neutral community resource sponsored by Blue Goat Cyber. Definitions are written for educational use and are not legal or regulatory advice.