409A Valuation vs Fundraising Valuation: Key Differences

A 409A valuation and a fundraising valuation (the pre-money or post-money valuation from a VC round) are different measures of company value for different purposes. The fundraising valuation reflects what investors agreed to pay for preferred stock with liquidation preferences. The 409A valuation reflects the fair market value of common stock, which is lower due to the lack of liquidation preferences, DLOM, and different rights.

Key Takeaways

Your 409A valuation and fundraising valuation will always be different numbers

Fundraising valuations reflect the price investors paid for preferred stock with liquidation preferences

409A valuations reflect the FMV of common stock, which is worth less due to different rights

Common stock is worth less than preferred stock at the same company because it ranks last in liquidation

The ratio of 409A to fundraising valuation is typically 15%–35% for early-stage companies

Having a 409A valuation significantly lower than your fundraising valuation is normal and expected

Investors do not object to low 409A values — a lower exercise price benefits employees and makes the option pool more valuable

Why Are They Different?

Founders are often surprised to find that their 409A valuation is significantly lower than their fundraising valuation. This is not an error — it is correct and expected. They measure different things.

Fundraising Valuation: What Investors Pay For

When a VC invests at a "$10 million post-money valuation," they are paying for preferred stock. Preferred stock comes with rights that common stock does not have:

Liquidation preference — preferred investors get their money back first in any exit below the post-money valuation
Anti-dilution protection — preferred investors are protected against future down rounds
Board representation — preferred investors often get board seats
Information rights — preferred investors receive regular financial reporting
Pro-rata rights — preferred investors can maintain their percentage in future rounds

409A Valuation: What Common Stock Is Worth

The 409A values common stock — what founders, employees, and option holders own. Common stock ranks last in any liquidity event after preferred investors are paid. This lower priority means common stock is worth less than preferred stock at the same company.

The 409A also applies a Discount for Lack of Marketability (DLOM) — private company shares cannot be freely traded, so they are worth less than equivalent public company shares.

The Typical Ratio

Stage	Typical 409A / Post-Money Ratio
Pre-Seed	10%–25%
Seed	15%–35%
Series A	25%–45%
Series B	35%–55%
Series C+	50%–75%

A Pre-Seed company that raised at a $5M post-money valuation might receive a 409A FMV per share implying a $750,000 common equity value. This is normal.

Why This Is Good for Employees?

A lower 409A valuation means a lower exercise price for employee options. If the 409A values common stock at $0.10/share and the company is eventually acquired at $10/share, employees profit $9.90 per share. Investors who paid $2/share for preferred profit $8.00 per share (less liquidation preference math).

The lower the 409A relative to the fundraising valuation, the more valuable the option grant is to employees.