1. Startup Equity 101 Primer
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ippi ng Point Pa
Text ger, T
ana
perations M
by Jamie Lee, O
@wimlink
@gitweets
#Equity101

2. Disclaimer

3. Disclaimer
I’m not an accountant or a lawyer. The
information contained herein and ensuing
discussion should NOT be considered tax or legal
advice. The information is intended to help you
get familiarized with general concepts in startup
finance, which may or may not apply to your
employment situation.
Thank you!
Jamie Lee @jieunjamie

4. Cliff’s Notes version

5. Cliff’s Notes version
GOOD TO KNOW

6. Cliff’s Notes version
GOOD TO KNOW
•your percentage of ownership = shares you own
divided by total number of shares issued by
company

7. Cliff’s Notes version
GOOD TO KNOW
•your percentage of ownership = shares you own
divided by total number of shares issued by
company

8. Cliff’s Notes version
GOOD TO KNOW
•your percentage of ownership = shares you own
divided by total number of shares issued by
company
GOTTA KNOW

9. Cliff’s Notes version
GOOD TO KNOW
•your percentage of ownership = shares you own
divided by total number of shares issued by
company
GOTTA KNOW
•vesting schedule, or how your equity is accrued to
you over time

10. Cliff’s Notes version
GOOD TO KNOW
•your percentage of ownership = shares you own
divided by total number of shares issued by
company
GOTTA KNOW
•vesting schedule, or how your equity is accrued to
you over time
•tax implications of owning, buying, and selling
equity

11. Cliff’s Notes version
GOOD TO KNOW
•your percentage of ownership = shares you own
divided by total number of shares issued by
company
GOTTA KNOW
•vesting schedule, or how your equity is accrued to
you over time
•tax implications of owning, buying, and selling
equity
•company valuation at liquidity event

12. Cliff’s Notes version
GOOD TO KNOW
•your percentage of ownership = shares you own
divided by total number of shares issued by
company
GOTTA KNOW
•vesting schedule, or how your equity is accrued to
you over time
•tax implications of owning, buying, and selling
equity
•company valuation at liquidity event

13. Cliff’s Notes version
GOOD TO KNOW
•your percentage of ownership = shares you own
divided by total number of shares issued by
company
GOTTA KNOW
•vesting schedule, or how your equity is accrued to
you over time
•tax implications of owning, buying, and selling
equity
•company valuation at liquidity event

14. 1. Equity = Ownership in company

15. 1. Equity = Ownership in company

16. 1. Equity = Ownership in company
Apple went public in
Dec 1980.

17. 1. Equity = Ownership in company
Apple went public in
Dec 1980.
IPO offer price = $14

18. 1. Equity = Ownership in company
Apple went public in
Dec 1980.
IPO offer price = $14
COB price = $29

19. 1. Equity = Ownership in company
Apple went public in
Dec 1980.
IPO offer price = $14
COB price = $29
Split-adjusted IPO price
= $2.75

20. 1. Equity = Ownership in company
Apple went public in
Dec 1980.
IPO offer price = $14
COB price = $29
Split-adjusted IPO price
= $2.75
Current price = $571

21. 1. Equity = Ownership in company
Apple went public in
Dec 1980.
IPO offer price = $14
COB price = $29
Split-adjusted IPO price
= $2.75
Current price = $571
Startup equity is

22. 1. Equity = Ownership in company
Apple went public in
Dec 1980.
IPO offer price = $14
COB price = $29
Split-adjusted IPO price
= $2.75
Current price = $571
Startup equity is
high risk = high return

23. 2. High risk can also mean no return

24. 2. High risk can also mean no return

25. 2. High risk can also mean no return

26. 2. High risk can also mean no return

27. 2. High risk can also mean no return
Very few startups
become as successful as
Apple. Most will fail.

28. 2. High risk can also mean no return
Very few startups
become as successful as
Apple. Most will fail.
Investing in a startup or

29. 2. High risk can also mean no return
Very few startups
become as successful as
Apple. Most will fail.
Investing in a startup or
owning equity in a
startup has

30. 2. High risk can also mean no return
Very few startups
become as successful as
Apple. Most will fail.
Investing in a startup or
owning equity in a
startup has
tax and regulatory
ramifications.

