409A Valuation Timing: When to Get One, How Often to Update, and What Triggers a New Report

Here is the short answer on when to get a 409A valuation: before your board approves the first stock option grant to anyone who pays US tax. After that, refresh it at least every 12 months, and sooner whenever something happens that could change what your common stock is worth.

That rule sounds simple. In practice, most 409A problems we see are timing problems, not valuation problems. The number was fine, but it was used on the wrong date. This guide covers the first report, the refresh cycle, the events that reset the clock, and the separate Indian deadlines that run alongside it. At MyValuation we prepare an independent 409A valuation for US startups and Indian-founded companies with US equity plans, so the calendar below is the one we build for clients.

Key Takeaways

• When to get a 409A valuation: before the board approves the first option grant to a US taxpayer, with a valuation date on or before the grant date.
  
• An independent appraisal supports grants for at most 12 months from its valuation date under Treas. Reg. §1.409A-1(b)(5)(iv)(B).
  
• The window closes early when information that may materially affect value arrives, such as a priced round, an acquisition offer or a large secondary sale.
  
• The start-up safe harbor does not apply if a change in control within 90 days or a public offering within 180 days of the grant is reasonably anticipated.
  
• Options granted on a stale value can become deferred compensation, taxed at vesting with a 20% additional federal tax and premium interest.
  
• Indian-resident employees need a separate Rule 15 merchant banker valuation dated no more than 180 days before exercise. A 409A does not replace it.
  

When Should You Get Your First 409A Valuation?

Get your first 409A valuation before the board approves your first option grant to a US taxpayer. Incorporating a company does not trigger it. Granting equity does. If you are unsure whether a Delaware entity needs a 409A at all, settle that first.

What does “date of grant” mean?

The grant date is the day the company completes the corporate action that creates the option. That means the number of shares, the minimum exercise price, the class of stock and the employee are all fixed. For most startups, that is the date of the board resolution or written consent.

Why a report dated after the board meeting protects nothing

The appraisal must be as of a date no more than 12 months before the grant. A report with a valuation date after the grant cannot support that grant. Commission the work four to six weeks before the board meeting, not the week after.

How Often Does a 409A Valuation Need to Be Updated?

A 409A valuation needs updating at least every 12 months, counted from its valuation date, and immediately after any material event. Twelve months is a ceiling set by the IRS regulations, not a schedule you are entitled to use in full.

Valuation date, report date and grant date are three different things

The clock runs from the valuation date, the date the analysis speaks to. It does not run from the date the report was signed. A report dated 31 March but delivered on 20 April expires for grant purposes on 30 March of the next year.

Typical refresh cadence by stage

• Seed and pre-revenue: once a year, plus after each priced round.
  
• Series A to C: once a year plus after every round. Many companies add a mid-year update if revenue is moving fast.
  
• Pre-exit: quarterly, because each quarter brings new information and the exit windows below start to bite.
  

What Counts as a Material Event Under IRS Guidelines?

Under the IRS regulations, a previously calculated value stops being reasonable if it fails to reflect information available afterwards that may materially affect the value of the company. The regulation itself gives two examples: the resolution of material litigation and the issuance of a patent. Funding events are the most common trigger in practice.

A three-question materiality test

1. Would a willing buyer pay a different price for common stock today because of this event?
   
2. Has the event put a new arm’s length price on any of the company’s equity?
   
3. Has it changed the likely timing or form of an exit?
   

If the answer to any question is yes, refresh before the next grant. Record the board’s reasoning either way. A short minute explaining why an event was not material is useful evidence later.

How Do the 90-Day and 180-Day Exit Windows Change Timing?

Early-stage companies often rely on the illiquid start-up presumption, which protects a good-faith written valuation by a qualified person. That presumption is not available if the company reasonably expects a change in control within 90 days, or a public offering within 180 days, after the grant.

This is why late-stage companies move to quarterly valuations. Once a sale process or IPO is realistic, every grant needs a current, independent number. An exit approach also changes how value is allocated between preferred and common stock, which is covered in our note on how a round price is allocated to common stock.

Worked Example: One Year of Grants at a Bengaluru-Founded Delaware Startup (H2)

Consider a hypothetical Bengaluru-founded SaaS company with a Delaware parent, six US employees and an Indian engineering team. All figures are illustrative.

The near miss came on 1 June. The board planned to grant at $0.42, because the January report was “valid until next January”. The signed term sheet had already made that number stale. Pausing for one month kept every grant inside the safe harbor.

How Often Is a 409A Valuation Needed for Indian-Founded Companies?

For an Indian-founded group, a 409A valuation is needed as often as anywhere else: at least every 12 months while you grant options to US taxpayers, and after every material event. What changes is that two Indian clocks run on the same calendar. First, confirm which entity in an India-US group gets valued.

• 409A (US): valuation date no more than 12 months before each grant to a US taxpayer.
  
