If you’re considering a role at an early-stage startup, chances are you’re being offered stock options as part of your compensation. That equity can be exciting, potentially life changing, but also extremely confusing. One of the most important questions your should be asking: What is a 409A Valuation (and how is it impacting my total compensation)?
This post breaks down what it is, why it matters, and how to use it to understand what your equity is actually worth.
What is a 409A Valuation?
A 409A valuation is an independent appraisal of the fair market value (FMV) of a private company’s common stock. It’s named after section 409A of the tax code and is required by the IRS to set the strike price for your stock options.
It’s not the valuation you read about in TechCrunch or in a standard LinkedIn post after a company raises a round. That’s the preferred share valuation (what their VCs pay). The 409A valuation is focused on what the company’s common shares are worth and that’s what employees are typically granted when joining the company.
Why It Matters to You as a Candidate
The 409A valuation determines how much you’ll pay to exercise your options. A lower 409A = a lower strike price = cheaper shares.
When you leave the company you have to come out of pocket and exercise your shares (purchase), so having this number be as low as possible is extremely important.
Say your offer includes 20,000 stock options at a $1 strike price (based on the 409A). If the company eventually sells or IPOs and shares are worth $20, that’s a potential $380,000 gain. ($20 – $1) × 20,000 shares = $380K.
Assuming you leave prior to a liquidity event, you would be spending $20k in order to purchase your shares, for the hopes of the larger return at a later date.
If the 409A was $5 instead? Your same options would cost you $100,000 to buy and be worth $300,000 net. Still meaningful, but a smaller spread and much higher initial risk.
So the 409A price at the time of your grant has a big impact on both your upside and how much capital you may need to exercise later.
How to Calculate Your Total Compensation (Including Equity)
When evaluating your offer, don’t just look at salary + bonus. Here’s how to estimate what your equity is worth:
1. Get the basics:
- Number of options you’re being offered
- The company’s total shares outstanding (to calculate your ownership %)
- The 409A valuation (this sets your strike price)
- The company’s most recent preferred valuation (to estimate potential upside)
2. Estimate value today (using 409A):
Let’s say you’re granted 20,000 options at a $1 strike price (409A), and the preferred share valuation is $8. While your common shares may not be worth that today, it gives you a directional benchmark.
3. Estimate value at exit:
Ask yourself: If the company exits at 10x today’s valuation, what’s my gain?
If your strike price is $1 and exit price is $20, that’s $19 × 20,000 = $380,000 in pre-tax potential upside.
Important: These numbers aren’t guaranteed, and exits may not happen or be way further down the line, or may be at a lower price, or you might only vest a portion of your equity. But this framework helps you compare offers and set expectations.
🧮 Want to calculate the total value of your offer? We created this free Equity Calculator.
Key Questions to Ask Before Accepting an Equity Offer
Don’t be afraid to get specific. Founders and hiring teams should expect these questions from serious candidates.
About the equity offer:
- How many total shares are outstanding? (So you can calculate your percentage ownership)
- What’s the current 409A valuation? (To understand your strike price and equity cost)
- Do you allow early exercise?
- What happens if I leave before my shares are fully vested?
- What’s the post-termination exercise window?
The company:
- When was your last fundraise, and at what valuation?
- How much runway do you have?
Future equity:
- Will I be eligible for additional grants over time?
- How is performance tied to future equity refreshers?
Final Thoughts
Equity can be a powerful part of your compensation, but you need to understand what you’re getting. The 409A valuation is your starting point for making sense of it.
Don’t be afraid to treat the job offer like a mini diligence process. It’s not just about the role, it’s about the upside, the risk, and how the team thinks about rewarding impact & transparency.
And if you’re looking for more interview advice in general, check out Interview Questions that Every Candidate Should Ask.
Resources:
Carta’s 409A Valuation Deep Dive
Understanding Post Termination Exercise Windows by Trayecto
Equity and Total Comp Calculator by WithAgility
About WithAgility
We are the Recruiters for B2B Marketing & Product teams. WithAgility provides executive search, fractional recruiting and talent consulting to the fastest growing technology companies in the world. If you’re a marketing leader looking for your next role, or a company looking for executive search or fractional recruiting help – contact us today. We look forward to working with you.