Private Stock Glossary: 100+ Essential Terms

An independent appraisal of a private company's common stock fair market value, required by IRS Section 409A to set the strike price for stock options. These valuations are typically conducted every 12 months or after a material event (funding round, acquisition offer, significant business change) to ensure option grants and exercises comply with tax regulations.

An individual or entity meeting SEC financial or professional criteria that qualify them to invest in unregistered securities. Requirements include $200,000+ individual income ($300,000 joint), $1,000,000+ net worth (excluding primary residence), or holding Series 7, 65, or 82 licenses. This status is required for most private stock investments.

A parallel tax system that ensures high-income taxpayers pay a minimum tax amount. For employees exercising Incentive Stock Options (ISOs), the spread between strike price and fair market value is treated as income for AMT purposes, potentially triggering substantial tax liability even though no stock was sold. AMT paid generates credits that can offset future regular tax.

Protective clauses in preferred stock agreements that adjust the conversion ratio if the company issues shares at a lower price than previous rounds (down round). Full ratchet anti-dilution adjusts to the new lower price entirely, while weighted average anti-dilution adjusts proportionally based on amount raised. These provisions protect early investors from dilution but can severely impact common stockholders.

The maximum number of shares a corporation is legally allowed to issue, as specified in the company's articles of incorporation. Companies often authorize more shares than they issue to provide flexibility for future equity grants, funding rounds, and employee stock options. Increasing authorized shares requires board and shareholder approval.

A valuation technique that works backward from a recent preferred stock financing to estimate common stock fair market value for 409A purposes. The method uses option pricing models to allocate the total enterprise value across different share classes based on their liquidation preferences, conversion rights, and other terms. This is the most common 409A valuation method for venture-backed companies.

A restricted timeframe when employees and insiders are prohibited from trading company stock, typically due to possession of material non-public information (MNPI) or during financial reporting periods. Private companies often impose blackout periods around fundraising, M&A discussions, or tender offers. Violating blackout periods can result in termination and insider trading liability.

A position on a company's board of directors, typically negotiated by major investors as part of their investment terms. Board seats provide oversight, voting rights on major decisions, and access to confidential company information. Common provisions include investor directors (VCs), independent directors, and founder/management directors.

A short-term financing round designed to provide capital between major funding rounds or while preparing for an IPO or acquisition. Bridge rounds often use convertible notes or SAFEs to delay valuation negotiations, and they typically come with warrants or discounts for the interim financing risk.

When a company repurchases its own shares from employees or investors, typically at a predetermined price. Private companies sometimes offer buyback programs or tender offers to provide liquidity to shareholders without going public. Buybacks reduce shares outstanding and can increase per-share value.

A comprehensive spreadsheet showing ownership structure of a company, including all shareholders, number of shares owned, share classes, option grants, warrants, and convertible securities. Cap tables calculate ownership percentages, dilution effects, and liquidation waterfalls. Understanding cap table dynamics is critical for evaluating the value of common stock versus preferred stock.

The share of profits that venture capital and private equity fund managers receive, typically 20% of gains above a hurdle rate. Carry aligns fund manager incentives with investor returns. It's taxed as long-term capital gains (more favorable than ordinary income) if requirements are met, though this treatment has faced legislative challenges.

A method of exercising stock options where shares are simultaneously sold to cover the exercise cost and taxes, with net proceeds delivered to the option holder. This eliminates the need for upfront cash but triggers immediate taxation and may result in short-term capital gains if shares aren't held for long-term treatment.

A minimum time period before any equity vests. Standard employee equity includes a one-year cliff, meaning no shares vest until the first anniversary, at which point 25% vests immediately. If you leave before the cliff, you forfeit all unvested shares. After the cliff, vesting typically continues monthly.

The basic form of corporate ownership, typically held by founders and employees. Common stock receives proceeds in a liquidation only after all preferred stock preferences are satisfied. Common shareholders have voting rights but fewer protections than preferred shareholders. In private companies, common stock is often worth significantly less than preferred stock due to liquidation preferences and other rights.

