A 409A valuation is generally valid for up to 12 months, assuming no material changes occur that could impact company value. Material events include fundraising rounds, acquisitions, significant revenue changes, or major market shifts. If such an event occurs, the valuation must be updated immediately. Most companies refresh their 409A annually and after each financing round. Using an outdated valuation can invalidate safe harbor protection and expose the company and equity holders to significant tax penalties?
When Does a 409A Valuation Need to Be Updated?
Even within the 12-month window, a new 409A valuation is usually needed when something happens that could change the value of the company’s common stock. The most common triggers are:
- A priced equity round, such as a Seed or Series A
- A signed term sheet or offer to acquire the company
- A large change in revenue, forecasts or the business model
- Secondary sales of common stock at a set price
- Preparing for an IPO, when many companies move to quarterly valuations
If none of these happen, a valuation completed in the last 12 months can generally still be used to set option strike prices.