Worried About Secondaries and Your 409A Valuation? Read this.

Startup leaders face a tough balancing act: building long-term value while keeping employees motivated and investors confident. One of the thorniest debates in that mix is whether to allow secondary stock sales. A single employee listing their shares can trigger panic:

• Will this affect the 409A valuation?

• Will it hurt morale or scare future investors?

• Will it throw off the cap table?

Concerns like these — especially around 409A valuations — have led many high-growth startups to block or delay secondary transactions altogether. But in 2025, that fear is increasingly outdated. As private market activity scales and mature companies normalize secondary trading, the data reveals a clearer picture: when structured carefully, these transactions rarely disrupt 409A valuations and may in fact enhance the company’s equity strategy.

This article unpacks the mechanics behind 409A valuations, dispels common misconceptions about secondary trading, and outlines how companies are using modern tools (like Simultaneous Exercise and Close) to convert perceived risks into strategic advantages.

What Really Drives Your 409A Valuation

A 409A valuation determines the fair market value (FMV) of a company’s common shares — primarily to establish the strike price for employee stock options. These valuations, conducted by independent third parties, protect employees from steep tax penalties associated with improperly priced options.

Secondary transactions — especially those involving small stakes or preferred shares — typically have minimal to no effect on 409A valuations. Valuation firms largely disregard these trades unless they involve significant volumes of common stock or reflect distressed, non-arm’s-length conditions.

When secondaries are considered, they often serve as positive signals. A steady volume of transactions above the current 409A price can indicate growing market confidence. And for most companies, IRS safe harbor provisions lock in the 409A for 12 months, meaning isolated transactions rarely trigger an off-cycle reassessment.

The Math Debunks Dilution Concerns

Many management teams fear that a rising 409A valuation will lead to greater dilution. The logic follows: a higher 409A means a higher strike price, which in turn requires granting more options to confer the same net value to employees.

However, when modeled out, the net financial outcome can remain the same across either scenario.

In a low-409A scenario, employees pay a lower strike price and the company collects less cash from the exercise. In a high-409A scenario, employees pay more, but the company also receives more cash. That capital can be used to repurchase stock at current market price in the secondary market or via a tender offer — neutralizing dilution.

In both scenarios, the value transferred to employees is identical and the overall dilution can be held constant. The fear is psychological, not economic.

Simultaneous Exercise and Close Eliminates Friction for Employees

The remaining concern often cited is the financial burden placed on employees when exercising options at a higher strike price.

Hiive addresses this through Simultaneous Exercise and Close — a process where employees execute the option exercise and stock sale as a single transaction, using part of the buyer’s purchase price to fund the exercise. This removes any need for out-of-pocket capital, mitigates risk, and makes the liquidity process seamless.

The result is a structurally identical outcome for both employees and employers, regardless of the underlying 409A valuation.

Leading Companies Have Already Embraced the Shift

If secondary sales meaningfully jeopardized 409A valuations, late-stage category leaders would restrict them entirely. But in practice, the opposite is happening.

Companies like Stripe, Anthropic, Databricks, Anduril, and others have openly embraced secondary transactions, not only through structured tender offers but by enabling ongoing liquidity via platforms like Hiive. These firms understand that providing real-time access to equity value supports retention, morale, and long-term planning.

Hiive’s Hiive50 index — which tracks the most actively traded private company stocks — offers a clear view into market pricing trends. Some companies on the index have seen rising stock prices via secondary trades; others have seen declines. In both cases, these transactions provide real-time insight into investor demand and employee sentiment — well before a formal liquidity event like an IPO or tender program.

Transparency in secondary pricing helps management teams plan more effectively. It also gives employees access to wealth on timelines that align with real life — not just company exit events.

Conclusion: 409A Concerns Shouldn’t Block Strategic Liquidity

Most secondary transactions have negligible impact on 409A valuations — particularly those involving small volumes or preferred shares. And even in the rare cases where secondary activity contributes to a valuation increase, the overall financial effect can be mitigated.

Here’s why this matters:

• Safe Harbor rules offer a 12-month buffer post-valuation, meaning isolated trades seldom trigger reassessment.

• Cash from exercised options can offset dilution via share repurchases.

• Simultaneous Exercise and Close removes friction for employees by eliminating upfront costs.

• Market-based price discovery offers transparency and early signals about demand.

Liquidity, when well-managed, sends a strong market signal. It attracts investors, retains employees, and reflects confidence in a company’s long-term trajectory.

The most forward-thinking companies are already operationalizing this mindset — using secondaries as a competitive advantage, not a liability. Their message is clear: modern equity management includes liquidity, not just cap table control.

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