A debt instrument that converts into equity (typically preferred stock) at a future financing round. Convertible notes include a valuation cap (maximum conversion valuation), discount rate (typically 10-25%), interest rate, and maturity date. They allow companies to raise capital quickly without setting a valuation immediately.

Contractual rights allowing minority shareholders to join ("tag along") when majority shareholders sell their stake. If founders or major investors sell to a third party, co-sale rights enable other shareholders to sell their shares on the same terms, preventing majority holders from getting preferential treatment.

The amount you paid for stock plus any amounts previously taxed as ordinary income, used to calculate capital gains when selling. For NSOs, basis equals exercise price plus the spread taxed at exercise. For ISOs with qualifying disposition, basis equals exercise price. Accurate cost basis documentation is critical for tax reporting.

The reduction in ownership percentage that occurs when a company issues new shares. Dilution affects all existing shareholders proportionally unless they have anti-dilution protection or participate pro-rata in new rounds. While ownership percentage decreases, the total value can increase if the company raises at a higher valuation.

An alternative to traditional IPO where existing shares are listed on an exchange without raising new capital or using underwriters. Direct listings allow employees and early investors to sell immediately without lockup periods. Companies like Spotify, Coinbase, and Slack used direct listings to go public.

The sale of ISO shares before meeting required holding periods (2 years from grant AND 1 year from exercise), which converts the favorable ISO tax treatment into partial ordinary income taxation. The spread at exercise becomes ordinary income, and any additional gain is capital gain (short-term or long-term depending on holding period from exercise).

Vesting acceleration that requires two events: (1) change of control (acquisition/IPO), AND (2) termination without cause or resignation for good reason within a specified period (often 12-18 months post-acquisition). This protects employees from losing unvested equity if they're terminated after acquisition while preventing windfalls if employees voluntarily leave.

A financing round at a lower valuation than the previous round, indicating company underperformance or difficult market conditions. Down rounds trigger anti-dilution provisions that protect existing preferred investors but severely dilute common shareholders and employee option holders.

Rights allowing majority shareholders to force minority shareholders to join in a sale of the company. If holders of a specified percentage (typically 50%+ of preferred stock) approve a sale, all other shareholders must sell on the same terms. This prevents small shareholders from blocking acquisitions.

Unallocated capital that venture capital or private equity firms have raised but not yet invested. High dry powder levels indicate significant available capital for investment in private companies. As of 2026, private markets hold approximately $2.5 trillion in dry powder globally.

Comprehensive investigation and analysis of a company before investing, including review of financials, legal documents, intellectual property, contracts, cap table, management team, market position, and risks. For private stock purchases, due diligence is critical since public disclosure requirements don't apply.

The ability to exercise stock options before they vest, typically available only at early-stage companies. Early exercise allows employees to start the capital gains holding period sooner and potentially qualify for QSBS treatment. Shares purchased via early exercise remain subject to company repurchase rights if you leave before vesting.

A program allowing employees to purchase company stock at a discount (typically 15%) through payroll deductions. Qualified ESPPs offer tax advantages if holding period requirements are met. More common at public companies, but some late-stage private companies offer ESPPs with liquidity provisions.

Compensation in the form of company ownership rather than cash, including stock options (ISOs and NSOs), restricted stock units (RSUs), restricted stock, and stock appreciation rights (SARs). Equity compensation aligns employee incentives with company success and is essential for startups with limited cash.

When a parent company sells a minority stake in a subsidiary through an IPO while retaining majority control. This provides capital and establishes a public market valuation for the subsidiary while maintaining strategic control.

The price per share at which a stock option can be exercised (purchased). The exercise price is set at grant and must equal or exceed the fair market value at grant date (for ISOs and to avoid Section 409A penalties for NSOs). The spread between exercise price and current FMV determines the value of unexercised options.

A plan for how investors and shareholders will realize gains on their investment, typically through IPO, acquisition, or secondary sales. Exit strategy considerations affect company decisions around funding, growth rate, and timing. Average time to exit has increased from 4 years (1999) to 12+ years (2026).

