Module
Equity 101
5 min read
What "equity" actually is
Equity is part-ownership of the company you work for. Not all of it. Usually a small slice. The slice can grow if the company grows, and disappear if it doesn't. That's the whole pitch.
Why companies grant it
Two reasons. Cash conservation: equity costs the company nothing today. Alignment: if you own a piece of the upside, you're more likely to care about the upside. The second reason is the better one.
What FMV means before there's a market
At a private company, your shares aren't traded anywhere, so the company hires an outside firm to estimate their value. That estimate is called a 409A valuation in the US. It's what your strike price is set against. The actual market price (when there is one) can be much higher or much lower. Treat the 409A as a tax number, not a financial forecast.
Vesting, briefly
Vesting is how you actually earn the equity over time. Most grants vest over four years with a one-year cliff, but everything is negotiable and a lot of grants don't follow that pattern anymore. Your grant has a vesting start date. Read it.
Educational only. Not tax, legal, or financial advice. Talk to a qualified advisor.