Private-Company RSU Valuation: 409A vs Last Tender vs Preferred Round

A product manager at a Series E AI startup received 4,000 RSUs in 2024. The grant agreement referenced a share count, not a dollar value. The company’s 409A valuation on the grant date was $12.40. The most recent tender offer, three months earlier, had cleared at $28 per share. The Series E preferred shares had been priced at $42. Three different numbers for the same underlying share, and the product manager had no idea which one would matter when the RSUs eventually settled.

The answer is that the valuation at the time of settlement is what the IRS and the company’s payroll system care about. If the double-trigger fires on an IPO, the IPO price controls. If the trigger fires on an acquisition, the per-share merger consideration controls. The grant-date 409A, the tender price, and the preferred round price are all signals, but they are not the number that produces Box 1 compensation.

The three valuations and what each one means

409A valuation

A 409A valuation is an independent appraisal the company commissions, typically annually, to establish the fair market value of its common stock for purposes of IRC §409A. The rule under §409A requires that stock options be granted with a strike price not less than fair market value at grant. Companies use the 409A to set option strike prices. For RSUs, which have no strike price, the 409A still matters because it establishes the value of shares for tax withholding purposes if a single-trigger settlement occurred.

409A valuations are typically set below the most recent preferred round because they value common stock, not preferred, and because the appraisal firm applies discounts for lack of marketability and lack of control. A company with a $42 preferred round often has a 409A between $10 and $20 for common stock.

Last tender offer

Tender offers let existing employees sell common shares to an outside buyer, usually at a negotiated price the board approves. Tender prices sit between the 409A and the preferred round because buyers of common shares in a tender still accept illiquidity and lack of control, but the sale demonstrates willing-buyer-willing-seller pricing for the specific equity security.

Tender prices are often used as benchmarks by employees because they are publicly known within the company and because they are actual transaction data. The IRS does not use tender prices for RSU compensation reporting unless the settlement event coincides with a tender, which is rare.

Preferred round price

The most recent preferred round price is the headline number. Press coverage reports the “$X billion valuation” based on the preferred round price times the fully diluted share count. That calculation overstates the value of common stock because preferred shareholders have liquidation preferences, participation rights, and anti-dilution protection that common shareholders do not.

A simple rule of thumb: common stock is worth 20% to 50% of the preferred round price at most private companies. The 409A valuation reflects this discount explicitly.

Which valuation controls when the RSU settles

The settlement date is the day the second trigger fires and shares actually issue to the employee. On that date, the fair market value of the common stock is whatever the company’s payroll system records. For a double-trigger RSU at IPO, that value is the IPO price itself. For a double-trigger RSU at an acquisition, it is the per-share merger consideration, usually a combination of cash and acquirer stock.

The pre-settlement 409A valuations are not retroactively applied. A company whose 409A was $12.40 at grant might IPO at $42, and the W-2 income per share is $42, not $12.40.

The exception: acquisitions where consideration isn’t cash

An all-cash acquisition produces settlement at the per-share cash price, which is easy to value. An acquisition with rolled acquirer stock or with earnouts is more complicated. The value attributed to the stock component is usually the closing price of the acquirer’s stock on the day of closing. Earnouts are harder: they may not be treated as compensation until paid, which can defer recognition into later years.

Why the gap matters in grant-year planning

An employee who reads the press coverage and sees a $42 preferred round may think their 4,000 RSUs are worth $168,000 in compensation today. They are not. The RSUs are a contract right to receive shares that do not yet exist. No compensation has been recognized because the double-trigger has not fired. There is no tax owed. There is also no liquidity.

The gap between perceived value and tax value matters for three reasons.

Mortgage underwriting

Lenders treat RSUs as income for underwriting only if there is a vesting history showing consistent receipt. Private-company double-trigger RSUs that have never settled are not income to the lender. Using the press-reported preferred round value in a debt-to-income calculation is a misstatement that can complicate underwriting.