The price at which stock would change hands between a willing buyer and seller, neither under compulsion to buy or sell, and both having reasonable knowledge of relevant facts. For private companies, FMV is typically established through 409A valuations and is critical for tax purposes when exercising options or receiving RSUs.

A person or entity with legal obligation to act in another party's best interest. Board members are fiduciaries to shareholders. Registered investment advisers are fiduciaries to clients. Fiduciary duty includes duty of care (informed decisions) and duty of loyalty (no conflicts of interest).

Additional investment in a company by existing investors in subsequent funding rounds. Most VC firms reserve capital for follow-on investments to maintain ownership percentages (pro-rata rights) or increase positions in successful companies. Failure to participate in follow-ons results in dilution.

Common stock issued to company founders at inception, typically at nominal prices ($0.0001-$0.01/share). Founder shares usually vest over 4 years to ensure founders remain committed. They represent the largest ownership stakes but are subordinate to preferred stock in liquidation.

The total number of shares outstanding if all convertible securities (options, warrants, convertible notes, convertible preferred stock) were exercised or converted. Fully diluted ownership percentages provide the most accurate picture of economic ownership and are used for most cap table calculations.

Broadly advertising or publicly promoting an investment opportunity, which is generally prohibited in Regulation D Rule 506(b) private placements. Rule 506(c) allows general solicitation but requires verification that all investors are accredited. Most secondary market platforms avoid general solicitation by requiring registration and accreditation verification before showing opportunities.

Equity compensation that creates financial incentive to remain at a company despite wanting to leave. Large unvested option grants, upcoming vesting milestones, or valuable stock in a pre-IPO company can make it financially painful to leave, effectively "handcuffing" employees to their jobs.

Investment in relatively mature, fast-growing companies that are beyond the startup phase but not yet ready for IPO. Growth equity investors typically acquire minority stakes in profitable or near-profitable companies, providing capital for expansion rather than early-stage product development. Common at Series C and later rounds.

The length of time you've owned stock, which determines whether gains are taxed as short-term (≤1 year, ordinary income rates) or long-term (>1 year, preferential rates of 0%, 15%, or 20%). For options, holding period begins day after exercise. For ISOs, qualifying disposition requires >2 years from grant AND >1 year from exercise. For QSBS, 5-year holding is required.

The minimum return that a private equity or venture capital fund must achieve before managers can collect carried interest (profit share). Common hurdle rates range from 5-8% annual returns. This ensures fund managers only profit when they exceed baseline return expectations.

Stock options with preferential tax treatment if holding period requirements are met (>2 years from grant AND >1 year from exercise). ISOs don't trigger ordinary income tax at exercise (under regular tax system), and all gain can be taxed as long-term capital gains. However, ISOs trigger Alternative Minimum Tax based on spread at exercise. Limited to $100,000 first exercisable value per year and only available to employees.

Contractual rights for investors to receive company financial statements, budgets, and other information on a regular basis. Major investors typically negotiate for quarterly financials, annual budgets, and prompt notification of material events. Information rights help investors monitor their investment but don't provide governance rights.

The first sale of a company's stock to the public, transitioning from private to public company status. IPOs provide liquidity for existing shareholders, raise capital for growth, and establish a public market valuation. The process involves SEC registration, underwriter selection, roadshow, pricing, and listing on an exchange (NYSE, NASDAQ). Average time from founding to IPO is currently 10-12 years.

Trading securities based on material non-public information (MNPI) in breach of fiduciary duty or confidence. Insider trading is illegal and carries civil and criminal penalties including fines and imprisonment. Employees, directors, investors, and anyone with access to MNPI must refrain from trading (or tipping others) until information is publicly disclosed.

Companies that have achieved significant scale, typically Series C and beyond, with proven business models, substantial revenue, and path to profitability. Late-stage companies are closer to IPO or acquisition, have higher valuations ($1B+ unicorns common), and offer lower risk but lower potential returns than early-stage investments.

