When to Update Your 409A Valuation: Key Triggers Every Founder and CFO Should Know

In practice, many startups need to update their 409A valuation far more frequently —” especially during fundraising, rapid growth, or structural changes. Failing to do so can result in compliance risk, incorrect option pricing, and potential tax penalties for employees.

This guide explains when a new 409A valuation is required, what events invalidate an existing valuation, and how founders and CFOs should think about timing from a legal, financial, and operational perspective.

What Is the Validity Period of a 409A Valuation?

A 409A valuation is generally valid for up to 12 months, provided that:

• The valuation was prepared by a qualified independent appraiser
• No material events occurred that would affect the company's fair market value (FMV)

This annual refresh provides IRS safe harbor protection —” but only until a material change happens.

What Is a "Material Change" Under 409A?

A material change is any event that could reasonably affect the value of a company's common stock. If such an event occurs, the existing 409A valuation is no longer reliable, regardless of how recent it is.

For founders and CFOs, this means the real compliance question is not "Is our 409A less than 12 months old?" but rather "Has our company changed in a way that impacts valuation?"

Common Events That Trigger a New 409A Valuation

1. New Funding Rounds

Equity financing is the most common trigger for a new 409A valuation. This includes:

• Seed rounds
• Series A, B, C, and later rounds
• Priced rounds following SAFEs or convertible notes

A funding round introduces new pricing, investor terms, and market validation —” all of which directly affect the fair market value of common stock. Valuation firms often use the Option Pricing Model (OPM) to translate preferred stock pricing into common stock value.

2. SAFE and Convertible Note Activity

SAFEs and convertible notes do not always require an immediate 409A update, but material SAFE activity often does. Note that a SAFE is not a valuation —” learn more in our guide to the different types of startup valuations. Key triggers include:

• Large amounts of capital are raised
• Valuation caps or discounts significantly impact implied valuation
• SAFEs convert in connection with an equity round

3. Significant Revenue or Traction Changes

Changes in business performance can independently trigger a 409A update —” even without new financing. Examples include:

• Rapid revenue growth or decline
• Major customer wins or losses
• Achieving (or missing) key milestones
• Significant changes in runway or burn rate

For CFOs, these events often coincide with updated forecasts and board reporting, making them a natural point to reassess valuation.

4. Mergers, Acquisitions, or Strategic Transactions

If your startup:

• Receives an acquisition offer
• Enters serious M&A discussions
• Completes a merger, asset sale, or strategic partnership

Your existing 409A valuation is almost certainly no longer valid. From a compliance standpoint, M&A activity is one of the highest-risk areas for relying on an outdated valuation.

5. Secondary Transactions or Liquidity Events

Allowing founders or employees to sell shares in secondary transactions creates real market pricing data.

Once secondary activity occurs, continuing to use an older 409A valuation can be difficult to defend, especially during audits or due diligence.

6. Major Organizational or Structural Changes

Other events that may trigger a new 409A valuation include:

• Significant layoffs or rapid hiring
• Executive leadership changes
• Shifts in business model or go-to-market strategy
• International expansion or corporate restructuring

These changes often affect risk, growth expectations, and long-term value.

Why Updating Your 409A Valuation on Time Matters

Using an outdated 409A valuation can result in:

• Stock options priced below fair market value
• Loss of IRS safe harbor protection
• Employee tax penalties under Section 409A
• Incorrect stock-based compensation accounting (ASC 718)
• Increased scrutiny during fundraising, audits, or acquisition due diligence

For founders, this puts employee equity at risk. For CFOs, it creates avoidable compliance and reporting exposure. To understand why 409A valuations matter for startups, founders should prioritize compliance from day one.

409A Valuation Update Checklist for Founders and CFOs

Before issuing new stock options, ask:

• Have we raised capital since our last 409A valuation?
• Have SAFEs or convertible notes materially changed our cap table?
• Has revenue, growth, or runway shifted significantly?
• Are we in M&A or strategic discussions?
• Have we made major organizational or business model changes?

Final Thoughts: 409A Timing Is a Governance Discipline

A 409A valuation is not just an annual compliance task —” it is a snapshot of your company's economic reality at a specific moment in time.

For startup founders, timely 409A updates protect employees and equity incentives. For CFOs, they ensure accurate financial reporting, audit readiness, and strong governance.

Understanding when to update your 409A valuation —” not just how often —” is essential for scaling your startup responsibly and compliantly.

To understand how fair market value is calculated in practice, see our guide to the Option Pricing Model (OPM) used in 409A valuations.

For a complete overview of all aspects of 409A valuations, see our comprehensive 409A valuation guide for startups.