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

A full 409A valuation example walks through every calculation an appraiser makes between “here is our cap table” and “here is your fair market value per common share.” This article provides that walkthrough, using a representative Series A SaaS startup -- a company we will call ExampleCo -- to illustrate how the inputs, methodology, allocation model, and discounts combine to produce a defensible common stock value under IRC Section 409A.

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.

Company Profile: Introducing ExampleCo -- A Series A SaaS Startup

Every 409A valuation example starts with the company. 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.

Step 1: Gathering the Inputs for the 409A Valuation Example

Every 409A valuation example -- and every real appraisal -- begins with the data pull. The inputs fall into four categories: the cap table, the financials, the transaction history, and the qualitative business record.

Cap table snapshot for ExampleCo

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).

Financials and qualitative inputs

In addition to the cap table, the appraiser reviews: 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.

Step 2: Selecting the Valuation Methodology

With the inputs in hand, the appraiser selects a valuation approach. Under AICPA guidance and IRC Section 409A Treasury Regulations, three primary approaches exist: the market approach (including backsolve and guideline public company methods), the income approach (discounted cash flow), and the asset approach. See our deeper treatment in the 409A valuation methodology guide.

For this 409A valuation example, the market approach -- specifically the backsolve method -- is the primary methodology, because ExampleCo has a recent, arm's-length preferred financing. The AICPA's Practice Aid on valuation of privately-held-company equity securities identifies the backsolve method as the most reliable when a qualified financing has occurred close to the valuation date with sophisticated investors pricing the round.

The income approach (DCF) is used as a corroborating check, not the primary method. ExampleCo is early enough that its cash flows are negative and highly uncertain, which limits a DCF's reliability as a standalone valuation but leaves it useful as a reasonableness check. The asset approach is not used here -- ExampleCo is a going concern and its intangible value exceeds its book asset value by orders of magnitude.

Guideline public company multiples are also reviewed as a secondary check. For a SaaS startup growing at 140% with 78% gross margins, the appraiser identifies roughly 10 to 12 publicly traded SaaS companies with comparable growth and margin profiles. These comparables provide revenue multiple ranges (here, roughly 7x to 14x forward ARR) that help validate the backsolve-implied enterprise value.

Step 3: Applying the Backsolve Method to Determine Enterprise Value

The backsolve method asks a specific question: what total enterprise value, when run through an allocation model, produces a per-share value for the Series A preferred that equals the actual $4.25 price investors paid? This is the defining step of this 409A valuation example -- and the one where the math gets concrete.

The allocation model used with the backsolve method is almost always the Option Pricing Model (OPM), which treats each share class as a call option on the company's equity value at a future liquidity event. For a complete walkthrough of the model and its Black-Scholes inputs, see our article on the Option Pricing Model (OPM) for 409A.

OPM inputs for ExampleCo

The OPM requires four core inputs in addition to the capital structure: time to liquidity, volatility, risk-free rate, and a total equity value. The backsolve procedure iterates on the total equity value until the Series A implied per-share value 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.

Step 4: Running the Option Pricing Model (OPM) Allocation

Once the total equity value is set at $58.7 million, the OPM allocates that value across share classes by identifying “breakpoints” -- the equity values at which the payoffs to each share class change. Between breakpoints, the incremental equity value accrues to specific classes based on their preferences and conversion rights.

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.

Allocation results

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.

Step 5: Applying the Discount for Lack of Marketability (DLOM)

A holder of common stock in a private company cannot simply sell their shares at the OPM-allocated price. There is no public market, no ready buyer, and often transfer restrictions in the company's bylaws or stockholders agreement. This illiquidity is real economic friction -- and the DLOM calculation captures it.

The DLOM calculation is typically done using one or more of the following methods: protective put (or “Finnerty”) models, restricted stock studies, IPO studies, or quantitative marketability discount models (QMDM). For a Series A-stage company in this 409A valuation example, a combination of protective put and Finnerty methods is common.

DLOM calculation for ExampleCo

For ExampleCo, the protective put model uses the same Black-Scholes volatility (60%) and a time horizon equal to the expected holding period (5 years). The model asks: what would it cost a common stockholder to buy a put option today that locks in the ability to sell their shares at today's value at the expected liquidity date? That option premium, expressed as a percentage of the 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.

Step 6: Calculating the Fair Market Value Per Common Share

The final step of this 409A valuation example applies the 14% DLOM to the $0.99 pre-DLOM common stock value:

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.

How This 409A Valuation Example Compares to Real-World Series A Benchmarks

Benchmarking a worked example against real-world ranges is the fastest way to test whether the conclusions are defensible. The table below compares ExampleCo's key outputs to observed 2026 Series A benchmarks.

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.

Common Issues Uncovered in a Typical 409A Valuation Example

Walking through a worked 409A valuation example surfaces the places where early-stage companies most often get into compliance trouble. These issues rarely appear in the headline number -- they sit in the assumptions and the 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.

Conclusion: What This 409A Valuation Example Tells You

A 409A valuation example 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.