The primary investor in a funding round who typically contributes the largest amount of capital, negotiates terms with the company, conducts due diligence, and sets the price. Lead investors often receive board seats and special rights. Other investors follow the lead's terms (hence "following" investors).

An event that triggers distribution of company proceeds to shareholders, typically acquisition, merger, IPO, or dissolution. Liquidation events activate liquidation preferences, determining the order and amounts shareholders receive. Understanding liquidation scenarios is critical for valuing common stock relative to preferred stock.

The amount preferred shareholders are entitled to receive before common shareholders in a liquidation event. Typically 1x invested capital, meaning preferred shareholders get their money back first. Some deals include higher multiples (2x, 3x) or participating preferred (get preference PLUS pro-rata share of remaining proceeds). Liquidation preferences can dramatically reduce common stock value in acquisitions below preferred investors' total investment.

A contractual restriction preventing insiders and early investors from selling shares for a specified period after IPO, typically 180 days (6 months). Lock-ups prevent market flooding and price collapse immediately post-IPO. After lock-up expiration, significant selling pressure often occurs as insiders gain liquidity.

Rights granted to venture capital investors (separate from board seats) that provide access to management and company information. Management rights allow VC firms to meet regulatory requirements for certain tax and pension fund exemptions. These rights typically include ability to consult with management and receive financial information but don't include voting control.

When mutual funds or other investors with publicly disclosed holdings reduce the stated value of their private company investments in quarterly reports. Markdowns signal decreased valuation expectations and can indicate company struggles or broader market repricing. Mutual fund markdowns are closely watched as valuation indicators for private unicorns.

Information about a company that is not publicly known but would be important to investors in making investment decisions. Examples include unannounced acquisitions, earnings results, major contracts, or executive departures. Trading on MNPI constitutes insider trading. Employees and investors with access to MNPI must refrain from trading until information is publicly disclosed.

Ownership stake of less than 50% of a company, lacking voting control. Most secondary market investors and employees hold minority interests with limited governance rights. Minority shareholders are generally protected by fiduciary duties, co-sale rights, and protective provisions but cannot unilaterally control company decisions.

Stock options that don't meet IRS requirements for incentive stock option treatment. NSOs trigger ordinary income tax at exercise on the spread between strike price and fair market value, with employer withholding required. The spread is added to W-2 income, and subsequent gains/losses are capital gains. NSOs can be granted to employees, contractors, directors, and advisors (unlike ISOs which are employee-only).

A provision in a term sheet or acquisition agreement prohibiting the company from soliciting or negotiating with other potential investors or acquirers for a specified period (typically 30-90 days). No-shop clauses give the lead investor exclusivity to complete due diligence and finalize the deal without competition.

Shares reserved for future employee stock option grants. Investors typically require companies to create or expand option pools before funding rounds (15-20% of post-money fully diluted shares is common). Since option pools are created pre-money, they dilute founders but not new investors. Proper option pool sizing is a key negotiation point.

Shares currently issued and held by shareholders, not including unexercised options, warrants, or authorized but unissued shares. Outstanding shares are used to calculate basic earnings per share and basic ownership percentages, but fully diluted shares provide a more complete picture of economic ownership.

Preferred stock that receives its liquidation preference PLUS participates pro-rata with common stock in remaining proceeds (effectively getting paid twice). Non-participating preferred chooses between preference or conversion to common. Participating preferred significantly reduces common stock value in acquisitions and is considered investor-friendly/founder-unfriendly.

A provision requiring existing investors to participate pro-rata in future funding rounds or face penalties such as conversion of preferred stock to common stock or loss of special rights. Pay-to-play provisions are common in down rounds to ensure existing investors support the company and prevent free-riding.

The company's valuation immediately AFTER receiving new investment. Post-money = Pre-money + Investment amount. Investor ownership percentage = Investment / Post-money valuation. This is the headline valuation typically reported in press releases.

The time period after leaving a company during which you can exercise vested stock options, typically 90 days. Extended PTEP (up to 10 years) is increasingly common at employee-friendly startups, eliminating the "exercise or forfeit" pressure that forces employees to pay large exercise costs immediately upon leaving.

