What is 409A Valuation (AI-Automated)?
TL;DR
A third-party appraisal of a private company's common-stock fair market value, used to set stock-option strike prices in the US.
409A Valuation (AI-Automated): Definition & Explanation
A 409A valuation, under Section 409A of the U.S. Internal Revenue Code, is the third-party appraisal of a private company's common-stock fair market value (FMV) required to set the strike price of stock options granted to employees. Obtaining a proper 409A valuation helps avoid later tax penalties. Traditionally this meant commissioning an outside valuation firm each time, costing weeks and significant fees, but in 2026 equity-management platforms such as Carta ingest financial data, recent funding terms, and comparable-company data via AI to produce valuation reports faster and cheaper. Valuations are typically refreshed annually or upon material events (financings, major contracts). It is a U.S.-specific framework and differs from equity-compensation rules in other jurisdictions.