31. 3. Common vs. Preferred Stock

32. 3. Common vs. Preferred Stock

33. 3. Common vs. Preferred Stock
Holders Employees Investors
Price Usually lower than price of Usually higher than common
preferred
Rights at Has claim to company's assets and "Preference" to get paid before common
acquisition earnings, but gets paid AFTER holders. Preference amount is generally
or preferred holders, IF money is left greater than the amount invested.
liquidation over, per cap table.
Rights at Equal footing as preferred Preference goes away
IPO
Privileges Common stockholder of Varies widely: can include board seat,
Corporation may attend annual information rights, right to participate in
stockholder meeting. future rounds of funding, right of first
refusal, anti-dilution right, etc

34. 3. Common vs. Preferred Stock
Holders Employees Investors
Price Usually lower than price of Usually higher than common
preferred
Rights at Has claim to company's assets and "Preference" to get paid before common
acquisition earnings, but gets paid AFTER holders. Preference amount is generally
or preferred holders, IF money is left greater than the amount invested.
liquidation over, per cap table.
Rights at Equal footing as preferred Preference goes away
IPO
Privileges Common stockholder of Varies widely: can include board seat,
Corporation may attend annual information rights, right to participate in
stockholder meeting. future rounds of funding, right of first
refusal, anti-dilution right, etc

35. 3. Common vs. Preferred Stock
Holders Employees Investors
Price Usually lower than price of Usually higher than common
preferred
Rights at Has claim to company's assets and "Preference" to get paid before common
acquisition earnings, but gets paid AFTER holders. Preference amount is generally
or preferred holders, IF money is left greater than the amount invested.
liquidation over, per cap table.
Rights at Equal footing as preferred Preference goes away
IPO
Privileges Common stockholder of Varies widely: can include board seat,
Corporation may attend annual information rights, right to participate in
stockholder meeting. future rounds of funding, right of first
refusal, anti-dilution right, etc

36. 3. Common vs. Preferred Stock
Holders Employees Investors
Price Usually lower than price of Usually higher than common
preferred
Rights at Has claim to company's assets and "Preference" to get paid before common
acquisition earnings, but gets paid AFTER holders. Preference amount is generally
or preferred holders, IF money is left greater than the amount invested.
liquidation over, per cap table.
Rights at Equal footing as preferred Preference goes away
IPO
Privileges Common stockholder of Varies widely: can include board seat,
Corporation may attend annual information rights, right to participate in
stockholder meeting. future rounds of funding, right of first
refusal, anti-dilution right, etc

37. 3. Common vs. Preferred Stock
Holders Employees Investors
Price Usually lower than price of Usually higher than common
preferred
Rights at Has claim to company's assets and "Preference" to get paid before common
acquisition earnings, but gets paid AFTER holders. Preference amount is generally
or preferred holders, IF money is left greater than the amount invested.
liquidation over, per cap table.
Rights at Equal footing as preferred Preference goes away
IPO
Privileges Common stockholder of Varies widely: can include board seat,
Corporation may attend annual information rights, right to participate in
stockholder meeting. future rounds of funding, right of first
refusal, anti-dilution right, etc

38. 4. Employee stock ownership

39. 4. Employee stock ownership
Typically, total non-founder employee equity pool tends
to be between 10% - 20%.

40. 4. Employee stock ownership
Typically, total non-founder employee equity pool tends
to be between 10% - 20%.

