When Does a Startup Need a New 409A Valuation?

A U.S. private startup should obtain its first 409A valuation before the board grants common-stock options, then refresh the valuation before a later grant if the appraisal is more than 12 months old or intervening information may materially affect the company’s value. Carta’s startup guidance identifies the same three operational points: before the first option issuance, after a material event, and at least every 12 months.

The decision point is the next grant date, not the date of incorporation, an employee’s start date, or an annual reminder. If the existing valuation has crossed either trigger, pause approval of new options until the company has current support for the common-stock fair market value used as the exercise price.

When to obtain the first valuation

Begin the first valuation process when the company plans its initial option grants. Work backward from the expected board approval date so the appraiser can complete the analysis, management can check the inputs, and the board can establish an exercise price using the completed report.

Do not confuse options with every issuance of equity. Founder stock purchased around incorporation, restricted stock, options, and other awards can have different tax and documentation requirements. Ask company counsel which instruments are being issued and what valuation work is required rather than treating “equity” as one category.

Use a trigger matrix before every grant batch

Pending common-stock option grants are checked against the valuation date and subsequent company events, separating grants that require a refresh.

No previous 409A valuation: obtain one before approving the first common-stock option grants.
Valuation less than 12 months old and no potentially material development: record that the date and event log were reviewed before proceeding.
Valuation nearing 12 months: start the refresh early enough to prevent a gap in planned approvals.
Valuation more than 12 months old: pause new option grants until the fair market value has been updated.
New value-relevant information: send the facts to counsel and the valuation provider before deciding whether the existing report can still support a grant.

This is more precise than saying that every report simply “expires” after one year. The Treasury regulation for nonpublic stock says a previously calculated value is not reasonable when it omits later information that may materially affect corporate value or was calculated for a date more than 12 months before the date on which it is used.

Which developments require an early review?

A material event is not limited to a priced venture round. The relevant question is whether information arising after the valuation date could materially change the facts, forecasts, transactions, or assumptions used to determine common-stock value.

Morgan Stanley’s trigger examples include financing activity, significant secondary transactions, credible M&A or IPO developments, major product or market milestones, substantial performance changes, and material balance-sheet or corporate actions. These are review signals; the details determine whether a refresh is necessary.

A major customer contract, for example, should not be treated as automatically material or immaterial. Consider its size, duration, termination rights, expected margin, concentration risk, and whether its revenue was already reflected in the forecast. Apply the same discipline to a customer loss, regulatory clearance, patent issuance, litigation resolution, revised projections, acquisition indication, or secondary sale.

Pause grants while a possible trigger is assessed

Pending option grants are removed from board approval while finance and legal prepare documents for a refreshed 409A valuation.

When a trigger appears, pause final approval of affected grants while counsel and the valuation provider review it. Hiring discussions and proposed grant sizes may continue, but the company should not lock in an exercise price based on a report whose continued reasonableness is unresolved.

List the proposed grants and their intended board approval date.
Check the valuation’s effective date against that approval date.
Ask finance, legal, fundraising, corporate-development, and executive teams what has changed since the valuation date.
Give counsel and the appraiser the underlying documents, not only management’s summary of the event.
If a refresh is advised, remove the grants from the consent or meeting agenda until the updated report is final.
Have the board establish the applicable fair market value and approve the grants using the appropriate exercise price.
Retain the report, board materials, approvals, and record of the trigger review.

Turn the rule into an equity-operations calendar

Use two controls: a date-based renewal workflow and an event-based review. Schedule renewal preparation before the 12-month boundary, then require an event check for every grant batch and for financings, secondary transactions, major contracts, forecast revisions, and strategic discussions.

Assign one owner—such as legal operations, finance, or the cap-table administrator—to maintain the valuation date, pending grant dates, renewal status, and event log. Teams handling fundraising, litigation, business development, and corporate transactions should know which developments must be escalated before the next board approval.

Prepare the refresh package

Once a refresh is required, assemble the current cap table, amended charter documents, financing instruments, recent financial statements, updated forecasts, board or investor materials, and a chronology of significant developments since the previous valuation. Include unfavorable changes as well as favorable ones so the appraiser receives a complete factual record.

During review, verify the valuation date, capitalization, securities and transaction history, financial inputs, and event chronology. Management’s role is not to select a preferred share price; it is to ensure the appraiser received accurate information and that the board and advisers can evaluate a complete report.

Set a release condition for the next grant

Before each option approval, require confirmation that the supporting valuation is no more than 12 months old and reflects all later information that may materially affect value. If either point is uncertain, keep the grants paused and ask company counsel and the valuation provider to resolve the issue. This workflow is an operating framework, not legal, tax, or valuation advice for a particular company or award.