A seed funding round can change what your company’s common stock is worth, which matters when you grant employee stock options. For most private startups, a 409A valuation helps establish the common stock’s fair market value (FMV) so options can be granted at an exercise price that meets Section 409A requirements.
For seed-stage startups, the key 409A valuation standards are reasonable valuation methods, appropriate supporting evidence, and a valuation that reflects material information available on the grant date. A recent financing round can provide important evidence of value, but the price investors pay for preferred stock is not automatically the fair market value of common stock.
This guide covers the market benchmarks, valuation rules, and refresh decisions that matter before seed-stage option grants.
Key Takeaways
- Seed valuations are far above 2021. The median US seed pre-money was $18.4 million in Q1 2026, the latest seed dollar figure either report states, up from $16 million for 2025. The Q2 report says seed medians are more than double 2021 levels.
- Seed deal sizes slipped while later stages rose. The median seed deal fell from $3.5 million in 2025 to $3.0 million in H1 2026, while Series A rose from $14.0 million to $19.4 million.
- The AI premium is narrow at seed and wide at Series A. Seed medians were $18.7 million for AI against $18.0 million for non-AI in Q1. At Series A in H1, they were $83.0 million against $44.0 million.
- Independent appraisals carry a presumption. A qualified appraisal dated no more than 12 months before the grant is presumed reasonable.
- Stale valuations lose protection. A valuation older than 12 months, or one that ignores information that has changed, is presumptively not reasonable.
What the 2026 Seed Market Data Tells Us About Your 409A
Recent financing data can help explain the market conditions around a seed-stage 409A valuation, but it does not determine common stock value on its own. A priced round provides evidence about investor expectations and the value of preferred shares. The appraiser must also consider the company’s capital structure, the rights attached to each share class, and other relevant valuation inputs to estimate common stock’s fair market value.
The Q1 2026 PitchBook-NVCA Venture Monitor puts the median US seed pre-money valuation at $18.4 million, and the NVCA 2026 Yearbook reports a 2025 median of $16 million, which it describes as 78% above the 2021 peak. The newer Q2 2026 Venture Monitor, with data through 30 June, does not state a seed pre-money figure, so $18.4 million remains the latest seed median either report gives.
What Q2 does say is that median pre-money valuations at seed are more than double their 2021 level, and that Series A, B and C medians have grown 89.9%, 83.3% and 95% over 2021.
| Benchmark | Figure |
|---|---|
| Median seed pre-money, Q1 2026 | $18.4M |
| Median seed pre-money, full-year 2025 | $16M |
| Median seed deal value, 2025 to H1 2026 | $3.5M to $3.0M |
| Median Series A pre-money, 2025 to H1 2026 | $48.5M to $64.0M |
| Median Series A deal value, 2025 to H1 2026 | $14.0M to $19.4M |
| Median seed pre-money, AI vs non-AI, Q1 2026 | $18.7M vs $18.0M |
| Median Series A pre-money, AI vs non-AI, H1 2026 | $83.0M vs $44.0M |
US seed and Series A medians for the period shown. Medians cover all US deals and will not match any single company.
For 409A planning, two findings stand out. First, the AI premium at seed is limited in the Q1 data, $18.7 million against $18.0 million, but it is wide at Series A, where H1 medians were $83.0 million for AI companies and $44.0 million for the rest. Second, seed is the exception to rising deal sizes. The median seed deal fell from $3.5 million in 2025 to $3.0 million in H1 2026, while Series A rose from $14.0 million to $19.4 million and Series B from $30.0 million to $40.0 million.
Series A median pre-money and median deal value by stage, 2025 versus H1 2026. Data: Q2 2026 Venture Monitor.