41. 4. Employee stock ownership
Typically, total non-founder employee equity pool tends
to be between 10% - 20%.
Title Of total outstanding shares
CEO 5-10%
C-level Executives 1-3%
VP, Directors 0.5-2%
Managers .25-1%

42. 4. Employee stock ownership
Typically, total non-founder employee equity pool tends
to be between 10% - 20%.
Title Of total outstanding shares
CEO 5-10%
C-level Executives 1-3%
VP, Directors 0.5-2%
Managers .25-1%

43. 4. Employee stock ownership
Typically, total non-founder employee equity pool tends
to be between 10% - 20%.
Title Of total outstanding shares
CEO 5-10%
C-level Executives 1-3%
VP, Directors 0.5-2%
Managers .25-1%

44. 4. Employee stock ownership
Typically, total non-founder employee equity pool tends
to be between 10% - 20%.
Title Of total outstanding shares
CEO 5-10%
C-level Executives 1-3%
VP, Directors 0.5-2%
Managers .25-1%

45. 4. Employee stock ownership
Typically, total non-founder employee equity pool tends
to be between 10% - 20%.
Title Of total outstanding shares
CEO 5-10%
C-level Executives 1-3%
VP, Directors 0.5-2%
Managers .25-1%

46. 5. Types of Employee Stock

47. 5. Types of Employee Stock
Purpose: To attract and retain talented employees

48. 5. Types of Employee Stock
Purpose: To attract and retain talented employees

49. 5. Types of Employee Stock
Purpose: To attract and retain talented employees
1. Founder stock: founders & founding team members

50. 5. Types of Employee Stock
Purpose: To attract and retain talented employees
1. Founder stock: founders & founding team members
Special vesting schedule may apply

51. 5. Types of Employee Stock
Purpose: To attract and retain talented employees
1. Founder stock: founders & founding team members
Special vesting schedule may apply

52. 5. Types of Employee Stock
Purpose: To attract and retain talented employees
1. Founder stock: founders & founding team members
Special vesting schedule may apply
2. Restricted stock: employees at early stage company

53. 5. Types of Employee Stock
Purpose: To attract and retain talented employees
1. Founder stock: founders & founding team members
Special vesting schedule may apply
2. Restricted stock: employees at early stage company
Granted while value of stock is relatively low

54. 5. Types of Employee Stock
Purpose: To attract and retain talented employees
1. Founder stock: founders & founding team members
Special vesting schedule may apply
2. Restricted stock: employees at early stage company
Granted while value of stock is relatively low

55. 5. Types of Employee Stock
Purpose: To attract and retain talented employees
1. Founder stock: founders & founding team members
Special vesting schedule may apply
2. Restricted stock: employees at early stage company
Granted while value of stock is relatively low
3. Options: most common form of employee equity

56. 5. Types of Employee Stock
Purpose: To attract and retain talented employees
1. Founder stock: founders & founding team members
Special vesting schedule may apply
2. Restricted stock: employees at early stage company
Granted while value of stock is relatively low
3. Options: most common form of employee equity
ESOP: Employee Stock Option Plan

57. 6. Stock Options

58. 6. Stock Options

59. 6. Stock Options
What you get When you have stock options, you don't own stock. You
own the right to buy stock at an agreed-upon price, or
strike price. You exercise your option when you buy stock.
Nitty Gritty The board of directors sets the strike price based on fair
market value(FMV) of common stock. ”At the money”
options mean that FMV is equal to strike price.
Legal & Tax Fine Once you exercise your option, you are immediately liable
Print for tax on the gain, or difference between FMV and strike
(Consult your lawyer price, as ordinary income. Capital gain from stock held
and accountant!) longer than one year is taxable as long term capital gains.

60. 6. Stock Options
What you get When you have stock options, you don't own stock. You
own the right to buy stock at an agreed-upon price, or
strike price. You exercise your option when you buy stock.
Nitty Gritty The board of directors sets the strike price based on fair
market value(FMV) of common stock. ”At the money”
options mean that FMV is equal to strike price.
Legal & Tax Fine Once you exercise your option, you are immediately liable
Print for tax on the gain, or difference between FMV and strike
(Consult your lawyer price, as ordinary income. Capital gain from stock held
and accountant!) longer than one year is taxable as long term capital gains.

61. 6. Stock Options
What you get When you have stock options, you don't own stock. You
own the right to buy stock at an agreed-upon price, or
strike price. You exercise your option when you buy stock.
Nitty Gritty The board of directors sets the strike price based on fair
market value(FMV) of common stock. ”At the money”
options mean that FMV is equal to strike price.
Legal & Tax Fine Once you exercise your option, you are immediately liable
Print for tax on the gain, or difference between FMV and strike
(Consult your lawyer price, as ordinary income. Capital gain from stock held
and accountant!) longer than one year is taxable as long term capital gains.

