Glossary

A 409A valuation is a value appraisal conducted by a third party that the IRS accepts as a "fair basis" for value.

Accelerated vesting allows an employee to speed up the schedule for gaining access to their equity compensation as an incentive.

An asset backed loan is a type of loan that is collateralized by specific assets, usually resulting in a cheaper rate for the borrower.

Capital gains are the amount owed on a profit that an investor makes when an investment is sold.

A cap table is a table that shows the breakdown of a company's shareholders' equity.

Common stock is equity in a company that often has a lower value and fewer rights than preferred shares.

Dilution is something that occurs when more shares are issued, lowering your percentage of ownership in the company.

A down round is a scenario where the value of a business at a time of investment is below the value of the same business during a previous period or financing round.

Employee stock options are a facet of a compensation contract that permits the employee the option to purchase equity in the company.

Equity is ownership of assets in a company, typically denoted in shares.

An exercise window is a limited period of time that follows separation from the company in which you must exercise your options or you forfeit the right to do so.

A funding round is a formal process in which your company raises capital from external parties in exchange for equity shares of ownership.

Golden handcuffs are a common retention technique for senior executives when their company is acquired - they only receive payment for their shares if they stay at the acquiring company.

A golden parachute is a type of severance compensation paid out to company executives after termination of employment.

The grant date is the date in which a stock option or other equity-based compensation award is granted to the recipient.

An Initial Public Offering is when a stock launches through a public offering and becomes listed on an exchange.

A liquidation event occurs when the company is either acquired or becomes a public company through an IPO, direct listing, SPAC, or goes out of business.

A liquidation preference is a specific clause that dictates the payout order in the case of a corporate liquidation.

A lock up period is a a period of fixed duration that often follows a public listing in which you typically cannot sell your shares.

Long term capital gains are the tax rate for assets that have appreciated in value and have been held for over one year.

Non-qualified stock options are options that give you the right but not the obligation to purchase equity. You will be stuck paying ordinary income tax on the full bargain element.

An option pool is a collection of equity that is reserved for employees of the company.

Preferred share price is typically determined when a company raises a round - it's whatever the investors are willing to pay.

Preferred stock is similar to common stock, or equity in the company, but it is typically reserved for investors and comes with additional rights and protections often resulting in a higher value than common shares.

Pro rata rights can be given to an investor that allows them to maintain their initial level of ownership percentage during later financing rounds.

A reverse merger is when a private company acquires a public company, effectively bypassing the lengthy process of going public.

A right of first refusal is a contractual right that gives its holder the option to enter a business transaction with the owner of something, according to specified terms, before the owner is entitled to enter into that transaction with a third party.

Share class is the type of equity granted, with common typically being the lowest class of share.

Shareholders agreements established certain rights and responsibilities of founders and the board of directors.

Short-term capital gains tax is the the tax rate for assets that have appreciated in value and have been held for less than one year.

The Secured Overnight Financing Rate is a secured interbank overnight interest rate used as a benchmark rate in many types of credit transactions.

A SPAC, or Special Purpose Acquisition Company, is a special type of public company designed to acquire another company.

A stock purchase agreement is a legally binding contract between shareholders and companies that outline all of the terms and conditions related to the sale of a company's stock.

A stock split is an issuance of new shares in a company to existing shareholders in the same proportion to their current holding size.

The strike price, also known as the exercise price, the price at which an employee pays to purchase their shares. This price is typically lower than the current market price per share.

A tender offer is a bid to purchase some or all of a shareholders' stock in a private corporation. These can be extended to all employees, or a select group of individuals.

Total compensation includes all of the monetary incentives a company provides the employee with in return for work. Most often, they include your base salary, a bonus, equity, and benefits.

Transfer restrictions are a tool used by companies to prevent secondary transfers of their capital stock to maintain a tight control over the capitalization table.

A vesting cliff is the period of time before you acquire ownership rights to the equity portion of your total compensation.

A warrant is a financial instrument that allows the owner to buy a set amount of equity in a company at a predefined price on a predetermined date.