The Q2 report records $412.7 billion of H1 2026 deal value, already nearly 30% above the full-year 2025 figure, with megadeals taking 87.5% and AI taking 86%. Rounds under $100 million drew $51.4 billion, a 12.5% share of value against 33.1% in 2025 and 43.8% in 2024. Concentration means medians show the normal deal, not the typical company. The research also argues a few big withdrawals don’t form a re-opened liquidity market, and that liquidity remains constrained. That is the condition that makes the marketability discounts significant, to which we return below.
Share of US venture deal value from rounds under $100 million. Data: Q2 2026 Venture Monitor.
How Section 409A Applies to Private-Company Stock Options
Section 409A of the Internal Revenue Code (statute text at Cornell LII) governs deferred compensation. Stock options escape it only when the exercise price is at least the fair market value of the underlying stock on the grant date, as WilmerHale explains in its 2007 summary of the final regulations. A private company has no market price, so the rule asks for a value reached through the reasonable application of a reasonable valuation method.
KPMG separates that standard into two tests. The method must be reasonable for the specific stock being valued, and the way it is applied must be reasonable as well. A sound method applied carelessly fails, and so does a weak method that happens to land on a sensible number.
Section 409A’s regulations provide three valuation safe harbors for certain privately held company stock. When a valuation meets the requirements of an applicable safe harbor, it benefits from a presumption of reasonableness, which changes the burden of proof if the valuation is challenged.
The independent appraisal safe harbor is commonly used by startups. Other safe harbors are subject to specific eligibility and documentation requirements, so a company should confirm that it qualifies before relying on them.
| Safe harbor | What it involves | Our read for seed-stage companies |
|---|---|---|
| Independent appraisal | Valuation by a qualified independent appraiser as of a date no more than 12 months before the grant | The practical default. It gives you one dated, documented report to point to, and the 12-month clock is easy to track. |
| Illiquid startup | A method available to certain early-stage companies, with conditions that counsel should confirm | A narrower route. We would only rely on it with counsel confirming that every condition is met. |
| Formula | A formula that is also used for non-compensatory purposes | Uncommon at seed, because it only works if the formula already serves other purposes in the company. |
Most seed companies rely on the independent appraisal, which is the cleanest to document. The other two routes carry conditions of their own, so involve counsel before depending on them.
How Seed-Stage Companies Are Valued
Seed-stage startups often do not have enough financial history to make reliable income predictions. When a company has recently completed a priced funding round, an appraiser may work backward to estimate its equity value based on the price paid for preferred stock.
The value is then allocated among share classes based on their rights and preferences. An option pricing model may help account for features such as liquidation preferences, which can make common-stock FMV lower than the preferred-share price.
The method depends on the company’s capital structure and available evidence. SAFEs and convertible notes also need to be considered because their conversion terms can affect the analysis. Founders should ask their appraiser how they handle these instruments and how the report supports their conclusions.
As the Q2 2026 Venture Monitor notes, a round’s headline post-money valuation does not mean every share class has the same value.
Understanding Marketability Discounts and the DLOM Debate
Private company common stock is hard to sell. Appraisers reflect that with a discount for lack of marketability, known as a DLOM. A discount for lack of marketability (DLOM) reflects the difficulty of selling privately held shares compared with publicly traded stock. Its size depends on the valuation facts, the method used, and the assumptions supported by the evidence.
The cited S&P Global Market Intelligence paper discusses DLOM estimates and the debate over applying an additional discount after a backsolve. Its findings should be presented as research context, not as a required percentage range for every seed-stage 409A valuation.
The same paper takes up a live debate: whether to apply an extra, incremental discount to common stock after a backsolve, given that the round price may already reflect some illiquidity. It also explains how the concept differs between 409A work and other valuation contexts. Appraisers do not all agree, so ask yours which approach they take and why.
When Should a Seed-Stage Startup Update Its 409A?
