What a 409A valuation is for startups

409A valuation basics start with a plain fact: a 409A valuation is an independent appraisal of the fair market value of a private company's common stock, used so option grants can set a strike price that is not treated as discounted under US tax rules for deferred compensation. It is not a Nautis product feature, not a Cap Table button, and not the same thing as your fundraising valuation. This post is founder orientation. It is not tax, legal, or securities advice. Counsel, your equity plan, and a qualified appraiser control.

The day someone asks for a strike price

Illustrative moment: Maya, a seed-stage CEO (composite only), wants to grant options to two engineers next week. The candidate asks for the strike price. Maya's spreadsheet says "about a dollar." That answer is not 409A valuation basics. The usable answer is a dated common-stock fair market value from a valuation report the board can rely on, then a grant that uses that FMV as the strike under the plan.

Hold Maya's week. The sections below build the vocabulary, the refresh triggers, the packet, and the Cap Table hygiene that make the grant week boring instead of improvisational.

Illustrative pressure that causes bad strikes: a competitor offer expires Friday, the board meeting is next Tuesday, and someone suggests "use last round divided by four." 409A valuation basics reject that shortcut. Either the current adopted FMV still covers the grant under counsel's window, or the grant waits.

409A valuation basics (reader practice, not a Nautis module)

409A is a US Internal Revenue Code regime covering nonqualified deferred compensation. For startups, the practical intersection is employee stock options: setting an exercise price below fair market value of the underlying common stock can create tax problems. A common company practice is to obtain a written valuation of common stock from a qualified independent appraiser (or another method counsel accepts) and to have the board adopt that FMV for grants in a stated window.

409A valuation basics that founders mix up:

• Fundraising price per preferred share is not automatically common-stock FMV.
• Cap Table ownership percentages are not a 409A report.
• A SAFE valuation cap is not a 409A conclusion.
• "We just raised" does not by itself mint a new strike without a process your counsel recognizes.

Nautis Cap Table tracks who owns the company. It does not produce a 409A letter. Use Cap Table so the ownership facts you give an appraiser match reality. Keep the valuation work with counsel and the valuation firm.

Trigger table: when teams usually refresh

There is no universal statutory calendar that says "every March." Practice is event-driven. Use this operator table with counsel, not as a DIY statute.

Illustrative Maya rule after the table: no grant letters leave the company unless Cap Table matches the capitalization schedule sent to the appraiser, and the board minutes cite the report date and FMV per share.

Packet the appraiser actually needs

409A valuation basics for the packet are boring on purpose. Typical asks (confirm with your firm):

• Current Cap Table export with issued shares, option pool, convertibles, and warrants.
• Charter, equity plan, form grant agreement.
• Recent financing documents and SAFE or note summaries.
• Basic financials and a short business narrative.
• Prior 409A report if any.

Illustrative Maya packet fail: she sends an investor pitch deck with preferred round pricing and a Cap Table that still shows last quarter's pool. The appraiser asks for a clean capitalization schedule. Two weeks slip. The candidates wait.

Fix: export ownership from Cap Table (checked 31 Oct 2026) after recording stakeholders, the option pool, and financings. Help describes Cap Table as tracking who owns your company: share counts and par value, founders, investors, employees, advisors, and the option pool, plus modeling future rounds or exits. Creating and editing needs create or update permission. That export is evidence for the appraiser, not the valuation itself.

Name the export file with the as-of date. Store it beside the report PDF. When diligence asks which Cap Table the 409A used, you hand one file, not three Slack screenshots.

For how a clean ledger fits fundraising hygiene overall, see What is a startup cap table and why it matters.

Board adoption and the grant window

After the report arrives, the board typically adopts the FMV for common stock as of a stated date. Grants then use that strike while counsel says the report remains supportable. 409A valuation basics here are process: report, board consent, grant paperwork, Cap Table grant entry, candidate communication.

Illustrative Maya sequence:

1. Appraiser delivers report with $0.42 common FMV as of 1 May.
2. Board consents to use $0.42 for grants through a date counsel writes.
3. Offer letters state 10,000 options at $0.42 strike under the 2024 plan.
4. Cap Table records the grants so unallocated pool falls by 20,000.
5. Candidates receive plan packet; tax questions go to their advisors.

Do not invent ISO versus NSO tax outcomes on a recruiting call. Point to the plan packet and personal tax counsel.

Write a one-page internal note titled 409A valuation basics for grants: report date, FMV per share, board consent date, grant window end date counsel accepts, and the Cap Table export filename used. Anyone drafting an offer must paste that note above the strike. If the note is older than the last material financing, stop grants until counsel clears a refresh.

Illustrative candidate FAQ Maya keeps ready: "Strike is $0.42 per share of common, matching the board-adopted 409A FMV dated 1 May. Percent ownership uses our fully diluted definition from Cap Table as of that grant date. Tax treatment depends on your situation; here is the plan summary."

Illustrative twelve-month arc

Illustrative Northline-style year (composite only, not advice):

• Month 1: first 409A before any employee grants; Cap Table shows founders and a seed SAFE.
• Month 4: seed preferred closes; Cap Table updated same week; counsel queues refresh.
• Month 5: new report; board adopts; grants resume.
• Month 9: headcount doubles; still inside counsel's window; grants continue at adopted FMV.
• Month 11: major enterprise contract signed; counsel flags refresh before the next large grant batch.

The illustrative lesson is cadence tied to events, not a vibe that "we are more valuable now so raise the strike by hand."

What founders should not DIY

Do not set strikes from Twitter comps. Do not reuse a friend's FMV. Do not treat preferred price as common FMV without counsel. Do not leave Cap Table stale while the valuation firm models ownership. Do not promise a candidate a strike before the board adopts a report.

409A valuation basics finish when Maya can answer three questions without improvising: what common FMV the board adopted, as of which date, and whether Cap Table matches the schedule behind that report. Everything else is counsel and the appraiser. Nautis keeps the ownership system of record current. It does not replace the valuation letter.

If a banker quotes a post-money company value in a term sheet, record it as fundraising context, not as the option strike. 409A valuation basics keep those two numbers in separate sentences on purpose so recruiting Slack does not overwrite the board consent.

Assign an owner for Cap Table updates within forty-eight hours of any close or pool change that feeds the next valuation. Stale ownership is how reports get revised late and grants freeze. Maya's illustrative rule: financing closes Friday, Cap Table updated Monday, counsel pinged the same day about refresh timing.

When investors ask in diligence whether option strikes were set responsibly, the clean answer points to the report, the board consent, and Cap Table grants that match. The messy answer points to a chat thread. 409A valuation basics are mostly document hygiene timed to real company events.

If Maya's team uses Financial Planner for multi-year models, keep those projections labeled as planning outputs. Do not paste a planner revenue chart into an offer email as if it were a 409A conclusion. Appraisers may request financials; they still issue the valuation letter. Your job is accurate ownership and timely counsel, not amateur appraisal.

Train recruiting to refuse strike negotiations that ignore the adopted FMV. Candidates can negotiate share counts inside the pool plan. They should not negotiate a homemade strike. That boundary is 409A valuation basics in one sentence, and it protects both the hire and the company calendar.