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A
Acceleration
A clause that speeds up vesting under certain conditions, typically an acquisition or termination.
Anti-Dilution
A protection that adjusts an investor's ownership if the company raises money at a lower valuation.
Advisor Shares
Equity granted to advisors for guidance, access, or credibility. Typically 0.1% to 1%.
Authorized Shares vs. Issued Shares
Authorized shares are the maximum a company can issue. Issued shares are what's actually been given to shareholders.
B
C
Cap Table Conversion
The process of freezing a dynamic equity split into fixed ownership percentages.
Cap Table
The record of who owns what in a company, including founders, investors, and employees with options.
Common Stock
The base class of equity held by founders and employees. Last in line during liquidation.
Clawback
A provision allowing the company to reclaim previously distributed equity under certain conditions.
Cliff
A vesting rule requiring someone to stay a minimum time before earning any equity.
Contribution Tracking
A system for recording what each person puts in: time, cash, revenue, or IP.
Community Property
A legal regime in some US states where assets acquired during marriage are owned equally by both spouses.
Convertible Note
A short-term debt instrument that converts into equity at a future financing round.
D
Dead Equity
Equity owned by someone who no longer contributes meaningful value to the company.
Discount Rate
A percentage discount SAFE or note holders receive on the price per share in the next round.
Dilution
The reduction of an owner's percentage when new shares are issued.
Down Round
A funding round at a lower valuation than the previous round.
Drag-Along and Tag-Along Rights
Rights that protect majority and minority shareholders in exit scenarios.
Due Diligence
The investigation an investor performs before committing capital.
Dynamic Equity
A method for splitting ownership based on real contributions over time, not guesses upfront.
E
Equity Multiplier
A factor applied to different types of contributions in a dynamic equity model.
Equal Split
A founder split where everyone gets the same percentage, typically 50/50.
Earn-Out
A portion of an acquisition price paid over time, contingent on hitting performance targets.
ESOP (Employee Stock Ownership Plan)
Employee Stock Ownership Plan. A retirement benefit that gives employees ownership through a trust.
Exercise
The act of using stock options to buy shares at the strike price.
Escrow
Money held by a neutral third party during a transaction to cover potential claims.
F
L
Liquidation Preference
An investor right to get paid before common shareholders in an exit.
Lead Investor
The investor who sets terms, writes the largest check, and often takes a board seat.
Liquidity Event
A moment when ownership can turn into cash, such as an acquisition or IPO.
Lock-Up Period
A period after an IPO during which insiders cannot sell their shares.
M
Membership Units (LLC)
The LLC equivalent of shares. Ownership is divided into units rather than stock.
MFN (Most Favored Nation) Clause
A SAFE provision letting the investor adopt better terms if better SAFEs are issued later.
Market Rate
The hourly or annual rate someone could earn for similar work from a traditional employer.
O
P
Phantom Equity
A cash bonus tied to company value that mimics equity without issuing real shares.
Preferred Stock
A class of equity with special rights, issued to investors in priced funding rounds.
Pre-Money and Post-Money Valuation
Pre-money is what your company is worth before investment. Post-money includes the new capital.
Priced Round
A fundraising round where shares are sold at a specific price per share.
Pro-Rata Rights
An investor's right to participate in future rounds to maintain their ownership percentage.
Profit Interest (LLC)
An LLC equity instrument giving the holder a share of future profits and appreciation.
Profit-Sharing
An income arrangement where someone receives a percentage of profits without owning equity in the business.
Protected Equity
A fixed ownership percentage that stays constant regardless of new contributions in a dynamic model.
R
Restricted Stock
Shares issued now but subject to vesting or repurchase if someone leaves.
Right of First Refusal (ROFR)
A provision giving the company or existing shareholders first opportunity to buy shares before outside sale.
RSU (Restricted Stock Unit)
A promise to deliver shares at a future date when a vesting condition is met.
RSA (Restricted Stock Award)
Shares granted immediately but subject to vesting restrictions and potential forfeiture.
S
Shareholder Agreement
A contract governing transfer restrictions, voting, and exit provisions between shareholders.
Share Classes
Different categories of stock with different rights, like common vs. preferred.
SAFE (Simple Agreement for Future Equity)
A contractual right to receive equity in the future. Created by Y Combinator in 2013.
Secondary Market
A platform for buying and selling shares in private companies before an IPO or acquisition.
Series A / B / C Funding
Sequential rounds of venture capital. Each creates a new class of preferred stock.
Strike Price
The price per share you pay when exercising stock options.
Sweat Equity
Equity earned through work instead of cash investment.
Stock Options
A right to buy shares later at a fixed price. Common for employee equity compensation.
Syndicate
A group of investors who pool capital to invest together in a startup.
V
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