An independent third-party appraisal of a private company's common-stock value, refreshed at least every twelve months or after any material event, used to set legally defensible strike prices for stock options under IRS Section 409A.
When Cloudflare raised its Series D in 2015 at a higher valuation, its 409A bumped within weeks, raising the strike price for every grant signed afterwards. Companies that skip the refresh and keep granting at the old strike risk having the IRS reclassify every option as non-compliant deferred compensation, with twenty percent penalty taxes on top of ordinary income.