Startup Funding Espresso Key Equity Terms
Key Equity Terms Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing. Equity represents the ownership stake in a startup. Here are some key terms to know about equity. Vesting -- the transfer of equity ownership from the company to the employee.\xa0\xa0 A typical vesting schedule is four years. Each month a portion of the promised equity is vested which gives the employee ownership over that portion. One-year cliff -- this term is used with vesting and indicates vesting starts after one year. Companies do this to encourage employees to stay at least a year.\xa0 Options -- a contract giving the holder the right to buy shares at a specified price later. Strike price -- this is the price the holder will pay for the options. The difference between the strike price and the market price is the gain the holder receives. Stock options -- for non-qualified stock options you\u2019ll need to pay tax on the difference between the strike price and the market price.\xa0 For incentive stock options, you\u2019ll pay capital gains tax on the gains when you sell the shares. Liquidity event -- this is an event such as selling the company or going public on the stock exchange. \xa0 It creates liquidity for the shareholders. Preference stack -- this is the order of payout to the shareholders based on term sheet clauses.\xa0 This puts some shareholders first by way of a liquidity preference.\xa0 The remaining shareholders get paid from the remaining proceeds. Consider these terms when dealing with equity negotiations at a startup. \xa0 Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding. Let\u2019s go startup something today. _______________________________________________________ For more episodes from Investor Connect, please visit the site at: \xa0 Check out our other podcasts here: \xa0 For Investors check out: \xa0 For Startups check out: \xa0 For eGuides check out: \xa0 For upcoming Events, check out \xa0\xa0 For Feedback please contact info@tencapital.group\xa0\xa0\xa0 Please , share, and leave a review. Music courtesy of .