Startup equity glossary.

The maximum number of shares a company is legally allowed to issue, as set in its charter - typically 10 million for a Delaware C-corp at incorporation.

A capitalization table is the master record of who owns what in a company - every share, option, warrant, and convertible.

The baseline share class - held by founders and employees, last in line at exit but with full voting rights and upside.

An ownership view that assumes every option, warrant, and convertible has been exercised or converted into common stock.

Shares that have been issued and are currently held by shareholders - including founders, investors, and employees with vested stock.

The nominal legal price assigned to a share at incorporation - typically $0.0001 - used for the minimum purchase price of founder stock.

The share class issued to investors - gets paid first at exit (liquidation preference), often with anti-dilution and other protective rights.

A category of stock with distinct rights - e.g., Common, Series Seed Preferred, Series A Preferred - each tracked separately on the cap table.

Short-term debt that converts into preferred stock at the next priced round - with interest, maturity date, and conversion terms.

Tax-favored employee stock options. No regular income tax at exercise, but spread is AMT preference; long-term capital gains on sale if holding requirements met.

Stock options without the special tax treatment of ISOs. Spread is taxed as ordinary income at exercise; future appreciation is capital gains.

A promise to deliver shares to an employee on a future vesting date - taxed as ordinary income at each vesting tranche.

Simple Agreement for Future Equity - a short instrument that converts into stock at your next priced round, without debt or interest.

The right to buy a fixed number of shares at a fixed price (strike price) within a defined period, subject to vesting.

A right (not obligation) to buy stock at a specified price within a specified period - like an option, but typically issued to investors or partners.

A one-page IRS letter that elects to pay tax NOW on restricted stock - locking in tax basis at the (typically zero) value at grant.

A waiting period - typically 1 year - before any equity vests. If service ends before the cliff, the employee or founder gets nothing.

The price per share an option holder must pay to exercise - set at the 409A fair market value at the time of grant.

Provisions that speed up vesting on certain triggering events - typically an acquisition or involuntary termination.

The timeline over which equity is earned - typically 4 years with a 1-year cliff and monthly vesting thereafter.

An independent fair-market valuation of a private company's common stock, required by IRS Section 409A before issuing options.

A percentage discount a SAFE or convertible note gets on the next round's price-per-share - typically 10-25%.

The price a willing buyer would pay a willing seller in an open market - established for private company stock via 409A valuation.

Pre-money valuation plus the amount raised - the headline 'company value' after a round closes.

The value of a company BEFORE the new round's investment goes in - sets the price per share for the new investor.

The maximum effective valuation at which a SAFE or convertible note will convert - protects early investors if the next round prices high.

A clause that adjusts a preferred shareholder's conversion price downward if the company later sells stock at a lower price.

The reduction in your ownership percentage when a company issues new shares - to investors, employees, or others.

A funding round at a lower valuation than the previous one - triggers anti-dilution protection and often reflects company struggles.

The harshest anti-dilution: in a down round, the investor's conversion price drops all the way to the new, lower price.

Shares reserved for future employee stock grants - typically 10-20% of the cap, expanded at most priced rounds.

The standard term-sheet practice of expanding the option pool before a priced round closes - diluting only existing shareholders, not the new investor.

The market-standard down-round protection: an investor's price adjusts in proportion to how much cheaper stock was actually issued.

A portion of the acquisition price paid later, only if the business hits agreed milestones after the deal closes.

A slice of the purchase price held by a third party after close to cover any breaches of the seller's representations.

Purchase-price dollars the buyer keeps temporarily - similar to escrow, but held by the buyer rather than a third party.

The seller's promise to compensate the buyer for losses if the deal's representations turn out to be wrong.

A non-binding term sheet for an acquisition - it lays out price, structure, and exclusivity before the binding purchase agreement is drafted.

The amount preferred shareholders receive first at exit - typically 1× their investment, before common shareholders see a dollar.

Preferred stock that gets EITHER the liquidation preference OR pro-rata of exit proceeds - whichever is more. The founder-friendly default.

Latin for 'on equal footing' - preferred share classes that share an exit payout in proportion, with no class paid ahead of another.

A preferred stock structure where investors take their liquidation preference AND pro-rata share of remaining exit proceeds - 'double-dipping'.

A ceiling on how much participating preferred can collect - once the cap is hit, the investor stops double-dipping.

Section 1202 lets shareholders exclude up to $10M (or 10x basis) of federal gain on the sale of qualifying stock held more than 5 years.

A sale of existing shares from a current holder to a new buyer - the company gets no new money; the seller gets liquidity.

A post-close true-up that nudges the purchase price up or down based on the actual working capital delivered at closing versus a target.

A clause that forces minority shareholders to sell their stock if a majority votes to sell the company.

An investor's contractual right to regular financials and updates - typically annual and quarterly statements plus a budget.

A SAFE/note provision that lets early investors automatically inherit better terms if later investors get them.

A provision that penalizes existing investors who don't participate in a future round - usually by converting their preferred to common.

An investor's right to participate in future rounds to maintain their ownership percentage.

An investor's right to force the company to buy back their shares after a set period if there's been no exit.

Gives the company (and sometimes other shareholders) the first chance to buy stock a shareholder wants to sell - before any outside buyer.

Lets minority shareholders 'tag along' on a sale of stock by major shareholders - they sell pro-rata under the same terms.

A parallel tax calculation that recaptures benefits from preferences like ISO exercises - often triggers six-figure tax bills with no cash.

Profit from selling an asset for more than your cost basis - taxed at preferential rates if held more than 1 year (long-term).

Income taxed at standard graduated rates - including salary, NSO exercise spread, and RSU vests.

Interim financing - usually SAFEs or convertible notes - that carries a company from one priced round to the next.

The investor's verification process - financial, legal, commercial, technical - that happens between term-sheet and close.

An exclusivity promise not to solicit or negotiate other offers for a set window after signing a term sheet or LOI.

A restructuring of the cap table - often in a distressed round - that resets ownership, preferences, and sometimes wipes prior equity.

Early-stage financing - typically $500K-$5M - to validate product-market fit and reach early revenue milestones.

The first priced equity round - typically $5M-$20M - to scale a validated business model toward repeatable growth.

A non-binding summary of the key economic and control terms of a proposed investment - preceding the formal definitive documents.