62. 7. Capital Gains Tax

63. 7. Capital Gains Tax
•Ordinary income tax can be as high as 35%.

64. 7. Capital Gains Tax
•Ordinary income tax can be as high as 35%.
• Short term CGT applies to securities held for less
than one year and is the same as Ordinary Income
Tax.

65. 7. Capital Gains Tax
•Ordinary income tax can be as high as 35%.
• Short term CGT applies to securities held for less
than one year and is the same as Ordinary Income
Tax.
• Long term CGT applies to securities held more
than a year and is capped at 15%.

66. 8. Restricted Stock

67. 8. Restricted Stock

68. 8. Restricted Stock
What you get Restricted stock is a stock granted as a form of
compensation with restrictions.
Nitty Gritty Often the restriction is continued employment during a set
period of time, upon which the shares vest.
Or the restriction can be performance-based.
Legal & Tax Fine Under 83(b) IRS code, you can recognize "income" upon
Print granting of stock. Income is difference between FMV and
(Consult your stock price, which are typically the same. Meaning no
lawyer and income is recognized.
accountant!)

69. 8. Restricted Stock
What you get Restricted stock is a stock granted as a form of
compensation with restrictions.
Nitty Gritty Often the restriction is continued employment during a set
period of time, upon which the shares vest.
Or the restriction can be performance-based.
Legal & Tax Fine Under 83(b) IRS code, you can recognize "income" upon
Print granting of stock. Income is difference between FMV and
(Consult your stock price, which are typically the same. Meaning no
lawyer and income is recognized.
accountant!)

70. 8. Restricted Stock
What you get Restricted stock is a stock granted as a form of
compensation with restrictions.
Nitty Gritty Often the restriction is continued employment during a set
period of time, upon which the shares vest.
Or the restriction can be performance-based.
Legal & Tax Fine Under 83(b) IRS code, you can recognize "income" upon
Print granting of stock. Income is difference between FMV and
(Consult your stock price, which are typically the same. Meaning no
lawyer and income is recognized.
accountant!)

71. 10. Dilution (part of life)
Images not drawn to scale

72. 10. Dilution (part of life)
Each new issuance of stocks results in dilution of existing shareholders.
Images not drawn to scale

73. 10. Dilution (part of life)
Each new issuance of stocks results in dilution of existing shareholders.
Pre-dilution
Images not drawn to scale

74. 10. Dilution (part of life)
Each new issuance of stocks results in dilution of existing shareholders.
Pre-dilution
Images not drawn to scale

75. 10. Dilution (part of life)
Each new issuance of stocks results in dilution of existing shareholders.
Pre-dilution
Images not drawn to scale
1% ownership

76. 10. Dilution (part of life)
Each new issuance of stocks results in dilution of existing shareholders.
Pre-dilution
Images not drawn to scale
1% ownership
100,000 shares

77. 10. Dilution (part of life)
Each new issuance of stocks results in dilution of existing shareholders.
Pre-dilution
Images not drawn to scale
1% ownership
100,000 shares
Total shares
outstanding:

78. 10. Dilution (part of life)
Each new issuance of stocks results in dilution of existing shareholders.
Pre-dilution
Images not drawn to scale
1% ownership
100,000 shares
Total shares
outstanding:
10M shares, $1/share

79. 10. Dilution (part of life)
Each new issuance of stocks results in dilution of existing shareholders.
Pre-dilution
Images not drawn to scale
1% ownership
100,000 shares
Total shares
outstanding:
10M shares, $1/share
$100,000

80. 10. Dilution (part of life)
Each new issuance of stocks results in dilution of existing shareholders.
Pre-dilution
Images not drawn to scale
1% ownership
100,000 shares
Total shares
outstanding:
10M shares, $1/share
$100,000
Slice of a small pie