Estate planning at grant

Gifting RSUs is not available because RSUs are a contract right that does not yet settle into property. Options can sometimes be gifted; RSUs generally cannot. Even if gifting were possible, the valuation for gift-tax purposes would be the 409A-derived common stock fair market value, not the preferred round.

Divorce valuation

Divorce courts in community property states value unvested equity using methodologies that vary by state. California’s Nelson or Hug formulas allocate the vesting period between marriage and post-separation based on whether the grant was past-service or future-service. The per-share valuation used in the allocation is typically the common stock value at date of separation, which is closer to 409A than to the preferred round.

What the 409A actually sets for a pre-IPO employee

The 409A matters for three concrete situations.

Situation	Role of 409A
ISO exercise	FMV at exercise determines AMT preference
NSO exercise	FMV at exercise determines ordinary income
Single-trigger RSU settlement	FMV at settlement determines W-2 income

For double-trigger RSUs that have not yet had a liquidity event, the 409A is a reference point for the company’s own financial reporting, but it does not produce a tax event for the employee because no shares have been delivered.

The 409A refresh cycle

Companies refresh their 409A at least annually, and more often if material events occur. A financing round is a material event. A secondary tender at a different price can be a material event. A change in revenue trajectory or a major leadership change can be material events. Each refresh produces a new number, which matters for any new grants going forward but not for RSUs already issued and not yet settled.

The preferred-round-to-409A discount in practice

A 2025 sample of Series D-plus tech companies shows 409A valuations typically landing at 25% to 45% of the last preferred round price. The discount is larger early in a company’s life (more illiquidity, more risk) and compresses as the company approaches IPO. A company six months from filing its S-1 might have a 409A at 70% of preferred. A company three years from any liquidity event might have a 409A at 20% of preferred.

Company stage	Typical 409A / preferred ratio
Early Series B	15-25%
Late Series C	25-35%
Series D-E, 2-3 years to IPO	35-55%
Pre-IPO, S-1 filed	60-85%
IPO day	100% (409A irrelevant)

What this means for your decision-making

Three practical implications follow from the valuation hierarchy.

If you are considering a secondary sale through a tender offer or broker-assisted transaction on a platform, the tender price is closer to what you will receive than the preferred round or 409A. Tender buyers are sophisticated investors pricing common stock at levels that reflect expected IPO outcomes minus their required returns.

If you are planning the tax year of an IPO, do not use the preferred round price as your tax-planning basis. Use the current stock price projections or actual prices as they emerge. The gap between a $42 preferred round and an $85 IPO price (which is common for AI-era companies) is the difference between a plan that works and a plan that does not.

If you are comparing offers between a public company and a pre-IPO company, normalize the pre-IPO RSU value using a reasonable discount to the most recent preferred round. Press headlines that quote the preferred-round valuation overstate the employee-facing value of unvested RSUs.

Frequently asked

Why is the 409A so much lower than the press valuation?

The 409A values common stock, which has none of the preferences preferred shareholders enjoy. The press valuation multiplies the preferred round price by the fully diluted share count, which treats every share as equal. They are not equal. Common is worth less.

Can I sell my pre-IPO RSUs in a tender?

No. RSUs that have not settled are a contract right, not a share. Tender offers buy and sell shares. Only already-settled shares, or vested options that have been exercised, are eligible for most tender offers.

What’s the relationship between 409A and the strike price on options?

Under IRC §409A, option strike prices for NSOs must be at least the fair market value on the grant date. The 409A valuation is the defensible fair market value for this purpose. A strike below 409A creates §409A problems for the grant.

Does a down-round refresh affect my existing RSUs?

No. Your existing RSUs remain a right to receive a share. The per-share value at settlement is whatever the settlement event establishes. A down-round only matters for grants issued going forward.

If the company IPOs at a lower price than the preferred round, what happens to my taxes?

Your W-2 income at the settlement event is the IPO price times your vested shares. If that is lower than the grant-date preferred valuation, your W-2 is lower. The tax is computed on actual settlement-date value, not on what the shares could have been worth at a higher valuation.

Before you model your pre-IPO RSU tax exposure, run the scenario through the pre-IPO equity value calculator.