A 409A material event is any development that could significantly impact your company’s valuation. If one occurs, your previous 409A valuation may no longer be valid—and that puts you at risk of non-compliance, tax penalties, and investor concerns.
This guide outlines what counts as a material event, how to respond, and why staying compliant with a current 409A valuation matters. Use it as a checklist, reference guide, and resource to help keep your equity strategy on track.
What Is a 409A Material Event (and Why Does It Matter)?
A 409A material event is a significant change in your business that could reasonably affect its fair market value (FMV). When this happens and your 409A valuation is not updated, the IRS no longer considers your previous 409A valuation valid—meaning any stock options issued at that strike price may be at risk.
Why it matters:
- Non-compliance could lead to immediate taxation and financial penalties for employees
- Safe harbor protection is lost, exposing the company to legal and tax scrutiny
- Fundraising and diligence efforts may be delayed due to outdated or invalid valuations
Companies are expected to obtain a new 409A valuation within 90 days of a material event to stay compliant.
The 409A Material Event Checklist: 10 Common Triggers
Use this list to help determine if your company has experienced a material event. If any apply, it’s time to get a new 409A valuation.
1. New Funding Rounds
Equity raises (Seed, Series A–D, etc.) or convertible note financing significantly affect company value.
2. Significant Revenue Growth or Loss
Major shifts from financial projections, especially sharp increases or unexpected declines in ARR.
3. Major Corporate Transactions
Mergers, acquisitions, or the sale of key assets can impact enterprise value.
4. Significant Leadership Changes
The departure or addition of key executives (CEO, CFO, founders) may signal value shifts.
5. Product Launch or Strategic Pivot
Introducing a major product or pivoting your business model could change growth projections.
6. Legal or Regulatory Events
A major lawsuit or a shift in compliance obligations may affect risk and valuation.
7. Term Sheet Signed
Even before a deal closes, signing a term sheet for a significant transaction may count as a material event.
8. Large Secondary Sales
If common stock is sold on the secondary market at a new price point, this could reset FMV expectations.
9. Milestone Hits or Misses
Key events like FDA approvals, patent awards, or failed pilots can move the valuation needle.
10. Widespread Market Fluctuations
Economic downturns or market shocks may impact private company valuations—especially for specific sectors.
Disclaimer: This list is not exhaustive. If your company experiences any material change that could affect its valuation, consider consulting a qualified 409A appraiser.
What Is Fair Market Value (FMV) and Why Does It Matter?
Fair Market Value (FMV) represents the price at which a company's common stock would trade between willing buyers and sellers. For 409A purposes, FMV is used to help determine the strike price of stock options.
If FMV is set too low, you risk IRS penalties. If it’s set too high, it may reduce employee incentive participation. That’s why an accurate, defensible valuation is critical.
Learn more:
Decision Tree: Do You Need a New 409A Valuation?
If your company has experienced the following in the last 12 months, you’ve likely experienced a material event:
- You raised a new round of funding (equity or debt)
- Revenue or expenses changed dramatically from projections
- There has been a major market or industry shift
If you answered yes to any of the above, it’s time to get a 409A valuation.
How Fidelity Private Shares Simplifies the 409A Compliance Process
Traditionally, updating your 409A valuation is a manual process. You gather cap table data, financials, board minutes, and then coordinate with a valuation firm.
Fidelity Private Shares simplifies the entire process:
- Integrated forms: Instead of emailing documents, you can respond to structured questions about financials, the team, legal matters, etc.
- Document upload: Upload all required files (e.g., cap table, charters, legal agreements) directly in-platform.
- Valuation provider integration: Fidelity Private Shares passes your materials seamlessly and securely to the provider.
What to Do After a 409A Material Event
If your company experiences a material event, it may trigger the need for a new 409A valuation. To remain compliant, companies are generally expected to secure a new valuation within 90 days of the event.
Here’s how to approach the next steps:
1. Confirm the Event Meets the Threshold
Use the checklist above to help determine whether your situation qualifies as a material event. When in doubt, it’s best to consult with legal or valuation professionals to avoid compliance risks.
2. Gather Relevant Documentation
Be prepared to provide updated information, such as:
- Your most recent cap table
- Financial statements or projections
- A brief description of the triggering event
- Any relevant corporate documents (e.g., board approvals, business plans)
3. Coordinate with a Qualified Appraiser
A new 409A valuation should be conducted by an independent, qualified appraiser. This ensures defensibility and safe harbor protection in the event of an audit.
4. Maintain Internal Records
Keep a record of:
- The date and nature of the material event
- The valuation report and supporting documentation
- Board approval of the new fair market value (FMV)
Following these steps can help ensure that new equity is priced correctly and that your company remains in compliance with IRS 409A regulations.
Need a New 409A Valuation?
If you’ve experienced a material event, don’t delay. A defensible, IRS-compliant valuation is essential to protect your employees and your business.
Schedule a demo to start your 409A valuation with Fidelity Private Shares today.
FAQ: Your Top 409A Material Event Questions Answered
How does a new funding round change my company’s 409A valuation?
A new funding round sets a new price per share, often increasing the FMV and requiring an updated 409A.
What if my revenue is far better than expected?
Surpassing financial projections can increase company value and affect FMV, requiring re-evaluation.
Is it really a big deal if I miss the 90-day deadline?
Most likely. If equity is issued at an outdated strike price, the IRS may penalize employees with immediate taxation and interest.
409A valuations are conducted by a third party.
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