81. 10. Dilution (part of life)
Each new issuance of stocks results in dilution of existing shareholders.
Pre-dilution
Images not drawn to scale
1% ownership
100,000 shares
Total shares
outstanding:
10M shares, $1/share
$100,000
Slice of a small pie

82. 10. Dilution (part of life)
Each new issuance of stocks results in dilution of existing shareholders.
Pre-dilution
Images not drawn to scale
1% ownership
100,000 shares Series A funding
Total shares
outstanding:
10M shares, $1/share
$100,000
Slice of a small pie

83. 10. Dilution (part of life)
Each new issuance of stocks results in dilution of existing shareholders.
Pre-dilution
Images not drawn to scale
1% ownership
100,000 shares Series A funding
Total shares 2M shares issued
outstanding:
10M shares, $1/share
$100,000
Slice of a small pie

84. 10. Dilution (part of life)
Each new issuance of stocks results in dilution of existing shareholders.
Pre-dilution
Images not drawn to scale
1% ownership
100,000 shares Series A funding
Total shares 2M shares issued
outstanding: at $3/share
10M shares, $1/share
$100,000
Slice of a small pie

85. 10. Dilution (part of life)
Each new issuance of stocks results in dilution of existing shareholders.
Pre-dilution
Images not drawn to scale
1% ownership
100,000 shares Series A funding
Total shares 2M shares issued
outstanding: at $3/share
10M shares, $1/share
$100,000 Total $ raised:
Slice of a small pie

86. 10. Dilution (part of life)
Each new issuance of stocks results in dilution of existing shareholders.
Pre-dilution
Images not drawn to scale
1% ownership
100,000 shares Series A funding
Total shares 2M shares issued
outstanding: at $3/share
10M shares, $1/share
$100,000 Total $ raised:
Slice of a small pie $6M

87. 10. Dilution (part of life)
Each new issuance of stocks results in dilution of existing shareholders.
Post-dilution
Pre-dilution
Images not drawn to scale
1% ownership
100,000 shares Series A funding
Total shares 2M shares issued
outstanding: at $3/share
10M shares, $1/share
$100,000 Total $ raised:
Slice of a small pie $6M

88. 10. Dilution (part of life)
Each new issuance of stocks results in dilution of existing shareholders.
Post-dilution
Pre-dilution
Images not drawn to scale
1% ownership
100,000 shares Series A funding
Total shares 2M shares issued
outstanding: at $3/share
10M shares, $1/share
$100,000 Total $ raised:
Slice of a small pie $6M

89. 10. Dilution (part of life)
Each new issuance of stocks results in dilution of existing shareholders.
Post-dilution
Pre-dilution
Images not drawn to scale
1% ownership
100,000 shares Series A funding .8333% ownership
Total shares 2M shares issued
outstanding: at $3/share
10M shares, $1/share
$100,000 Total $ raised:
Slice of a small pie $6M

90. 10. Dilution (part of life)
Each new issuance of stocks results in dilution of existing shareholders.
Post-dilution
Pre-dilution
Images not drawn to scale
1% ownership
100,000 shares Series A funding .8333% ownership
Total shares 2M shares issued 100,000 shares
outstanding: at $3/share
10M shares, $1/share
$100,000 Total $ raised:
Slice of a small pie $6M

91. 10. Dilution (part of life)
Each new issuance of stocks results in dilution of existing shareholders.
Post-dilution
Pre-dilution
Images not drawn to scale
1% ownership
100,000 shares Series A funding .8333% ownership
Total shares 2M shares issued 100,000 shares
outstanding: at $3/share Total shares
10M shares, $1/share outstanding:
$100,000 Total $ raised:
Slice of a small pie $6M

92. 10. Dilution (part of life)
Each new issuance of stocks results in dilution of existing shareholders.
Post-dilution
Pre-dilution
Images not drawn to scale
1% ownership
100,000 shares Series A funding .8333% ownership
Total shares 2M shares issued 100,000 shares
outstanding: at $3/share Total shares
10M shares, $1/share outstanding:
$100,000 Total $ raised: 12M shares, $3/share
Slice of a small pie $6M

