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Definition of 409A Valuation

A 409A valuation is a report generated by a third party that startups rely on to determine the fair market value of their stock. This is a critical report for startups granting stock options and other deferred equity compensation, as they must issue options with an exercise price that's equal to fair market value. Having a 409A valuation done by a qualified third party allows startups to take advantage of the safe harbor under Section 409A. These valuations need to be refreshed at least every 12 months, but will need to be refreshed sooner if there is a material event, e.g., if the startup raises a round of financing.

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