- Guides & Glossary
Plain-English answers to your 409a and valuation questions
A reference library for founders, finance teams, and counsel navigating 409a valuations, cap tables, and complex securities – starting with the terms you’ll see most often.
Suggested guide topics:
Suggested guide topics:
- A founder’s guide to your first 409a valuation.
- 409a valuation and cross-border teams: what non-US companies need to know
- What triggers a 409a refresh, and when you need one
- SAFEs, convertible notes, and your 409a: how they interact
- Understanding purchase price allocation (PPA) after an acquisition
- These overlap deliberately with the blog plan in section 10.7. Rather than writing each topic twice, publish it once as a blog post and let this index link to it – two pages covering the same ground will simply compete with each other.
A-to Z reference of key terms used across the site:
- Build note: mark each entry up as DefinedTerm schema inside a DefinedTermSet. The glossary is the cheapest page on the site to get cited by an answer engine, because a well-formed definition is exactly the unit those systems retrieve. Give each term an anchor link so other pages can point at it directly.
409a valuation– An independent appraisal of the fair market value (FMV) of a private company’s common stock, used to set a compliant strike price for stock options under US tax rules (IRC Section 409a).
ASC 718– The US GAAP accounting standard governing how companies account for stock-based compensation in their financial statements.
ASC 805– The US GAAP accounting standard governing business combinations, including purchase price allocation.
ASC 815– The US GAAP accounting standard governing derivatives and hedging, including the identification and valuation of embedded derivatives.
ASC 820– The US GAAP accounting standard defining fair value and how it should be measured and disclosed.
Bifurcation– Separating an embedded derivative from its host contract so the two are accounted for independently under ASC 815.
Cap table (capitalization table)– A record of a company’s ownership, showing all shareholders, share classes, options, and other equity instruments.
Common stock– The ordinary shares of a company, carrying no liquidation preference or special rights. This is the class a 409a valuation values.
Contingent consideration (earnout)– Deal consideration payable only if agreed future conditions are met; fair-valued at acquisition and remeasured afterwards under ASC 805.
Convertible note– A form of short-term debt that converts into equity, typically at a future financing round.
Embedded derivative– A feature within a larger contract (e.g., a conversion or redemption feature) that may need to be separated and fair-valued on its own under ASC 815.
Fair market value (FMV)– The price an asset would sell for on the open market between a willing buyer and seller.
Material event– A significant change to a company (e.g., a new funding round, M&A activity, or major business change) that typically requires a new 409a valuation rather than a refresh.
Option pool– Shares reserved for issue to employees, advisers and directors under an equity incentive plan.
Preferred stock– Shares carrying rights common stock does not, such as a liquidation preference or anti-dilution protection. Preferred is what investors buy in a funding round, which is why its price is normally higher than the 409a common-stock value.
Profits interest– An LLC equity interest entitling the holder to a share of future growth only; the reason LLC valuations require a different model from corporate common stock.
Purchase price allocation (PPA)– The process of allocating the purchase price of an acquisition across the fair value of acquired assets, liabilities, and goodwill under ASC 805.
Refresh– An updated 409a valuation performed within the standard 12-month safe-harbor window, without an intervening material event.
SAFE (Simple Agreement for Future Equity)– An investment instrument that converts into equity at a future financing round, without the debt characteristics of a convertible note.
Safe harbor– The presumption of reasonableness the IRS grants to a 409a valuation prepared by a qualified, independent appraiser, shifting the burden of proof away from the company in an audit.
Section 409a– The section of the US Internal Revenue Code governing non-qualified deferred compensation, including stock options granted to US taxpayers. Rendered in lowercase throughout val409a communications.
Strike price– The fixed price at which an option holder can purchase shares, typically set at the FMV determined by the 409a valuation.
Valuation cap– A ceiling on the conversion price of a SAFE or convertible note, which gives the instrument option-like economics and affects how it must be valued.
Warrant– A contract giving the holder the right to purchase shares at a specified price within a set period.