409A Valuation
Definition
An independent appraisal of your company's stock value, required by the IRS for granting stock options. This fair market value is typically lower than what investors pay.
Related terms in Legal & Equity
All 100 terms →Equity
Ownership in a company, usually represented by shares of stock. Founders, employees, and investors all own equity—their stake in the company's future value.
Vesting
A schedule that determines when you actually own your equity. Standard is 4-year vesting with a 1-year cliff—you earn nothing until year one, then earn monthly.
Cliff
The period before any equity vests. A 1-year cliff means if you leave before 12 months, you get nothing. After the cliff, vesting typically happens monthly.
Stock Options
The right to buy company stock at a fixed price. Options are valuable when the company grows—you can buy at the old price and sell at the new, higher value.
Exercise
Using your stock options to actually buy shares. You pay the exercise price set when options were granted. Early exercise can have tax advantages.