409A vs Preferred Price: How Investors Should Mark Common

409A vs preferred price is two jobs on one company, not two labels for one cell. A 409A is the company's independent appraisal of common-stock fair market value, used to set option strikes under IRC §409A. Last preferred is what you paid, or the last priced round. Cooley GO (last reviewed August 31, 2025) treats a 409A and a venture-capital valuation as apples and oranges. Raziel's 409A valuation for investors page is why that report is not your mark. This page is how to keep the two prices on an angel tracker without blending them into one company valuation.

This is not legal, tax, or investment advice. Raziel Holdings, Inc. does not provide it. Copy the 409A report and the stock purchase agreement you signed, not a market default.

Two numbers, two jobs

Cooley GO: startups grant options to employees, directors, consultants, and advisors. Section 409A imposes punitive additional tax when the exercise price is less than the fair market value of the underlying shares on the date the board approves the grant. Companies that grant options to U.S. taxpayers commonly obtain independent third-party valuations and use them to set that price. If the board reasonably relies on the valuation, Cooley GO says that provides a safe harbor under Section 409A. Those valuations are valid for one year unless a material corporate event renders them stale sooner.

Treasury Regulation §1.409A-1(b)(5)(i)(A): an option on service recipient stock does not provide for a deferral of compensation if the exercise price may never be less than fair market value of the underlying stock on the grant date. IRC §409A(a)(1)(B) then adds interest at the underpayment rate plus 1 percentage point, plus 20 percent of the amount included in gross income. Wilson Sonsini (retrieved August 22, 2026): the penalties apply to the employee. That tax is not a NAV instruction for the preferred you hold.

Why last preferred is a different security

Cooley GO: a 409A is an independent estimate of common-stock fair market value and will often include discounts for minority interests and lack of marketability. A venture-capital valuation is negotiated between investors and founders and sets the price per share of a new preferred series. That series typically has additional rights that make it significantly more valuable than common, including a liquidation preference that gives preferred superior downside protection. Wilson Sonsini: a lower value can be justified for common granted under option than the price outside investors pay, because those investors generally receive convertible preferred with a liquidation preference.

Treasury Regulation §1.409A-1(b)(5)(iii)(A): service recipient stock means a class of common stock for purposes of section 305. It does not include a class with any preference as to distributions other than distributions of service recipient stock and distributions in liquidation. Last preferred is the negotiated price on that senior class. It is not the 409A conclusion. Do not invent a common-to-preferred ratio. Any spread lives in the appraisal and the charter, not in a rule of thumb on the tracker.

Last preferred is cost, or the last round

On the book, last preferred does one of two jobs. Label which:

• Cost. The price per preferred share in the stock purchase agreement you signed. Shares times that price should equal cash in. Wire date. Instrument: the series the charter names.

• Last round. The preferred price per share from the most recent priced financing, even if you did not buy in. That is round terms, not a restatement of your cost.

Neither number is common-stock fair market value. Raziel's guide to startup valuation methods and the startup valuation calculator are for pre-money and post-money round math: ownership, dilution, price per preferred share. That is Cooley GO's venture-capital column, not the 409A column. If a SAFE converted, close the SAFE row and open preferred on the same cash history. The conversion price is preferred. It is still not the 409A.

The 409A cell is a document, not a mark

Treasury Regulation §1.409A-1(b)(5)(iv)(B): for stock not readily tradable, fair market value means a value determined by the reasonable application of a reasonable valuation method. Factors include recent arm's length transactions in the stock or equity interests. An independent appraisal that meets section 401(a)(28)(C), as of a date no more than 12 months before the relevant transaction (the regulation's example is an option grant), is presumed reasonable unless the IRS shows the method or its application was grossly unreasonable. A recent preferred financing can be an input. It is not the output.

Cooley GO: a low 409A does not mean a low venture valuation. If you hold common (a founder secondary, an option exercise), file the 409A on that row as the company's stated common fair market value on the valuation date. Do not treat it as a quoted NAV. If you hold preferred, attach the PDF and leave it off the cost line. Do not multiply common fair market value by your preferred share count.

Never one company valuation cell

The failure mode is a single valuation cell on the company that sometimes holds the 409A, sometimes the last preferred price, sometimes post-money. That cell then feeds IRR and MOIC as if it were a mark. Write three fields. Do not collapse them:

• Cash and cost basis. Dollars wired, date, instrument (preferred series or SAFE).

• Last preferred price. Price per share and post-money from the last priced round, labeled as round terms.

• 409A common fair market value. Valuation date, per-share common fair market value, provider name. Attach the report.

Tag both interests to the same company so exposure rolls up. Do not let the two prices overwrite each other. Company-level exposure can sum cost. Performance cannot blend a strike-price safe harbor with a preferred purchase. Raziel's startup investment tracker keeps instruments, cash dates, and documents in one book next to IRR and unrealized gains. Raziel is not a 409A valuation provider and does not set fair market value. When the next 409A arrives, update the document field. Leave last preferred where you logged it.