How Much Does 409A Valuation Cost? (And the Risks of Cutting Corners)

A typical 409A valuation for an early-stage startup costs anywhere from $2,000 to $5,000, with prices going up to $10,000 to $25,000 for more mature or complex companies. But you should consider more than just the dollar value when assessing 409A valuation cost.

A 409A valuation sets the fair market value (FMV) of a private company’s common stock, or the price the stock would sell for on the open market between a willing buyer and seller. Completing a 409A valuation is a legal requirement under IRS Section 409A—and it’s essential if your company wants to issue stock options without triggering tax penalties for employees. 

For startup CFOs and founders, a defensible 409A valuation does far more than check the compliance box. It supports audit readiness, investor confidence, and equitable employee compensation. 

When done poorly—often for a lower upfront price—a 409A valuation can lead to failed audits and expensive legal consequences that far outweigh any initial savings. On the other hand, when you work with a qualified appraiser who understands startup dynamics, your valuation can stand up to intense scrutiny during audits and investor due diligence.

Let’s discuss how much a 409A valuation typically costs, what factors influence pricing, and why low-cost providers can cost you more in the long run.

What is the cost of a 409A valuation?

Most 409A valuations cost between $2,000 and $5,000. For complex pre-IPO companies, costs can rise to $10,000 to $25,000 or more.

Early-stage companies with a clean cap table and no major funding history will likely pay less, but certain elements can cause your 409A valuation cost to go up, including:

• Multiple funding rounds with varied deal terms, such as liquidation preferences or conversion rights
• Dozens or hundreds of equity stakeholders
• Complex entity structures, such as international subsidiaries or multiple share classes
• Expedited 409A service requests

These extra details require more time, more complex financial modeling, and additional analysis to ensure an accurate valuation, which increases the cost.

What you’re actually paying for

While some 409A providers promise a fast turnaround time and a low price, this may be because they cut corners on expertise, quality, or depth of analysis. Accurate 409A valuations require deep expertise and the ability to:

• Review your company’s financial statements, forecasts, and cash flow projections
• Benchmark against comparable private or public companies
• Adjust for material events like fundraising or secondary sales
• Apply accepted methodologies, such as the option pricing method (OPM) or the probability-weighted expected return method (PWERM)

Automated 409A valuation services often miss these nuances or skip these steps completely, leading to valuations that fail to meet the safe harbor requirements. This is the IRS standard that provides a presumption of reasonableness and protects your company from penalties if your valuation is later challenged.

Skipping steps and applying an automated, one-size-fits-all approach to 409A valuations exposes your company to the risk of IRS penalties, option repricing, and lost employee trust if equity grants are perceived as unfair or financially burdensome.

Hidden costs of a bad 409A valuation

If investors, employees, or auditors find inaccuracies in your valuation, the mistakes are too late to avoid. Here’s a quick look at the potential costs of a poorly performed 409A valuation.

IRS scrutiny and tax penalities

If your valuation fails to meet IRS safe harbor requirements, the IRS could challenge the option strike price. It may enforce Section 409A rules, resulting in your employees paying immediate income tax and a 20% penalty if their options are deemed to be issued below FMV.

An overvaluation can also have negative consequences for employees. If the stock price is reported too high, employees get access to fewer affordable options. You could lower the price later (referred to as option repricing), but this could cause the IRS to trigger additional taxes for option holders.

Fundraising red flags

Investors review 409A reports closely during due diligence. If they find red flags like outdated financials, inconsistent methods, or missing material events, they might delay funding or even walk away. Your company’s reputation may fall and it may become harder to find other investors to back your company.

A high-quality 409A valuation report avoids red flags like:

• Wrong or outdated financials
• Missing recent funding rounds
• Missing special terms within multiple equity classes (like liquidation preferences)
• Unrealistic or unsupported valuation methods
• Errors that fail audits and IRS checks

Employee impact

Along with potentially getting hit with additional income tax and a 20% penalty fee, an inaccurate 409A can discourage your employees from exercising their options. This leads to lower perceived value of their equity, which can negatively impact morale and reduce retention over time.

Losing employees is expensive since hiring and training new talent takes time and money. A comprehensive and accurate 409A valuation helps your equity compensation become a retention tool rather than a liability.

Delays, do-overs, and legal fees

Redoing a valuation or resolving compliance issues mid-fundraising round can stall your momentum and rack up legal bills. The longer your 409A valuation takes to pass audits and satisfy questions from investors, the more it costs your company in lost opportunities and expenses.

How to choose a 409A valuation provider

The best 409A valuation provider takes the time to understand your business, help you keep accurate records, pass audits, and show investors that your company is well-managed. Some questions to ask yourself when comparing providers include:

Do they do valuations in-house or outsource them?

Outsourced or automated 409A providers may offer low prices upfront, but they often cut corners on diligence. In-house teams with audit experience are more likely to provide you with a 409A valuation that stands up to scrutiny.

In-house valuation teams dig into your company’s data, identify risk factors, and align forecasts with actual market demand. They establish a nuanced understanding of your business that can help them spot inaccuracies and know when to ask the right questions.

What’s their audit success rate?

Experienced in-house valuation firms stand up to scrutiny. Their 409A valuation reports consistently pass rigorous audits from the IRS, SEC, and the Big Four audit firms: Deloitte, PwC, EY, and KPMG.

A firm’s audit success rate tells you the percentage of their valuations that successfully pass audits. High-performing 409A firms, including Pulley, are known for their audit success rate of 100%, and this information is typically readily available.

