--- title: "409A Valuation, Definition | MedTech Terms" description: "An independent fair-market-value appraisal of common stock used to set tax-compliant strike prices for employee stock options." lang: en json-ld: | { "@context": "https://schema.org", "@graph": [ { "@type": "DefinedTerm", "@id": "https://medtechterms.com/terms/409a-valuation#term", "name": "409A Valuation", "description": "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). 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[Home](/) 2. / 3. [Terms](/terms) 4. / 5. [Investment & Finance](/terms?cat=Investment%20%26%20Finance) 6. / 7. 409A Valuation [All terms](/terms) Investment & Finance [Startup Lifecycle](/ecosystems/startup-lifecycle) # 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 Cyber](/authors/christian-espinosa) Last 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](/terms/safe-note) 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](/terms/safe-note) 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](/terms/preferred-stock) price because of the preferred's [liquidation preference](/terms/liquidation-preference) and protective provisions; this discount narrows as the company approaches an [IPO](/terms/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. ## Related terms Grouped by theme ### Editor's picks · Hand-selected related concepts [ Investment & Finance Employee Option Pool Shares reserved for issuance to employees as stock options. ](/terms/option-pool)[ Investment & Finance Preferred Stock Class of equity with rights superior to common stock. ](/terms/preferred-stock)[ Investment & Finance Vesting Schedule Timeline over which equity is earned by an employee or founder. ](/terms/vesting) ### More in Investment & Finance · Same category [ Investment & Finance Anti-Dilution Protection Adjustment that protects investors if the company raises a future round at a lower price. ](/terms/anti-dilution)[ Investment & Finance Bridge Round Interim financing between priced rounds, usually convertible. ](/terms/bridge-round)[ Investment & Finance Burn Rate Rate at which a company spends cash, typically expressed monthly. ](/terms/burn-rate)[ Investment & Finance Burn Rate and Runway Monthly net cash consumption (burn) and months of cash remaining (runway). ](/terms/burn-runway) Cited by Where this term appears across MedTech Terms. Ecosystems (1) - [Startup Lifecycle](/ecosystems/startup-lifecycle) ## Primary references 3 sources Link health: 3 verified · last checked 2026-06-20 Cornell LII· 2 PitchBook· 1 1. [1 IRC § 409A, Inclusion in Gross Income of Deferred Compensation Verified Cornell LII · law.cornell.edu ](https://www.law.cornell.edu/uscode/text/26/409A) 2. [2 Treas. Reg. 1.409A-1, Definitions and Coverage Verified Cornell LII · law.cornell.edu ](https://www.law.cornell.edu/cfr/text/26/1.409A-1) 3. [3 PitchBook - MedTech Coverage Verified PitchBook · pitchbook.com ](https://pitchbook.com/news/articles/topic/healthtech) Inline markers like \[1\] jump to the matching reference above. Sponsor note ### Diligencing a MedTech cybersecurity posture? Blue Goat Cyber supports investors and acquirers with cybersecurity diligence on connected MedTech assets. [Book a 30-minute discovery session](https://go.bluegoatcyber.com/meetings/blue-goat-cyber/discovery-session) - No obligation - Expert-led from minute one - NDA available on request MedTech Terms is a community resource sponsored by [Blue Goat Cyber](https://bluegoatcyber.com). Definitions are independent of any vendor. On this term Category Investment & Finance Sources 3 Updated 5/9/2026 [Compare with another term](/compare?a=409a-valuation) Learn in 60 seconds Card Lesson Quiz An independent fair-market-value appraisal of common stock used to set tax-compliant strike prices for employee stock options. - · 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. Remember this Watch out: Letting a 409A valuation lapse and granting options at a stale price, exposes employees to personal tax penalties. Related terms - [Preferred Stock ](/terms/preferred-stock) - [Vesting Schedule ](/terms/vesting) - [Employee Option Pool ](/terms/option-pool) You may also need Auto-suggested from Investment & Finance and shared keywords. - [Down Round ](/terms/down-round) - [Convertible Note ](/terms/convertible-note) - [Pre-Money Valuation ](/terms/pre-money-valuation) - [Simple Agreement for Future Equity(SAFE) ](/terms/safe-note) - [Valuation Cap ](/terms/valuation-cap) - [Anti-Dilution Protection ](/terms/anti-dilution) [All Investment & Finance terms](/terms?cat=Investment%20%26%20Finance) MedTech Terms An authoritative, plain-language reference for the regulatory, quality, cybersecurity, and software terms that shape modern medical devices. Browse - [All terms](/terms) - [A–Z index](/a-z) - [Categories](/categories) - [Ecosystems](/ecosystems) - [Learning paths](/paths) - [Compare terms](/compare) - [Quiz](/quiz) Resources - [FDA Medical Devices](https://www.fda.gov/medical-devices) - [EU MDR](https://eur-lex.europa.eu/eli/reg/2017/745/oj) - [IMDRF](https://www.imdrf.org/) - [Methodology](/methodology) - [Changelog](/changelog) - [Editor: Christian Espinosa](/authors/christian-espinosa) - [About this site](/about) © 2026 MedTech Terms. Reference content for educational purposes - not regulatory advice. A community resource sponsored by [Blue Goat Cyber](https://bluegoatcyber.com)