Your Series A Just Closed. Here's What Changes on Your 409A

Your round closed. Your old 409A is now unreliable.

A priced equity round is the most clear-cut material event under IRC §409A↗. The round establishes a new preferred stock price, changes your capitalization table, and provides a direct market-based anchor for the valuation. Under Treasury Reg §1.409A-1(b)(5)(iv)(B)↗, any event that materially affects the company's fair market value renders the prior valuation unreliable — even if it's less than 12 months old.

The implication is immediate: you should not grant any options using the old FMV after your round closes. The round has materially changed the company's value. Granting at the old strike price after a value-increasing event is one of the most common audit triggers in startup equity compliance.

This puts you in a compliance gap — the period between the round closing and the new 409A being issued. During this gap, you can't compliantly grant options. Every day in that gap is a day your new hire can't receive a fully compliant equity package. Traditional providers take 3–6 weeks to deliver the new valuation. That's 3–6 weeks where option grants are blocked.

What changes in the new valuation

Your new 409A will use the round as the primary valuation anchor through the backsolve method. Here's what that means in practice:

The appraiser takes the preferred stock price from your round — the price per share that investors paid — and works backward through an Option Pricing Model (OPM) that accounts for your full capital structure: common stock, preferred stock (all series), the option pool, any outstanding SAFEs or convertible notes, and warrants. The model solves for the total equity value that makes the preferred stock worth what investors paid. Common stock value falls out of that allocation, reflecting its position in the economic waterfall. (For the full mechanics, see 409A Backsolve Explained.)

Your common stock FMV will increase — that's expected. But it won't increase to the preferred price. Common stock typically values at 30–60% of the preferred price at Series A. The gap exists because of three factors:

The equity allocation. Common stock sits below preferred in the liquidation waterfall. Preferred gets its liquidation preference before common receives anything. In the OPM framework, this means common stock only captures value above the preference threshold.

The Discount for Lack of Marketability (DLOM). Your common stock can't be freely traded. The DLOM — typically 15–35% for venture-backed startups — reflects this illiquidity.

Minority interest. Common shareholders typically lack control rights (board seats, veto power, information rights) that preferred holders have.

The result: you raised at a $30M post-money valuation, but your common stock FMV might be $3.00 per share. That's not a mistake — it's how the methodology works. And it's good for your employees: a lower strike price means more upside when the company exits. (See Why Your 409A Is Always Lower Than Your VC Valuation for the full explanation.)

The timing that matters

Most startups get their post-round 409A within 30–60 days of closing. That's the industry standard. It's also 30–60 days of blocked option grants — which means delayed equity packages for new hires joining right after the round.

Best practice: have your 409A engagement lined up before the round closes. The day the round closes, submit the updated documents — final SPA, updated cap table with the new preferred class, and any side letters. The sooner the appraiser has complete closing documents, the sooner the new FMV is established.

What you need ready on closing day:

Updated cap table. Reflecting the new preferred share issuance, any option pool increase, and SAFE conversions (if applicable). Export from your cap table tool or request from counsel.

Signed financing documents. The stock purchase agreement (SPA), investor rights agreement, and any side letters. These define the preferred stock terms that drive the backsolve.

Current financials. Balance sheet and income statement as close to the closing date as possible.

If these are ready on Day 1, a 48-hour provider delivers the new 409A by Day 3. The board adopts the FMV on Day 4. Option grants resume on Day 5. Compare that to the industry-standard 30–60 day gap and the operational difference is stark.

The post-round compliance cascade

The 409A is the linchpin, but it's part of a broader post-round compliance sequence. (See The 30-Day Post-Round Compliance Checklist for Startup CFOs for the complete list.)

The sequence that matters for option grants:

1. Round closes. File amended certificate of incorporation.
2. Update cap table with new share issuances and any conversions.
3. Submit 409A documents. Obtain new valuation.
4. Board adopts new FMV and authorizes grants.
5. Issue option agreements at the new strike price.

Steps 1 and 2 involve your counsel and cap table tool. Step 3 is your 409A provider. Steps 4 and 5 require the board resolution and strike-price schedule that should come with your engagement.

Until Step 3 is complete, Steps 4 and 5 are blocked. Every day the 409A takes is a day option grants can't be issued.

Express 409A delivers post-round valuations in 48 hours from document submission. Close your round on Monday, submit docs Tuesday, have your new 409A by Thursday. No compliance gap. No delayed option grants. No frustrated new hires waiting for their equity package. Annual plan subscribers get as-needed refreshes throughout the year — so if you close another round or hit a material event mid-cycle, you're already covered.