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A
Acceleration
A clause that speeds up vesting under certain conditions, typically an acquisition or termination.
Advisor Shares
Equity granted to advisors for guidance, access, or credibility. Typically 0.1% to 1%.
Anti-Dilution
A protection that adjusts an investor's ownership if the company raises money at a lower valuation.
Authorized vs. Issued Shares
Authorized shares are the maximum a company can issue. Issued shares are what's actually been given to shareholders.
C
Cap Table
The record of who owns what in a company, including founders, investors, and employees with options.
Cap Table Conversion
The process of freezing a dynamic equity split into fixed ownership percentages.
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.
Common Stock
The base class of equity held by founders and employees. Last in line during liquidation.
Contribution Tracking
A system for recording what each person puts in: time, cash, revenue, or IP.
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.
Dilution
The reduction of an owner's percentage when new shares are issued.
Discount Rate
A percentage discount SAFE or note holders receive on the price per share in the next round.
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
Earn-Out
A portion of an acquisition price paid over time, contingent on hitting performance targets.
Equal Split
A founder split where everyone gets the same percentage, typically 50/50.
Equity Multiplier
A factor applied to different types of contributions in a dynamic equity model.
Escrow
Money held by a neutral third party during a transaction to cover potential claims.
ESOP
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.
F
L
Lead Investor
The investor who sets terms, writes the largest check, and often takes a board seat.
Liquidation Preference
An investor right to get paid before common shareholders in an exit.
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
Market Rate
The hourly or annual rate someone could earn for similar work from a traditional employer.
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.
O
P
Phantom Equity
A cash bonus tied to company value that mimics equity without issuing real shares.
Pre-Money and Post-Money Valuation
Pre-money is what your company is worth before investment. Post-money includes the new capital.
Preferred Stock
A class of equity with special rights, issued to investors in priced funding rounds.
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.
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.
RSA (Restricted Stock Award)
Shares granted immediately but subject to vesting restrictions and potential forfeiture.
RSU (Restricted Stock Unit)
A promise to deliver shares at a future date when a vesting condition is met.
S
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.
Share Classes
Different categories of stock with different rights, like common vs. preferred.
Shareholder Agreement
A contract governing transfer restrictions, voting, and exit provisions between shareholders.
Stock Options
A right to buy shares later at a fixed price. Common for employee equity compensation.
Strike Price
The price per share you pay when exercising stock options.
Sweat Equity
Equity earned through work instead of cash investment.
Syndicate
A group of investors who pool capital to invest together in a startup.
V
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