A stock option's strike price is not set by the company's last funding round. It is set by a 409A valuation (an independent appraisal of the fair market value of common stock, required under IRS Section 409A), and that number is almost always lower than the price investors paid for preferred stock.

The gap exists because preferred stock carries rights common stock does not: a liquidation preference (getting paid back before common holders in an exit), anti-dilution protection, and often board seats. A 409A appraiser discounts common stock accordingly, though the exact size of that discount varies by the company's stage, cash position, and how close it is to a liquidity event.

A company raising a Series B at $20 per preferred share might see its 409A land meaningfully lower, at $4 to $6 per common share, for instance.

409A valuations must be refreshed at least every 12 months, or sooner after a material event like a new funding round.

Chai Discovery, a San Francisco AI drug-design startup, raised a $400 million Series C led by Index Ventures, valuing the company at $3.8 billion, nearly triple its $1.3 billion valuation from a $130 million Series B just seven months earlier.

This is Chai's third primary financing round in under a year (a $70 million Series A, the December Series B, and now this Series C), taking total funding to roughly $630 million since the company's 2024 founding. Each round has landed alongside new commercial deals: licensing agreements with Eli Lilly, Pfizer, and Novartis for Chai's AI models, which design antibody candidates computationally rather than through lab screening.

For founders, the pace illustrates how quickly a valuation can move when commercial traction from named enterprise customers accompanies each round, compressing the interval between primary raises rather than the 18 to 24 months that typically separates rounds.

Source: Siliconangle | TheNextWeb