If you’re considering a firm without a publicly disclosed success rate, ask for the information and how many valuations the firm delivers each year. A good valuation firm should have a near-perfect or 100% success rate. If its success rate is lower or unavailable, add the potential costs of time-consuming valuation reworks, legal fees, delayed funding, and IRS penalties to valuation cost you’ve been quoted.

A reputable firm should have a near-perfect track record and be transparent about it. Anything less may cost more than it saves.

Do they offer lifetime audit support?

A top-tier valuation firm not only provides a rigorous report but also ongoing audit defense and support. They should act like your go-to source when questions arise and be a partner if and when auditors request a deeper look into your company’s valuation.

Why Pulley’s 409A valuation process is different

Instead of sending your valuation to an outside company or using a blanket, automated approach, Pulley’s valuations are fully conducted in-house by a team with deep audit experience. This includes deep understanding of IRS regulations, valuation methodologies, and the nuances of startup growth and employee stock option plans.

100% audit success rate and lifetime support

The valuations team partners closely with you to understand your business model, track every material event, benchmark your company accurately, and produce valuation reports that hold up under IRS and Big Four audits. 

Thanks to this comprehensive approach, Pulley’s 409A valuations have a 100% audit success rate. And in case a perfect pass rate isn’t enough, Pulley also provides lifetime audit defense and support.

Custom processes made for your company

While automated valuations are faster, they don’t always take your unique situation into account. Pulley is different. The valuations team gets to know you, your company, and your goals inside and out. They assess a variety of factors, including revenue, competitive positioning and unique assets, and unique investor agreements.

If you’re missing required information, the team works with you to gather it and ensure its accuracy. They won’t just point you in a direction and let you figure it out yourself. Instead, Pulley’s valuation experts use their understanding of your company, IRS requirements, and 409A methodologies to help you track down the right data.

Beyond compliance, Pulley helps your company manage equity holistically, from cap table management to ASC 718 reporting and employee education. 

Works for you, not against you

Although Carta is a popular choice for 409A reports, you’ll likely find what many of our clients who made the switch to Pulley said is true: Carta is built for legal teams, Pulley is built for CFOs and founders. 

This means everything, from our processes all the way to our platform’s navigation, is built for CFOs and founders, making it easier to find the information you need, make informed decisions about your company’s future, and focus on growing your business.

After switching to Pulley, Linear found more time to focus on scaling thanks to clearer, more efficient equity management solutions that reduced reliance on expensive outside counsel.

"Equity management becomes exponentially complex as you scale,” said Linear CEO Karri Saarinen. “We chose Pulley because they turned that complexity into simplicity—letting us focus on building our product, not managing our cap table.”

Operates on trust, not the lowest price

Outsourcing 409A valuations to a third party or even automating them also risks issues with data privacy. Carta in particular continues to grapple with significant trust issues stemming from its alleged misuse of client data.

Carta’s 409A valuations and other reports often include ambiguous annotations that make it difficult to understand what data was referenced and where. This can raise a red flag for auditors, leaving you to scramble and provide supporting documentation. 

Pulley’s 409A valuations document every assumption and data point to create a clear, easy-to-follow audit trail. And where Carta uses data from its internal client base to benchmark companies, Pulley uses verified, publicly available data that improves your valuation’s defensibility.

Invest in confidence, not just compliance

Going with the cheapest 409A provider today can become your most expensive decision down the road. A strong valuation isn’t just about passing an audit, it’s about giving your investors, employees, and board confidence in your company.

Pulley helps companies at every stage issue equity with clarity and confidence. Our in-house 409A valuation team dives deep when creating valuation reports that accurately represent your company. Schedule a demo today to see how Pulley can support you with a seamless valuation process, crystal-clear cap tables, and ongoing support.

FAQs about 409A valuation costs

Can I do a 409A valuation myself?

In most cases, you cannot do a 409A valuation yourself. For IRS safe harbor protection, a 409A valuation must be performed by a qualified independent appraiser or follow a rigorous internal methodology. Most startups don't have the expertise or documentation to meet these standards in-house.

However, there is a limited exception for very early-stage startups that allows you to do a 409A valuation through the illiquid startup appraisal method. This exception allows you to complete a 409A valuation as long as you have at least five years of relevant experience and your company meets certain criteria: 

• It’s less than 10 years old
• You don’t reasonably anticipate an IPO in the next 180 days
• You don’t anticipate an acquisition in the next 90 days
• Company stock isn’t subject to put or call rights (other than standard rights of first refusal)

This method is rarely recommended or used because of the risk and time involved. To be certain you gain safe harbor protection, it’s advised to hire a qualified, independent appraiser to do your 409A valuation.

How long does it take to get a 409A valuation?

Most 409A valuations take 5 to 10 business days, but some work faster. For example, Pulley completes most 409A valuations in as little as 3 days. 

Timelines vary depending on company complexity, data quality, and whether your provider uses automated tools or in-house experts.

Why do startups need a 409A valuation?

Startups need a 409A valuation to set the fair market value (FMV) of common stock for issuing employee stock options. Without one, you risk IRS penalties, failed audits, and compliance issues that can delay fundraising or hiring.

What are the top valuation firms in the US?

Top 409A valuation service providers include Pulley, Andersen, Scalar, and Redwood Valuation. The best firms combine audit experience, accurate benchmarking, and defensible methodologies to meet IRS and investor standards.

How often should a company update its 409A valuation?

At minimum, a company should update its 409A valuation once every 12 months—or sooner if there’s a material event like a funding round, secondary sale, or major business change. Updating your 409A keeps you compliant and ensures option grants are priced fairly.

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