Option grant
The number of options offered to you.
An option grant gives you the right to buy shares later at a fixed strike price. It is not the same as owning shares today.
Category
Grant
Strike price
The price you pay to exercise each option.
If you have 10,000 options at a $1 strike, exercising the full grant costs $10,000 before any tax or liquidity considerations.
Exercise window
How long you have to exercise after leaving.
A short post-termination exercise window can force a decision before there is liquidity, especially if exercising the grant is expensive.
Vesting cliff
The first date you earn any options.
A common startup schedule has a one-year cliff, meaning no options vest until the first anniversary, then vesting continues monthly or quarterly.
Category
Company
Fully diluted shares
The denominator behind your ownership percentage.
Fully diluted shares include common shares, preferred shares, options, warrants, and reserved option pool shares. Without this number, option count alone is hard to value.
Common stock
The share class employees usually receive exposure to.
Employee options usually convert into common stock. Common stock generally sits behind preferred stock in the payout order.
Category
Exit
Liquidation preference
Investor money paid before common shares.
Preferred shareholders may receive their investment back, sometimes with a multiple, before common shareholders participate in an acquisition.
Preferred stack
The total preferred capital ahead of common.
The stack matters most in low and medium acquisitions, where preferred payouts can consume the exit proceeds before employee common shares get value.
Category
Tax
409A valuation
A US private-company valuation used for option pricing.
A 409A valuation often informs the strike price for US stock options. A low 409A can make options cheaper to exercise, but it does not guarantee future value.
ISO
Incentive stock option.
A US option type that can receive favorable tax treatment if requirements are met, but exercise can create AMT exposure when the spread is large.
NSO
Non-qualified stock option.
A stock option type often taxed differently from ISOs. NSOs are commonly taxed on spread at exercise, depending on jurisdiction and circumstances.
AMT
Alternative Minimum Tax.
For US ISO holders, the spread between strike price and fair market value can count toward AMT even before shares are liquid.
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