# 409A valuation

Concept · [Fundraising and equity](https://ecosystem.samcarlton.com/fundraising)

Also called: 409A, 409(a), fair market value, FMV, strike price, exercise price

An independent appraisal of what one share of a private company's [common stock](https://ecosystem.samcarlton.com/preferred-stock) is worth. US companies use it to set the price at which [employees](https://ecosystem.samcarlton.com/contractor-vs-employee) can buy [shares](https://ecosystem.samcarlton.com/equity) with their [stock options](https://ecosystem.samcarlton.com/stock-options). The name comes from section 409A of the tax code.

**For example:** An appraiser values a startup's [common stock](https://ecosystem.samcarlton.com/preferred-stock) at 50 cents a share. The company then [grants](https://ecosystem.samcarlton.com/grant) [stock options](https://ecosystem.samcarlton.com/stock-options) that let [employees](https://ecosystem.samcarlton.com/contractor-vs-employee) buy [shares](https://ecosystem.samcarlton.com/equity) at 50 cents each.

## Connects to (4)

- [Stock options](https://ecosystem.samcarlton.com/stock-options): The right to buy shares in the company later at a price that is set today.
- [Valuation](https://ecosystem.samcarlton.com/valuation): What the company is agreed to be worth for the purpose of an investment.
- [Preferred stock vs common stock](https://ecosystem.samcarlton.com/preferred-stock): The two main kinds of shares in a startup.
- [Option pool](https://ecosystem.samcarlton.com/option-pool): A block of shares a company sets aside to grant to future employees, advisors and contractors, usually as stock options.

> This glossary is plain-language orientation, not legal or financial advice. Before you decide on a company structure, a contract, taxes or a fundraising deal, talk with a lawyer or an accountant.

Map view: https://ecosystem.samcarlton.com/409a-valuation