409A Valuation Example: Full Walkthrough of a Series A Startup Appraisal

Short answer: A 409A valuation for a Series A startup uses the backsolve method to anchor enterprise value to the preferred share price investors paid, allocates that value to common stock via the Option Pricing Model (OPM), and then applies a Discount for Lack of Marketability (DLOM) — producing a common stock FMV typically 15–30% of the preferred price per share.

A 409A valuation example walks through every calculation between “here is our cap table” and “here is the fair market value per common share.” This article works through a representative Series A SaaS startup (which we'll call ExampleCo): $4M ARR, $24M post-money preferred valuation, recent $12M Series A at $4/share preferred — producing a common stock FMV of $0.94/share after OPM allocation and 22% Finnerty DLOM. Run the same calculation on your own cap table by starting a free draft 409A report.

The 409A valuation example below uses realistic but illustrative numbers, not a specific real company. The objective is not to give you a template to copy -- it is to make the mechanics concrete so you can read your own provider's report with informed eyes. By the end of this article, you will have seen how a backsolve enterprise value is derived, how the Option Pricing Model (OPM) allocates value to common stock, why the Discount for Lack of Marketability (DLOM) exists, and what a Series A common stock fair market value typically looks like relative to preferred price.

What Does the Company Profile Look Like in a 409A Valuation Example?

The company profile sets every downstream assumption. ExampleCo is a B2B SaaS startup based in the United States that closed its Series A on January 15, 2026. The company sells workflow automation software to mid-market operations teams and is pre-profitability, running at roughly $3.2 million in annual recurring revenue (ARR) at the time of the valuation, growing at 140% year over year.

For this 409A valuation example, assume a valuation date of February 1, 2026 -- approximately two weeks after the Series A close. The valuation is triggered because ExampleCo plans to grant stock options to new hires and extend refresh grants to existing employees. Under IRC Section 409A, the company needs an appraisal that supports the exercise price used on those grants.

This profile matters because it dictates the methodology. A recent arm's-length Series A financing is the strongest single piece of market evidence an appraiser can use, and we will apply it via the backsolve method in Step 3. For context on how the 409A changes at each funding stage, see our companion article on 409A valuations after a funding round.

What Inputs Does a 409A Valuation Require?

Every 409A valuation requires four input categories: the cap table, the financials, the transaction history, and the qualitative business record. Incomplete data in any category forces assumptions that weaken the report's defensibility.

What Does the Cap Table Show in This 409A Example?

The cap table shows what share classes exist, how many shares are outstanding in each, and what economic rights each class carries. For ExampleCo:

Total shares outstanding (fully diluted) = 17,000,000. The Series A raise of $15 million at $4.25 per share produced 3,529,412 new preferred shares. The post-money valuation of $60 million is simply $4.25 × 17,000,000 (approximately, with rounding).

What Financial and Qualitative Data Does the Appraiser Review?

Beyond the cap table, the appraiser reviews financials and qualitative context that inform every methodology assumption. For ExampleCo, that means: three years of historical income statements (in ExampleCo's case, two full years and one partial year since founding), a bottoms-up financial projection covering the next 36 months, a summary of the customer base and concentration, a description of the product and competitive position, and the Series A term sheet showing investor rights including the 1x non-participating liquidation preference, 8% compounding dividend (unpaid), and weighted-average broad-based anti-dilution protection. Each of these inputs feeds a specific step in the valuation methodology.

Which Valuation Methodology Is Used at Series A?

For a recently financed Series A, the primary methodology is the backsolve method under the market approach. The AICPA's Practice Aid identifies backsolve as the most reliable anchor when a qualified, arm's-length preferred financing has occurred close to the valuation date. Under AICPA guidance and IRC Section 409A Treasury Regulations, three primary approaches exist: market (backsolve and guideline public company), income (DCF), and asset. See the full 409A valuation methodology guide.