93. 10. Dilution (part of life)
Each new issuance of stocks results in dilution of existing shareholders.
Post-dilution
Pre-dilution
Images not drawn to scale
1% ownership
100,000 shares Series A funding .8333% ownership
Total shares 2M shares issued 100,000 shares
outstanding: at $3/share Total shares
10M shares, $1/share outstanding:
$100,000 Total $ raised: 12M shares, $3/share
Slice of a small pie $6M $300,000

94. 10. Dilution (part of life)
Each new issuance of stocks results in dilution of existing shareholders.
Post-dilution
Pre-dilution
Images not drawn to scale
1% ownership
100,000 shares Series A funding .8333% ownership
Total shares 2M shares issued 100,000 shares
outstanding: at $3/share Total shares
10M shares, $1/share outstanding:
$100,000 Total $ raised: 12M shares, $3/share
Slice of a small pie $6M $300,000
Skinnier slice of a
bigger pie

95. 10. Dilution (part of life)
Each new issuance of stocks results in dilution of existing shareholders.
Post-dilution
Pre-dilution
Images not drawn to scale
Dilution is an INEVITABLE
outcome of company growth.
1% ownership
100,000 shares Series A funding .8333% ownership
Total shares 2M shares issued 100,000 shares
outstanding: at $3/share Total shares
10M shares, $1/share outstanding:
$100,000 Total $ raised: 12M shares, $3/share
Slice of a small pie $6M $300,000
Skinnier slice of a
bigger pie

96. 12. Vesting for long-term value creation

97. 12. Vesting for long-term value creation
Vesting means that ownership of options or stocks accrue to you over a fixed period
of time. 4 year vesting with 1 year cliff is common.

98. 12. Vesting for long-term value creation
Vesting means that ownership of options or stocks accrue to you over a fixed period
of time. 4 year vesting with 1 year cliff is common.

99. 12. Vesting for long-term value creation
Vesting means that ownership of options or stocks accrue to you over a fixed period
of time. 4 year vesting with 1 year cliff is common.
day 1 of hire

100. 12. Vesting for long-term value creation
Vesting means that ownership of options or stocks accrue to you over a fixed period
of time. 4 year vesting with 1 year cliff is common.
day 1 of hire
0%

101. 12. Vesting for long-term value creation
Vesting means that ownership of options or stocks accrue to you over a fixed period
of time. 4 year vesting with 1 year cliff is common.
day 1 of hire
0%
1 year cliff means you don't vest anything during
the 1st year. If you leave during this period, you
leave with no equity or options. Unvested options
and grants maybe repurchased by the company
and returned to employee pool.

102. 12. Vesting for long-term value creation
Vesting means that ownership of options or stocks accrue to you over a fixed period
of time. 4 year vesting with 1 year cliff is common.
day 1 of hire
0%
1 year cliff means you don't vest anything during
the 1st year. If you leave during this period, you
leave with no equity or options. Unvested options
and grants maybe repurchased by the company
and returned to employee pool.

103. 12. Vesting for long-term value creation
Vesting means that ownership of options or stocks accrue to you over a fixed period
of time. 4 year vesting with 1 year cliff is common.
day 1 of hire 1st anniversary
0%
1 year cliff means you don't vest anything during
the 1st year. If you leave during this period, you
leave with no equity or options. Unvested options
and grants maybe repurchased by the company
and returned to employee pool.

104. 12. Vesting for long-term value creation
Vesting means that ownership of options or stocks accrue to you over a fixed period
of time. 4 year vesting with 1 year cliff is common.
day 1 of hire 1st anniversary
0% 25%
1 year cliff means you don't vest anything during
the 1st year. If you leave during this period, you
leave with no equity or options. Unvested options
and grants maybe repurchased by the company
and returned to employee pool.

105. 12. Vesting for long-term value creation
Vesting means that ownership of options or stocks accrue to you over a fixed period
of time. 4 year vesting with 1 year cliff is common.
day 1 of hire 1st anniversary
0% 25%
1 year cliff means you don't vest anything during
the 1st year. If you leave during this period, you
leave with no equity or options. Unvested options
and grants maybe repurchased by the company
and returned to employee pool.

