Financial Planning
Strike Price, 409A Value and Preferred Price Are Different Numbers
Build a dated price-reference card so an option strike, common-stock valuation and preferred financing price are not mixed together.
What you will learn
- Identify the purpose, security and date behind three different equity prices.
- Calculate a stated exercise cost without substituting preferred-stock price.
- Prepare source-linked valuation questions without appraising the company.
An option’s strike price, a common-stock valuation reference and a preferred financing price answer different questions. Record the security, purpose and date next to each number before comparing them. None, by itself, tells you what an employee can sell shares for today.
Give each price its own job
A price-reference card
| Reference | What it describes | Where to look |
|---|---|---|
| Option strike | The contractual purchase price for the specified award | Award notice and any valid adjustment |
| Common-stock valuation reference | A stated value for a specified class and date, for a defined purpose | Report and company confirmation |
| Preferred financing price | The price paid for a particular financing security and its rights | Financing documents or approved company summary |
The label “409A” is not a synonym for every corporate valuation. The relevant Treasury regulation on nonmarketable stock valuation addresses reasonable valuation methods and the information supporting them. It does not turn a report into a guaranteed liquidity price.
Work a fictional three-price comparison
Fictional inputs: a granted option covers 5,000 common shares at a $1.60 strike. A later company-confirmed common-share reference is $2.10. A preferred financing used $7.50 per preferred share. Assume no adjustment to this existing option and no current sale route.
Use the number that answers the question
| Question | Calculation or evidence | Result |
|---|---|---|
| What is the purchase amount for the full option? | 5,000 × $1.60 | $8,000, before other costs |
| What is the reference spread at $2.10? | 5,000 × ($2.10 − $1.60) | $2,500, not cash received |
| What does 5,000 × $7.50 tell us? | It multiplies common-option units by a preferred price | Not an established employee payout |
The $2,500 spread is a simple reference calculation, not a tax bill or a market value for the option. The IRS options overview explains that classification and event details matter to tax treatment. This worksheet does not determine them.
Do not infer a universal discount
Common and preferred securities can carry different rights. A financing may also occur on a different date from a valuation report. That does not justify a rule such as “common is always one-third of preferred.” Ask which rights and assumptions were evaluated, rather than supplying a ratio from another company.
Use the existing liquidation-preference lesson to understand why distribution rights can affect proceeds. Do not rebuild its waterfall by multiplying a recruiter’s headline valuation by an employee percentage.
Track dates and new information
A report date, option grant date and financing close date need not match. Nor does a newer report automatically change an older contractual strike. Record any adjustment or amendment separately instead of silently rewriting the award.
The regulation’s valuation discussion also considers later material information and limits reliance on a calculation more than 12 months old. A twelve-month reference is not permission to ignore an important intervening event. Ask the responsible team to confirm what evidence supports the intended use; do not certify a safe harbor from this checklist.
Copy the evidence card
Number and currency:
Security/class and quantity basis:
Purpose of the price:
As-of date / report or agreement version:
Who supplied or confirmed it:
Rights or terms not included:
Later event that may require review:
Question / owner / response date:The startup valuation guide remains the broader financing-conversation owner. This card prevents different kinds of prices from being swapped inside that discussion.
Bring a better question to the next meeting
Keep the permitted price card and source summaries in Finta Documents. Ask Aurora to help draft a concise clarification request, then confirm the numbers with the company’s finance and legal contacts. Finta is not valuing the shares or setting an exercise price.
Finta Field Guide. By Finta Editorial Team. Sources checked November 14, 2026. Examples are original, fictional teaching cases, not customer results or individualized legal, tax, accounting or investment advice.