A class of stock with special rights and preferences over common stock, including liquidation preferences, dividend rights, anti-dilution protection, and sometimes board representation. Venture capital investors receive preferred stock, while founders and employees hold common stock. Preferred stock is senior to common in liquidation but typically converts to common at IPO or acquisition if beneficial.

The company's valuation immediately BEFORE receiving new investment. Pre-money valuation determines how much equity investors receive: Investor ownership % = Investment / (Pre-money + Investment). Founders prefer higher pre-money valuations as they result in less dilution.

The sale of securities directly to a limited number of private investors without public offering or SEC registration, typically under Regulation D exemptions. Private placements require investors to be accredited and include transfer restrictions. Most venture capital and secondary market transactions are private placements.

The right to participate in future funding rounds to maintain ownership percentage and avoid dilution. Major investors negotiate pro-rata rights (sometimes called participation rights or follow-on rights) to preserve their stake. Smaller investors often lack pro-rata rights and get diluted in subsequent rounds.

Veto rights granted to preferred shareholders over major company decisions, requiring their approval for actions like selling the company, raising more capital, changing the charter, issuing senior securities, or paying dividends. Protective provisions ensure investors have oversight even without board majority control.

A higher threshold than accredited investor, requiring $5M+ in investments (individuals) or $25M+ (entities). Qualified purchaser status is required for certain hedge funds and private investment vehicles. While accredited investor status qualifies you for most private placements, qualified purchaser opens access to additional investment vehicles.

Special tax treatment under IRC Section 1202 allowing exclusion of up to $10 million in capital gains (or 10x cost basis, whichever is greater) from federal tax when selling stock in qualified C-corporations. Requirements: hold >5 years, original issuance, C-corp with <$50M assets at issuance, active business (not passive). QSBS can save millions in taxes but many states (including California) don't conform to federal treatment.

Restructuring a company's capital structure, typically involving exchange of one type of security for another or altering debt-to-equity ratios. Recaps can provide founder liquidity, resolve cap table complexity, or facilitate down rounds. Often triggered by financial distress or significant valuation changes.

Rights allowing investors to require the company to repurchase their shares after a specified period (typically 5-7 years) if no liquidity event has occurred. Redemption rights create pressure for exit but are rarely exercised since most private companies lack cash to repurchase at fair value.

Contractual rights requiring the company to register investors' shares with the SEC, enabling them to sell publicly. Demand registration rights allow investors to force IPO registration. Piggyback rights allow investors to include shares in company-initiated registrations. S-3 rights allow smaller registrations for limited sales. Registration rights ensure investor liquidity post-IPO.

SEC regulation providing exemptions from registration requirements for private securities offerings. Rule 506(b) allows unlimited capital raise from accredited investors without general solicitation. Rule 506(c) allows general solicitation but requires verified accreditation. Most private stock sales occur under Reg D exemptions.

Stock granted to employees that vests over time and is subject to forfeiture if vesting conditions aren't met. Unlike RSUs (promises to deliver stock), restricted stock is actual stock ownership from grant date, providing voting rights and potential for Section 83(b) election. More common at early-stage startups where stock value is minimal.

A promise to deliver stock upon vesting, with no stock ownership until delivery. RSUs are taxed as ordinary income at vesting based on fair market value, with withholding typically satisfied by selling shares. No 83(b) election available for RSUs. Common at late-stage private companies and public companies. Some private companies use double-trigger RSUs (time AND liquidity event) to defer taxation.

The gain or loss on an investment relative to the amount invested, expressed as a percentage. ROI = (Ending Value - Beginning Value) / Beginning Value. Venture capital targets 10x+ ROI on winners to compensate for losses on failed investments. Private market investors evaluate ROI relative to risk, holding period, and opportunity cost.

A mechanism where founders receive shares upfront but the company has the right to repurchase unvested shares at cost if the founder leaves before vesting completes. Economically equivalent to forward vesting but structured differently for tax purposes. Reverse vesting ensures founder commitment over multi-year periods.