106. 12. Vesting for long-term value creation
Vesting means that ownership of options or stocks accrue to you over a fixed period
of time. 4 year vesting with 1 year cliff is common.
day 1 of hire 1st anniversary 2nd year
0% 25%
1 year cliff means you don't vest anything during
the 1st year. If you leave during this period, you
leave with no equity or options. Unvested options
and grants maybe repurchased by the company
and returned to employee pool.

107. 12. Vesting for long-term value creation
Vesting means that ownership of options or stocks accrue to you over a fixed period
of time. 4 year vesting with 1 year cliff is common.
day 1 of hire 1st anniversary 2nd year
0% 25% 50%
1 year cliff means you don't vest anything during
the 1st year. If you leave during this period, you
leave with no equity or options. Unvested options
and grants maybe repurchased by the company
and returned to employee pool.

108. 12. Vesting for long-term value creation
Vesting means that ownership of options or stocks accrue to you over a fixed period
of time. 4 year vesting with 1 year cliff is common.
day 1 of hire 1st anniversary 2nd year
0% 25% 50%
1 year cliff means you don't vest anything during
the 1st year. If you leave during this period, you
leave with no equity or options. Unvested options
and grants maybe repurchased by the company
and returned to employee pool.

109. 12. Vesting for long-term value creation
Vesting means that ownership of options or stocks accrue to you over a fixed period
of time. 4 year vesting with 1 year cliff is common.
day 1 of hire 1st anniversary 2nd year 3rd year
0% 25% 50%
1 year cliff means you don't vest anything during
the 1st year. If you leave during this period, you
leave with no equity or options. Unvested options
and grants maybe repurchased by the company
and returned to employee pool.

110. 12. Vesting for long-term value creation
Vesting means that ownership of options or stocks accrue to you over a fixed period
of time. 4 year vesting with 1 year cliff is common.
day 1 of hire 1st anniversary 2nd year 3rd year
0% 25% 50% 75%
1 year cliff means you don't vest anything during
the 1st year. If you leave during this period, you
leave with no equity or options. Unvested options
and grants maybe repurchased by the company
and returned to employee pool.

111. 12. Vesting for long-term value creation
Vesting means that ownership of options or stocks accrue to you over a fixed period
of time. 4 year vesting with 1 year cliff is common.
day 1 of hire 1st anniversary 2nd year 3rd year
0% 25% 50% 75%
1 year cliff means you don't vest anything during
the 1st year. If you leave during this period, you
leave with no equity or options. Unvested options
and grants maybe repurchased by the company
and returned to employee pool.

112. 12. Vesting for long-term value creation
Vesting means that ownership of options or stocks accrue to you over a fixed period
of time. 4 year vesting with 1 year cliff is common.
day 1 of hire 1st anniversary 2nd year 3rd year 4th year
0% 25% 50% 75%
1 year cliff means you don't vest anything during
the 1st year. If you leave during this period, you
leave with no equity or options. Unvested options
and grants maybe repurchased by the company
and returned to employee pool.

113. 12. Vesting for long-term value creation
Vesting means that ownership of options or stocks accrue to you over a fixed period
of time. 4 year vesting with 1 year cliff is common.
day 1 of hire 1st anniversary 2nd year 3rd year 4th year
0% 25% 50% 75% 100%
1 year cliff means you don't vest anything during
the 1st year. If you leave during this period, you
leave with no equity or options. Unvested options
and grants maybe repurchased by the company
and returned to employee pool.

114. 12. Vesting for long-term value creation
Vesting means that ownership of options or stocks accrue to you over a fixed period
of time. 4 year vesting with 1 year cliff is common.
day 1 of hire 1st anniversary 2nd year 3rd year 4th year
0% 25% 50% 75% 100%
1 year cliff means you don't vest anything during
the 1st year. If you leave during this period, you
leave with no equity or options. Unvested options
and grants maybe repurchased by the company
and returned to employee pool.

