The 409A valuation process: steps, cost, report and timing
Short answer
A 409A valuation follows six steps: engage a qualified provider; send the cap table, financing documents, financial statements and forecast; answer a management interview about the business and material events; the provider models equity value and allocation; you review a draft for factual errors; then the board adopts the value and grants options at or above it while the valuation is still current. The documents matter most, because the regulation expects all material information to be considered.
Documents to gather
- Fully diluted cap table, including options, warrants, SAFEs and notes.
- Charter and financing documents (preferences, conversion, participation).
- Historical financial statements and current-year results.
- Forecast or budget the board has seen.
- Details of recent financings, secondary sales and offers.
- Material events since the last valuation.
Choosing a provider
Choose a 409A provider on whether its report can support the presumption you plan to rely on: independence from the company, qualified preparers (the start-up presumption looks for at least five years of relevant experience), methods suited to your stage and capital structure, and a written report that addresses the regulation's factors. Then compare scope, what's included (refreshes, audit support), and turnaround on your actual data. We don't rank providers.
Questions to ask
- Which presumption will your report support, and how?
- Who prepares and signs it? What experience do they have?
- Any relationship with our company, investors or auditors?
- Which allocation method do you expect to use for our stage, and why?
- How do you handle SAFEs, notes and multiple preferred classes?
- Is a refresh after a material event included or extra?
- Will you answer questions from our auditors?
What drives the cost
A 409A valuation's cost depends on the company's stage, how complex the capital structure is (classes of preferred, convertible notes, SAFEs, warrants), which methods are needed, how good the financial data is, deadline pressure and whether it's a first valuation or a refresh. We don't publish a price range because ranges vary widely by provider and scope. A cheaper report that can't support the safe harbor isn't a saving.
| Driver | Lower cost | Higher cost |
|---|---|---|
| Stage | Pre-revenue, one round | Late stage, near exit |
| Capital structure | Common plus one preferred class | Many classes, notes, SAFEs, warrants |
| Method | Backsolve from a recent round | Hybrid or scenario models |
| Data | Clean financials, current cap table | Cap table errors, missing financials |
| Timing | Planned refresh | Rush before a board meeting |
OKtoLend shares pricing on request. See choosing a provider.
What the report contains
A 409A valuation report typically covers the purpose and valuation date, the company and its market, the capitalization table and the rights of each class, the equity value from one or more approaches, the allocation of that value to common stock, any marketability discount and the concluded fair market value per common share, with the preparer's qualifications. The regulation expects the valuation to take into account all available material information and the factors it lists.
| Section | What it shows | Link to the regulation |
|---|---|---|
| Purpose and date | 409A for option grants; valuation date | 12-month window starts here |
| Company and market | Business, stage, financials, outlook | All material information |
| Capitalization | Classes, preferences, conversion, options, warrants | Needed to allocate value |
| Equity value | Approaches used and why | Assets, cash flows, comparables, recent transactions |
| Allocation | CVM, OPM, PWERM or hybrid | Rights of each class |
| Discounts | Marketability, with support | Control and marketability factors |
| Conclusion | FMV per common share | Strike price floor |
| Qualifications | Preparer's credentials, independence | Supports the presumption relied on |
See allocation methods.
How often to update it
At least every 12 months while you're granting options, and sooner after material events. The regulation says using a previously calculated value isn't reasonable if it was calculated for a date more than 12 months earlier, or if it fails to reflect later information that may materially affect value. The independent appraisal presumption also requires a valuation date no more than 12 months before the grant. A new financing round, an acquisition offer or a big change in results typically calls for a refresh.
Common triggers for a refresh
- A priced equity round or a significant convertible financing.
- A term sheet or offer to acquire the company.
- Results far above or below plan.
- Resolution of material litigation; issuance of a key patent.
- Large secondary sales of common.
- Approaching 12 months since the valuation date.
See the safe harbor conditions.
A typical calendar for a company granting options
| When | What happens |
|---|---|
| Month 0 | Valuation date; board adopts the 409A value |
| Months 0 to 12 | Grants priced at or above that value, provided no material event occurs |
| Any material event | Pause grants; order an updated valuation |
| Month 10 or 11 | Start the annual refresh so a new value is ready before month 12 |
Roles in the process
Management supplies documents, answers the interview and reports material events. The provider builds the equity value and allocation, writes the report and supports it if questioned. The board adopts the valuation and sets strike prices at or above it. Auditors, where the company has them, often review the 409A because the same values feed stock-based compensation accounting. Counsel confirms grant documentation and timing. Problems usually come from gaps between these roles: a term sheet the provider wasn't told about, or a grant approved on an old value.
Keeping records that hold up
- The final report with its valuation date and conclusion.
- Board minutes adopting the value and approving each grant.
- The cap table and documents given to the provider.
- A note of any material events and how they were handled.
- Grant notices showing strike prices at or above the value.
Together, these show that each grant used a current, reasonable value, which is what the 409A rules ask a company to be able to demonstrate.
What changes between a first 409A and a refresh
A company's first 409A takes the most work: the provider has to learn the business, build the capital structure model and choose methods. A refresh twelve months later starts from that model, so the main work is updating financial results, the cap table and the market inputs, and reflecting what has happened since. A refresh after a priced round is different again: the new round is usually the most important input, and the provider will typically backsolve from its price, then reconsider the allocation method if the company's stage has changed. Founders should tell the provider about anything material in advance, including term sheets under negotiation, secondary sales and acquisition interest, because a valuation that ignores known information is not reasonable under the regulation.
Mistakes that slow the process down
- A cap table that doesn't match the charter or the option ledger.
- SAFEs and convertible notes left out because they haven't converted.
- Financial statements months behind the valuation date.
- A board meeting scheduled for grants before the report is final.
How long a 409A takes
As with business valuations, the analysis is rarely the slow part. A company that sends a complete, reconciled cap table, current financials, its financing documents and a candid list of recent events on day one gives the provider everything it needs to model and draft. Most delays come from fixing cap table errors, chasing missing documents or waiting for board availability. We don't quote a standard turnaround; ask any provider for a timeline based on your actual documents.
OKtoLend prepares 409A valuations as part of its valuation work, with a written report reflecting the regulation's factors and signed by a credentialed valuation analyst. Tell us your stage, capital structure and planned grant dates, and we'll reply with pricing, timing and what we would need from you within one business day.
Not tax advice.
Common questions
Can we comment on the draft value?
You should correct facts. Pushing for a lower number without new facts undermines independence.
What if something material happens during the work?
Tell the provider immediately; the valuation must reflect information available that may materially affect value.
When should the board grant?
After adopting the valuation and before it goes stale (12 months or a material event).
Should our accountant do the 409A?
If they are independent and qualified, possibly. Auditors generally avoid valuing what they then audit.
What should a quote include?
Scope, methods, number of refreshes, support if auditors or acquirers ask questions, and data required.
Related guides
Sources
This guide explains rules and practice in plain English. It isn't legal, tax or credit advice, and SBA and IRS rules change. Check the current SOP, regulations and your lender's requirements before you rely on anything here. Examples with made-up businesses are illustrations, not real deals.