Right requiring a shareholder to offer shares to the company or existing investors before seeking outside buyers. ROFO holder can accept the price or let the seller find a third-party buyer. Less restrictive than ROFR since ROFO holder must match the offer terms upfront rather than any eventually negotiated price.

Right giving the company (and sometimes existing investors) the option to purchase shares on the same terms as a proposed third-party sale before the sale can occur. ROFR prevents unwanted investors from acquiring shares and allows company to control shareholder base. Most private company stock is subject to ROFR, which can delay or prevent secondary sales.

SEC rule governing the resale of restricted and control securities. For affiliates (insiders), Rule 144 imposes volume limitations, holding periods, and filing requirements. For non-affiliates holding restricted stock, 6-month (public companies) or 12-month (private companies reporting) holding period plus current public information satisfies requirements. Rule 144 primarily affects post-IPO sales rather than private transactions.

An investment instrument created by Y Combinator that converts into equity at a future priced round. Similar to convertible notes but simpler (no interest, no maturity date, no debt). SAFEs include valuation caps and sometimes discounts. Common in seed funding where setting valuation is premature.

The market for trading existing shares between investors (as opposed to primary market where companies issue new shares). Secondary markets for private stock include platforms like Forge Global, EquityZen, Hiive, and Zanbato. Secondary sales provide liquidity to employees and early investors before IPO but are subject to company approval via ROFR.

The sale of existing shares by current shareholders (founders, employees, early investors) rather than new shares issued by the company. Secondary sales provide liquidity without diluting other shareholders or raising new capital for the company. Often occur via tender offers or secondary market platforms.

A tax election allowing you to pay ordinary income tax on restricted stock at grant (when value is low) rather than at vesting (when value may be much higher). All future appreciation is taxed as capital gains. Must be filed with IRS within 30 days of grant—missing this deadline cannot be undone and can cost hundreds of thousands in extra taxes. Only applies to restricted stock, not RSUs or options.

Liquidation preference that ranks ahead of other preferred stock classes. In multi-round financings, later rounds (Series B, C, D) sometimes negotiate seniority, receiving proceeds before earlier rounds. Senior preferences can significantly impact returns for common shareholders and earlier investors.

Sequential institutional funding rounds for startups. Series A typically follows seed funding ($2-15M range), establishing product-market fit. Series B ($10-50M) focuses on scaling. Series C+ ($20M-$100M+) fund expansion, acquisitions, or pre-IPO growth. Each series creates a new class of preferred stock with negotiated terms.

Different categories of stock with distinct rights, preferences, and restrictions. Common classes include common stock (employees/founders), Series A/B/C preferred stock (investors from different rounds), and sometimes multiple common classes with different voting rights (Class A, Class B).

Contract among shareholders governing rights and obligations including transfer restrictions, ROFR/ROFO, drag-along rights, co-sale rights, voting agreements, and dispute resolution. Shareholder agreements control how shares can be sold and protect minority shareholders.

Vesting acceleration that occurs upon a single event, typically change of control (acquisition or IPO). All or a portion of unvested equity immediately vests. Less common than double-trigger acceleration since it can create perverse incentives (employees leaving immediately post-acquisition with full equity).

A "blank check company" that raises money via IPO with the sole purpose of acquiring or merging with a private company, taking it public. SPACs provide alternative to traditional IPO. They were extremely popular in 2020-2021 but faced regulatory scrutiny and declining performance, leading to reduced SPAC activity in 2022-2026.

A legal entity created for a specific purpose, often to pool multiple investors for a single private company investment. SPVs allow investors with smaller capital to access deals with high minimums and simplify cap table management for companies (one SPV entity instead of dozens of small investors).

The difference between stock's fair market value and option exercise price. For unexercised options, spread represents intrinsic value (pre-tax). For NSOs, spread at exercise is taxed as ordinary income. For ISOs, spread at exercise is AMT adjustment.

Another term for exercise price—the price at which stock options can be exercised. Strike price is set at grant and must equal fair market value at grant for ISOs and to avoid Section 409A issues for NSOs.