115. 12. Vesting for long-term value creation
Vesting means that ownership of options or stocks accrue to you over a fixed period
of time. 4 year vesting with 1 year cliff is common.
day 1 of hire 1st anniversary 2nd year 3rd year 4th year
0% 25% 50% 75% 100%
1 year cliff means you don't vest anything during
the 1st year. If you leave during this period, you
leave with no equity or options. Unvested options
and grants maybe repurchased by the company
and returned to employee pool.

116. 12. Vesting for long-term value creation
Vesting means that ownership of options or stocks accrue to you over a fixed period
of time. 4 year vesting with 1 year cliff is common.
day 1 of hire 1st anniversary 2nd year 3rd year 4th year
0% 25% 50% 75% 100%
Oops
1 year cliff means you don't vest anything during
the 1st year. If you leave during this period, you
leave with no equity or options. Unvested options
and grants maybe repurchased by the company
and returned to employee pool.

117. Example Scenario
Restricted Stock Grants
100,000 shares with 4 year vest, 1 year cliff

118. Example Scenario
Restricted Stock Grants
100,000 shares with 4 year vest, 1 year cliff
End of... Company Total Shares YOUR Value of Your Equity Event Notes
Valuation Vested YOUR Ownership
Shares shares
Year 1 $10MM 10MM 25K $25K .25% 25% vested
$1/share
Series A $36MM 12MM 25K $75K .21% 2M Series A Preferred Your ownership is
Funding Stocks are issued at diluted from .25%
$3/share, $12MM to .21%.
$3/share preference
Year 2 $36MM 12MM 50K $150K .42% 50% vested
$3/share
Acquisition $48MM 12MM 50K $180K .42% Series A Investors Liquidation can
have $12MM trigger accelerated
preference. vesting of ALL 100K
$3.6/share shares (variable)

119. Cliff’s Notes version
GOOD TO KNOW
•your percentage of ownership = shares you own
divided by total number of shares issued by
company
GOTTA KNOW
•vesting schedule, or how your equity is accrued to
you over time
•tax implications of owning, buying, and selling
equity
•company valuation at liquidity event

120. Recap - What can you do?
Knowledge is Power

121. Recap - What can you do?
Knowledge is Power
1.Ask how much money company has
raised in how many rounds of funding.

122. Recap - What can you do?
Knowledge is Power
1.Ask how much money company has
raised in how many rounds of funding.
2.Consider the whole package.

123. Recap - What can you do?
Knowledge is Power
1.Ask how much money company has
raised in how many rounds of funding.
2.Consider the whole package.
3. Know when to buy and sell.

124. Recap - What can you do?
Knowledge is Power
1.Ask how much money company has
raised in how many rounds of funding.
2.Consider the whole package.
3. Know when to buy and sell.
4. Be in the know, stay in touch with
news.

125. Good reads & Sources
- Ackwire, Completly Anonymous Startup Salaries: http://www.ackwire.com/
- Andy Payne, Startup Equity for Employees: http://www.payne.org/index.php/Startup_Equity_For_Employees
- Apple Investor Relations, FAQ: http://investor.apple.com/faq.cfm
- Brad Feld, Blog archive on Term Sheets:
http://www.feld.com/wp/archives/2005/08/term-sheet-series-wrap-up.html
- Fred Wilson, MBA Monday Series on Equity: http://www.avc.com/a_vc/2010/09/employee-equity.html
http://www.avc.com/a_vc/2008/11/restricted-stoc.html
- How Stuff Works, Stock Options:
http://money.howstuffworks.com/personal-finance/financial-planning/stock-options1.htm
- Paul Graham, Equity Equation: http://paulgraham.com/equity.html
- Pop History of DIg, "Apple Rising: 1976 - 1985" http://www.pophistorydig.com/?tag=apple-computer-ipo
- Startup Company Lawyer
http://www.startupcompanylawyer.com/2008/02/15/what-is-an-83b-election/
- ZD Net, Facebook IPO: Final Numbers: http://www.zdnet.com/blog/facebook/facebook-ipo-final-numbers/
13257
- Wikipedia, Restricted Stock: http://en.wikipedia.org/wiki/Restricted_stock
- Wikipedia, Preferred Stock: http://en.wikipedia.org/wiki/Preferred_stock