40+ startup equity terms defined

Independent appraisal of common stock fair market value used to set strike price on options. Refreshed annually or after material events.

An IRS filing made within 30 days of receiving restricted stock that taxes the recipient at the grant date FMV instead of as the stock vests. Critical for founders and early employees with restricted shares.

Parallel federal tax that applies when ISO exercises create a large spread between strike price and current FMV. Can produce a tax bill in the year of exercise even without selling shares.

Provisions that adjust early investor conversion prices in a down round, issuing them more shares at the founders' expense. Full ratchet and weighted-average are the two main flavors.

Total currently issued shares (common and preferred). Excludes options, SAFEs, and convertibles.

The maximum company valuation at which a SAFE or convertible note converts into equity. Lower caps mean more dilution.

The capitalisation table; the master record of every shareholder, share class, share count, and percentage ownership.

Initial period of vesting (typically one year) during which no shares vest. After the cliff, vesting begins, often retroactively.

Standard ownership class held by founders and early employees. Lower priority than preferred in liquidation events.

The effective per-share price at which a SAFE, note, or preferred share converts into common stock.

Debt that converts to equity at a qualified financing. Carries interest and a maturity date, unlike a SAFE.

A priced round at a lower per-share price than the previous round.

Provision letting majority shareholders force minority to sell their shares in an acquisition.

The price at which an option holder can buy shares; set at the 409A FMV at grant date.

The price a willing buyer and willing seller would agree on. For startup common stock, set by the 409A valuation.

Total share count assuming all options vest and all convertibles convert. The denominator that matters for ownership.

Anti-dilution variant that drops protected investor conversion price all the way to the new round price.

Tax-advantaged option grant available to US employees. Triggers AMT on exercise spread.

How much preferred shareholders get back before common holders see anything in an exit. Often 1x non-participating.

Most Favored Nation: SAFE-holder right to elect the better terms of any later SAFE.

Option grant taxed as ordinary income on exercise spread. Standard for contractors and non-employees.

Reserved shares for employee grants. Sized as a percentage of post-money fully diluted; typically placed pre-money.

Preferred stock that takes its liquidation preference and then participates pro-rata with common in remaining proceeds.

Provision requiring existing investors to participate in subsequent rounds or lose preferred share rights including anti-dilution.

Valuation after the new round closes (pre-money plus raise).

Valuation before the new round closes.

Investor share class with priority in liquidation, usually anti-dilution rights, and often board representation.

Investor right to participate in future rounds at their existing ownership percentage.

Simple Agreement for Future Equity. YC-pioneered convertible instrument that converts at a future priced round.

Sequential priced equity rounds, each typically a new preferred stock class with its own rights.

The price at which an option holder can buy shares; equals FMV at grant per 409A.

Minority shareholder right to join a majority sale on equal terms.

Mechanism by which equity grants become fully owned over time, typically 4-year vest with 1-year cliff.

Right to buy shares at a fixed price, often issued to advisors, lenders, or strategic partners.

Less punitive anti-dilution variant using a formula that accounts for new round size. Broad-based is the market standard.