The income approach (DCF) is used as a corroborating check, not the primary method. ExampleCo's cash flows are negative and highly uncertain, limiting a standalone DCF but leaving it useful as a reasonableness cross-check. The asset approach is not applicable — ExampleCo is a going concern whose intangible value far exceeds book assets.

Guideline public company multiples serve as a secondary check. For a SaaS startup at 140% growth and 78% gross margins, the appraiser identifies 10–12 comparable public companies producing revenue multiples of roughly 7x–14x forward ARR, validating the backsolve-implied enterprise value.

How Does the Backsolve Method Determine Enterprise Value?

The backsolve method iterates on total enterprise value until the OPM produces a Series A preferred per-share value equal to the $4.25 investors actually paid — anchoring the entire analysis to observable market evidence rather than forecasts. The allocation model used is the Option Pricing Model (OPM), which treats each share class as a call option on equity value at a future liquidity event. For a full OPM walkthrough, see our article on the Option Pricing Model (OPM) for 409A.

What OPM Inputs Does ExampleCo Use?

The OPM requires four core inputs beyond the capital structure: time to liquidity, volatility, risk-free rate, and a starting equity value. The backsolve procedure iterates on equity value until the Series A implied per-share result matches $4.25.

Running the backsolve with these inputs produces a total equity value of approximately $58.7 million as of February 1, 2026. (The backsolve value is slightly lower than the nominal $60 million post-money because the OPM explicitly values the liquidation preference of the preferred classes, which a simple price-times-shares calculation ignores.) This backsolved equity value becomes the basis for allocating value to each share class in Step 4.

How Does the OPM Allocate Value to Common Stock?

The OPM allocates the $58.7 million equity value across share classes by identifying “breakpoints” — the equity thresholds at which payoffs to each class change. Common stock only begins receiving value once preferred liquidation preferences are fully covered.

For ExampleCo, the OPM identifies four breakpoints:

1. $0 to $15.0 million -- Series A preferred liquidation preference ($15M at 1x non-participating). Between zero and $15M, only Series A holders receive value.
2. $15.0 million to $18.0 million -- Seed preferred liquidation preference ($3M at 1x non-participating). Between $15M and $18M, Seed preferred receives its preference.
3. $18.0 million to ~$39.8 million -- Common stock and options begin to receive value once preferred preferences are satisfied. Within this band, common and options share value pro rata with any unconverted preferred electing to take the preference instead of converting.
4. Above ~$39.8 million -- Preferred classes convert to common on a fully diluted basis; all shares share equally per share.

The OPM treats each breakpoint band as a tranche of a call option on total equity value, using Black-Scholes to price each tranche given the volatility, time to liquidity, and risk-free rate inputs. The value of each share class is the sum of its probability-weighted claims on each tranche.

What Are the OPM Allocation Results for ExampleCo?

Running the OPM with ExampleCo's inputs produces the following pre-discount allocation (amounts rounded):

(The allocated values sum to ~$31.7M rather than $58.7M because the remaining ~$27M represents the value of liquidation preferences that accrue to preferred holders across scenarios. For simplicity, the table shows the allocated value flowing through to per-share prices after the OPM runs. A full 409A report would show intermediate tranches and breakpoint probabilities.)

The key output of Step 4 is a pre-DLOM common stock per-share value of approximately $0.99. Compare that to the $4.25 preferred price per share, and the common-to-preferred ratio is roughly 23% before the final discount. For a benchmark view of how this ratio varies by stage, see why your 409A is lower than preferred price.

Why Is a Discount for Lack of Marketability Applied to Common Stock?

Common stockholders in a private company cannot sell their shares on any public market — and that illiquidity is a real economic cost the DLOM captures. Transfer restrictions in bylaws and stockholder agreements reinforce this friction. The DLOM is calculated using protective put models, restricted stock studies, IPO studies, or quantitative marketability discount models (QMDM). At Series A, a combination of protective put and Finnerty methods is standard.