• ESOP perquisite (India): for unlisted shares, Rule 15 of the Income-tax Rules, 2026 requires FMV certified by a SEBI-registered Category I merchant banker, as of the exercise date or a date no more than 180 days before it.
  
• FEMA pricing: any issue or transfer of shares between residents and non-residents needs pricing dated to that transaction.
  

These reports answer different questions on different dates, so one cannot stand in for another. Our guide on how Indian ESOP valuations change at grant, vesting and exercise covers the Indian side, and our team handles FEMA pricing for cross-border share transactions.

What Happens If You Grant Options on a Stale 409A?

An option priced below fair market value on its grant date loses its exemption from Section 409A. The employee is then taxed on the spread as the option vests, whether or not they exercise. Section 409A adds a 20% additional federal tax and interest at the underpayment rate plus one percentage point.

The company also loses the presumption of reasonableness, so the burden of proving the price was right moves back to you. IRS correction guidance allows some below-value exercise prices to be raised, but only within short deadlines and generally before exercise. Act quickly and take US tax advice before amending any grant.

Six 409A Timing Mistakes We See Most Often

1. Reading “12 months” as guaranteed. Any material event ends the window early.
   
2. Counting from the report date. The clock runs from the valuation date.
   
3. Granting between term sheet and close. The signed term sheet is usually the material event, not the closing.
   
4. Buying the report at incorporation. It expires before the first hire arrives.
   
5. Ignoring the 90-day and 180-day exit windows. The start-up presumption falls away just when grants matter most.
   
6. Assuming the 409A covers India. Exercises by Indian residents need their own Rule 15 report.
   

How to Build a 409A Calendar That Never Lapses

1. Record the valuation date of your current 409A and mark the date 11 months later as your refresh deadline.
   
2. Fix board grant dates for the year and work back six weeks from each one.
   
3. Add a standing agenda item: “Any material events since the last valuation date?”
   
4. Freeze grants the day a term sheet or acquisition LOI is signed.
   
5. Switch to quarterly valuations once an exit within 6 to 12 months is realistic.
   
6. Keep the documents to have ready for a refresh updated each quarter, so a new report never waits on data.
   

Conclusion: Getting Your 409A Valuation Timing Right

The answer on when to get a 409A valuation comes down to dates. Get it before the first grant to a US taxpayer, refresh it within 12 months of its valuation date, and refresh it earlier whenever a material event changes what common stock is worth.

• Time the first report to the grant, not to incorporation.
  
• Count from the valuation date and set your refresh deadline at 11 months.
  
• Freeze grants at signed term sheets and acquisition offers until a new value is in place.
  
• Run the Indian clocks in parallel: Rule 15 for exercises, FEMA pricing for cross-border share transactions.
  

Get the calendar right and the 409A stops being an annual scramble.

About the Author

Parth Shah, IBBI Registered Valuer, US CPA, FCA. Parth is an IBBI Registered Valuer (Securities or Financial Assets), a licensed US CPA and a Fellow Chartered Accountant. He leads 409A valuations for US and Indian-founded companies and the Indian ESOP and FEMA valuations that run alongside them.

Frequently Asked Questions

1. How long is a 409A valuation valid?

A 409A valuation supports option grants for up to 12 months from its valuation date. It stops being reliable earlier if a material event, such as a priced round or an acquisition offer, changes the value of the company.

2. Is a funding round always a material event?

A priced round almost always is, because it sets a new arm’s length price for the company’s equity. The signed term sheet is usually the trigger, so pause grants from that point until the new 409A is in place.

3. Do SAFEs or convertible notes trigger a new 409A?

Sometimes. A small SAFE at a cap close to the last valuation may not change common stock value. A large raise or a cap well above the last valuation usually does, so assess each one against the materiality test.

4. Can we backdate a 409A valuation?

No. The valuation date must be on or before the grant date, and the analysis can only use information available as of that date. A report prepared later cannot protect grants made before it existed.

5. Does a down round require a new 409A?

Yes. A down round or a major customer loss is material information, and the new FMV may be lower. Refreshing promptly lets new grants carry a lower exercise price, which helps retention.

6. Should we update our 409A quarterly or annually?

Annually plus after each material event suits most seed to Series C companies. Move to quarterly once a sale or IPO within 6 to 12 months is realistic, because exit timing affects both value and the start-up safe harbor.

7. Does an Indian startup with a US subsidiary need an annual 409A?

Only if it grants options to US taxpayers. If it does, the 12-month and material event rules apply in full, and the stock valued is that of the entity whose shares are granted, which may be the Indian parent.

8. Can one report cover the 409A and the Indian ESOP valuation?

No. The 409A values common stock at the grant date under US rules. The Indian ESOP perquisite needs a SEBI-registered Category I merchant banker valuation dated within 180 days before exercise under Rule 15.