Time is the easy trigger. The independent appraisal presumption covers a valuation dated no more than 12 months before the grant, according to WilmerHale. The harder trigger is information. Holland & Hart states that a valuation older than 12 months, or one that ignores information that has changed since it was prepared, is presumptively not reasonable.
| Trigger | Why it matters | Basis |
|---|---|---|
| Twelve months pass | The appraisal presumption covers valuations no more than 12 months old | WilmerHale |
| Material information changes | A valuation that ignores changed information is presumptively not reasonable | Holland & Hart |
| New priced round or convertible financing | New pricing is information that can change the value of common stock | Common practice |
| Acquisition offer or term sheet | A credible offer is information about value that the old report lacks | Common practice |
Note: Refresh triggers. The regulations do not list specific events, so the last two rows reflect practice rather than a rule.
For a seed company, the practical sequence is simple. Close the round, refresh the valuation, then grant. Granting options at a pre-round strike price after the round has closed is the most common way young companies end up outside the presumption.
Five Checks to Make Before Granting Stock Options
Before approving your next option grant, run through these five checks to make sure your valuation supports the decision.
- Is your 409A valuation in place? Obtain an independent appraisal before granting options that rely on the usual Section 409A exemption. Use it to support the fair market value (FMV) of your common stock and the proposed exercise price.
- Is the valuation still appropriate for the grant date? Record the valuation date and check how much time has passed. An independent appraisal may qualify for the relevant safe harbor when its valuation date is no more than 12 months before the grant, provided the other requirements are met.
- Has anything changed since your last valuation? A new funding round, acquisition offer, or major change in the business may affect your common-stock value. Review what has changed before using the existing valuation for new option grants.
- Does your valuation reflect your company’s securities? If your company has SAFEs, convertible notes, or preferred stock, ask your appraiser how these affect the value of common shares. If the report includes a discount for lack of marketability (DLOM), ask how the discount was determined and what supports it.
- Can you trace the exercise price back to the valuation and approval? Keep the valuation report with the relevant board or authorized-body approval and grant documentation. Make sure the records show how the exercise price was determined and when the grant was approved.
Before you grant: If any answer raises a question, resolve it with your valuation provider and legal or tax advisers before proceeding.
Seed-Stage 409A Valuation FAQs
Even with the benchmarks and rules covered above, a few practical questions keep coming up when companies set their first strike price. Here are clear answers where they apply.
The option’s exercise price must be at least the common stock’s fair market value on the grant date. That value must come from a reasonable method that considers all material information. An independent appraisal dated within 12 months of the grant is presumed reasonable. This is the safe harbor most startups use. The illiquid-startup and formula safe harbors have strict conditions, so involve counsel before relying on them.
In practice, yes. A valuation that ignores material new information is unreasonable, and a priced round is that kind of information. Close the round, refresh the valuation, then grant.
No. Investors buy preferred stock, which has liquidation preferences and other rights. The 409A values common stock, which is usually worth less. The round price is evidence the appraiser uses, not the answer.
At most 12 months. A new round, an acquisition offer or another material change can end it sooner.
The option fails 409A. The holder is taxed on the gain as the option vests, even before exercise. They also owe a 20% additional federal tax plus premium interest. The company must report and withhold, and it is penalized if it doesn’t. Some states, such as California, add their own penalties. Confirm the details with a tax adviser.
The appraiser backs into total equity value from the latest preferred price. They then allocate it across share classes by their rights, often with an option pricing model. They account for SAFEs and notes and apply a discount for lack of marketability (DLOM). The value is usually below the preferred price.
Get your seed-stage 409A right before your next grant
Before granting stock options, a startup should check whether its 409A valuation still reflects the company’s circumstances. An independent appraisal may qualify for the safe harbor if it meets the applicable requirements and is no more than 12 months old. However, a recent appraisal may still need to be reviewed if a funding round or another significant development has changed the picture.
Before your next grant, confirm your valuation date, review any new financing or other material developments, and make sure the report supports the proposed exercise price.
Preparing your first 409A valuation or reviewing one after a financing round? Explore Eqvista’s 409A valuation services to understand how an independent appraisal can support your stock-option pricing process.
