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    409A Valuation

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

    Reviewed by Christian Espinosa, Founder, Blue Goat CyberLast reviewed May 9, 2026

    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.
    What the regulation says
    IRC Section 409A and Treasury Regulations 1.409A-1 through 1.409A-6. The independent-appraisal safe harbor is at 1.409A-1(b)(5)(iv)(B)(2)(i).

    What this means in practice

    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.

    Primary references

    3 sources
    Link health: 2 verified 1 bot-blocked· last checked 2026-05-09
    Cornell LII·2PitchBook·1
    1. 1
      IRC § 409A — Inclusion in Gross Income of Deferred Compensation
      Verified
      Cornell LIIlaw.cornell.edu
    2. 2
      Treas. Reg. 1.409A-1 — Definitions and Coverage
      Verified
      Cornell LIIlaw.cornell.edu
    3. 3
      PitchBook - MedTech Coverage
      Bot-blocked
      PitchBookpitchbook.com

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