Two numbers float around every late-stage private company, and the gap between them widens with secondary pricing after fundraising. In a private market marketplace, one is the 409A valuation — an IRS-required appraisal of common stock, refreshed at least annually. The other is the secondary mark — the price at which shares actually trade between investors. If you're still building foundational context on how pre-IPO investing and valuation mechanics work before interpreting pricing discrepancies, review the complete guide to pre-IPO investing. They almost never agree, and the gap is informative.
What 409A actually is
409A valuations are conducted by independent appraisers under IRS rules to set a defensible fair market value for common stock. The valuation is used to set strike prices for new option grants — and the company has every incentive to keep that strike price low so employees get cheap options without triggering immediate tax. So the 409A methodology is conservative by design: heavy weight on discounted cash flow, conservative comp multiples, and substantial discounts for marketability and minority status.
The result is that 409A typically lands at 30–70% of the most recent preferred-round price, and often well below where comparable secondary trades are happening.
What secondary marks are
Secondary marks reflect what informed buyers will pay informed sellers — and the discipline of secondary share pricing separates a real clearing price from a stale anchor. They incorporate post-409A news, the latest tender, sector momentum, and the specific demand profile for that name. There's no regulatory pressure to keep them low — quite the opposite, since sellers want fair market clearing prices.
Why the gap matters
If the 409A is $40 and the secondary trades at $80, the gap is doing real work. Some of it is the discount for marketability that 409A explicitly applies and the secondary doesn't. Some is conservative methodology vs. real-time price discovery. And some is genuine demand pressure that hasn't yet flowed through to the next 409A refresh.
For buyers, the takeaway is that the 409A is a valuation floor, not a fair value. Don't use it as your reference price for a secondary trade. Use the most recent tender, primary-round price, and comparable secondaries from a curated pre-IPO marketplace to anchor on what informed buyers are actually paying.
For sellers, the 409A is what your option strike was probably set at, but it's not what you should sell at. A common mistake is anchoring on 409A and selling at a deep discount to fair market secondary value because the holder doesn't know the difference. For the full treatment of valuation, tax, and documentation issues around a secondary sale, see our pre-IPO tax and legal handbook. For how the 409A-vs-secondary gap interacts with the underlying private company cap table — preference stack, share-class economics, and what each class is actually worth — read the cap-table walkthrough.