Equity Glossary

A capitalization table that shows the ownership stakes of all shareholders in a company, including founders, investors, and employees with equity.

The reduction in ownership percentage that occurs when a company issues new shares, typically during funding rounds.

Stock options that qualify for special tax treatment under the Internal Revenue Code, typically offering more favorable tax consequences than NSOs.

Stock options that do not qualify for special tax treatment, resulting in ordinary income tax upon exercise.

Company shares given to employees that vest over time, typically subject to continued employment or performance conditions.

The process by which an employee earns the right to exercise stock options or receive shares over time, typically tied to continued employment.

The price at which an employee can exercise their stock options to purchase company shares.

The valuation of a company before receiving new investment or financing.

The valuation of a company after receiving new investment, calculated as pre-money valuation plus the investment amount.

The right of preferred shareholders to receive a certain amount before common shareholders in the event of a liquidation or sale.

Contractual provisions that protect investors from dilution by adjusting their ownership percentage or conversion price in certain circumstances.

A portion of company equity set aside for employee stock options and other equity compensation.

Basic ownership shares in a company that typically come with voting rights but are subordinate to preferred stock in liquidation.

A class of stock that has preferential rights over common stock, typically including liquidation preferences and anti-dilution protections.

Sequential rounds of preferred stock financing, typically representing different stages of company growth and valuation.

A form of short-term debt that converts into equity, typically during a future financing round.

An investment instrument that gives investors the right to receive equity in future financing rounds without being debt.

The maximum valuation at which a convertible security will convert to equity, protecting early investors from excessive dilution.

A financing round where the company's valuation is lower than in the previous round, often triggering anti-dilution protections.

Rights that enable majority shareholders to force minority shareholders to join in the sale of a company.

Rights that protect minority shareholders by allowing them to join a transaction when majority shareholders sell their shares.

A group of individuals elected to represent shareholders and oversee company management and major decisions.

The right of shareholders to vote on certain company matters, typically proportional to their ownership percentage.

The price an option holder must pay to purchase shares when exercising stock options.

The price that property would sell for on the open market between willing buyers and sellers.

An independent appraisal of a company's common stock value, required by the IRS for stock option pricing.

A vesting schedule where no equity vests until a specific date, after which a large portion vests all at once.

A vesting schedule where equity vests gradually over time, typically monthly or quarterly.

The speeding up of vesting schedules, often triggered by events like termination or company sale.

Vesting acceleration that occurs upon a single event, typically a change of control or company sale.

Vesting acceleration that requires two events, typically a change of control AND termination of employment.

The process of winding up a company's affairs, selling assets, and distributing proceeds to shareholders.

The order in which proceeds from a liquidity event are distributed among different classes of shareholders.