Definitions

• Equity: Ownership in a company
• Equity Compensation: A way for your employer to reward you with partial ownership in their company—and for you to share in the success of the company as it grows.
• Stock Options: A type of equity compensation that gives you the option to buy shares at the price listed on your equity grant. There are two types of stock options: incentive stock options (ISO) and non-qualified stock options (NSO). These mainly differ by how and when they’re taxed.
• Vesting: Vesting is a way to distribute your stock options gradually over time. Typical vesting is over 3-5 years. Once you have stayed the duration of vesting, you have earned all your stock options. If someone leaves early, a portion of options go back into the pool.
• Cliff: The date when the first part of your equity grant vests and you’ve earned your shares or the right to buy stock options.
• Stock Option Pool: A portion of shares in a company that is set aside for employees as equity compensation.
• Strike Price: (also known as “grant price” or “exercise price”) The Strike price is what it will cost to exercise your stock options, as specified on your equity grant. This is also known as an “exercise price.” Ideally, the value of the stock options increases over time. The “spread” is the difference between the Strike Price (the value at the time your option was granted) and the Fair Market Value (FMV).
• Exercising: The act of purchasing company stock at your strike price.
• Fair Market Value (FMV): The FMV is the agreed-upon value of what one share of common stock is worth as of a specific date. It’s typically determined by a 409A valuation.The FMV is how you know how much your shares are worth.
• 409a Valuation: An assessment of the fair market value of a private company’s common stock. A 409A must be performed by a qualified, independent valuation provider. For us, this is Carta and we do this annually.
• ISO (Incentive Stock options): A type of stock option that’s typically taxed only when you sell your shares.
• ISO, Qualified vs Disqualified Disposition:
  • ISO, Qualified: You must hold the shares for both: Two years from the date your ISOs were granted, and One year after exercising your ISOs. If both conditions are met, the difference between your sale price and the price you paid for the ISOs will be subject to preferential long-term capital gains tax.
  • ISO, Disqualified: If you do not meet the qualifications listed above for a qualifying disposition, the sale of your ISOs may be subject to less favorable tax treatment.
• NSO (Non-qualifying stock options): Another type of stock option. If you have NSOs, you’ll typically pay taxes both when you exercise them and when you sell the resulting shares.
• Expiration Date: Every grant will expire 10 years from the date we issue it. This means you have until that date to exercise.