A company-sponsored program to purchase shares from employees and sometimes early investors, providing liquidity before IPO. Companies run tender offers at predetermined prices (often based on recent 409A or funding round valuations), with limits on total amount and per-person caps. Tender offers are typically oversubscribed (more sellers than capacity).

A non-binding document outlining the key terms and conditions of an investment, including valuation, investment amount, board composition, liquidation preferences, anti-dilution provisions, and other rights. Term sheets precede definitive agreements and set the framework for negotiation. Founders should carefully review term sheets as they significantly impact economics and control.

A firm that maintains shareholder records, issues stock certificates, processes stock transfers, and handles corporate actions like stock splits. For private companies, transfer agents track cap tables and execute secondary sales after company approval. Common private company transfer agents include Carta, Shareworks (formerly Solium), and Computershare.

Limitations on the ability to sell or transfer shares, typically including Right of First Refusal (ROFR), lock-up periods, and approval requirements. Most private company stock is heavily restricted—you cannot freely sell without company consent. Transfer restrictions appear in shareholder agreements, option agreements, and subscription documents.

A private company valued at $1 billion or more. The term was coined in 2013 when such companies were rare; as of 2026, there are 1,200+ unicorns globally. Decacorns ($10B+) and hectocorns ($100B+) describe even larger private companies. Examples include SpaceX ($175B), Stripe ($65B), and Databricks ($43B).

Stock or options that have been granted but not yet earned according to the vesting schedule. Unvested shares are forfeited if you leave the company before vesting. For restricted stock, unvested shares may be subject to company repurchase at cost. Unvested options expire upon termination (you cannot exercise them).

A financing round at a higher valuation than the previous round, indicating company success and growth. Up rounds benefit all shareholders through increased per-share value, though existing shareholders still experience dilution from new share issuance.

The maximum valuation at which a convertible note or SAFE converts into equity, protecting early investors from dilution if the company raises at a much higher valuation. If the next round's valuation exceeds the cap, the note/SAFE converts at the cap, giving early investors more equity for their investment.

The process of increasing company value through revenue growth, margin expansion, market share gains, product development, or operational improvements. Venture capitalists and employees benefit from value creation through equity appreciation. Not all revenue growth creates proportional value if margins deteriorate or capital requirements increase.

Investment firms that pool capital from institutions and wealthy individuals to invest in high-growth startups in exchange for equity. VCs provide not just capital but also strategic guidance, connections, and oversight. VCs typically seek 10x returns to compensate for high failure rates and operate on 10-year fund cycles.

Stock or options that you have earned according to the vesting schedule and will keep even if you leave the company. Vested options can be exercised (within post-termination exercise period), and vested restricted stock is yours permanently. Vesting aligns incentives by rewarding tenure and performance.

Immediate vesting of some or all unvested equity upon specific triggering events, typically acquisition, termination, or death/disability. Acceleration can be single-trigger (event alone) or double-trigger (event + termination). Acceleration protects employees from losing equity in acquisitions where they're terminated.

The timeline over which equity compensation is earned. Standard vesting is 4 years with 1-year cliff (25% vests after year 1, then monthly for remaining 3 years). Some companies use monthly vesting from day one, while others have longer schedules (5-6 years) or performance-based vesting tied to milestones.

The right to vote on corporate matters including board elections, major transactions, charter amendments, and dissolutions. Common stock typically carries one vote per share. Preferred stock may have separate class voting on specific matters. Founders sometimes retain control through super-voting shares (Class B with 10x votes per share).

A security giving the holder the right to purchase shares at a specified price (exercise price) within a certain time period. Warrants are similar to options but typically issued to investors or lenders as "sweeteners" to make deals more attractive. Unlike options, warrants can be detached and traded separately from the underlying security.

A financial model showing how proceeds from a liquidation event flow to different shareholder classes based on liquidation preferences, participation rights, and seniority. Waterfall analysis is essential for understanding what common shareholders actually receive in different exit scenarios, which is often far less than headline valuation suggests.