How Is the DLOM Calculated for ExampleCo?

The protective put model prices the cost of locking in today's value at the expected liquidity date, using Black-Scholes with the same 60% volatility and 5-year holding period. That option premium, expressed as a percentage of pre-discount value, is the indicated DLOM.

A 14% DLOM is consistent with empirical ranges for Series A-stage common stock: typical DLOMs at this stage fall between 12% and 25% depending on volatility, holding period, and any near-term liquidity events. ExampleCo sits on the lower end of that range because volatility is moderate (60%) and the holding period is 5 years, which is shorter than some seed-stage peers where 7 to 10 years is common.

What Is the Final Fair Market Value Per Common Share?

Applying the 14% DLOM to the $0.99 pre-DLOM value produces ExampleCo's concluded common stock FMV:

This $0.85 per share is the 409A fair market value that ExampleCo will use as the exercise price floor for options granted from February 1, 2026 through (at the latest) January 31, 2027 -- the 12-month safe harbor window under IRC Section 409A, assuming no material event triggers an earlier refresh.

Compared to the $4.25 preferred price, the common stock FMV in this 409A valuation example lands at approximately 20% of preferred -- a typical post-Series A ratio. For a founder-focused explanation of why, see our guide to 409A valuation for startups.

Do ExampleCo's Results Fall Within Normal Series A Benchmarks?

Yes — every ExampleCo metric sits within published 2026 Series A ranges, confirming the conclusions are defensible. The table below shows the comparison:

Every ExampleCo metric falls within a typical Series A benchmark range. If a real 409A valuation example produced, for instance, a common-to-preferred ratio of 60% at Series A with no unusual facts, that would be a red flag for aggressive common stock pricing -- the kind of issue that surfaces during M&A due diligence or an IRS audit.

What Compliance Issues Does a 409A Valuation Example Reveal?

A worked example surfaces the most common early-stage compliance pitfalls — and they rarely appear in the headline number. They sit in the assumptions and supporting schedules.

• Stale cap tables. A cap table that does not tie to the company's stock ledger and grant records produces incorrect share counts, which distort OPM breakpoints and every downstream per-share value.
• Missing or unvested option pool. Forgetting to include the unissued option pool in the fully diluted share count can overstate the common-to-preferred ratio and produce an inflated common stock FMV.
• Volatility pulled from non-comparable public companies. Using the volatility of mega-cap tech companies rather than smaller, high-growth SaaS comparables materially understates volatility and the DLOM.
• Too-short time to liquidity. Assuming a 2-year exit horizon when realistic timing is 5 to 7 years inflates the common stock value by compressing the OPM's option-like optionality.
• Ignoring liquidation preferences and participation. A participating preferred or multiple-liquidation-preference structure dramatically affects breakpoints and will leave the common stock worth less than a simple 1x non-participating structure suggests.
• No material-event check. A valuation done before the close of a priced round, followed by option grants after the round closes, loses safe harbor protection because the round is a material event requiring a refresh.

A well-constructed 409A valuation example -- and a compliant 409A report -- addresses each of these potential issues in writing, so the reasoning is reproducible and defensible under audit.

What Does This 409A Valuation Example Tell You?

A 409A valuation for a Series A startup is not a mystery box. It is a structured walk from cap table inputs through a selected methodology (usually backsolve via OPM for a recently financed Series A), through an allocation to common stock, through a DLOM, to a defensible per-share fair market value. For ExampleCo, that process produced a common stock FMV of $0.85 per share against a $4.25 preferred price -- a 20% ratio that sits comfortably inside published Series A benchmarks.

What matters for your company is not these specific numbers but the discipline behind them: a qualified appraiser applying a reasonable method to your actual data, documenting every assumption, and producing a signed report. That combination is what creates IRS safe harbor protection under IRC § 409A -- not the calculator output and not a PDF template. The fastest way to see this process applied to your own company is to upload your cap table and financials and review a draft before you pay.